Prepare for the Year-End Rally!

Posted by Cam Hui -
Preface: Explaining our market timing models

We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

 

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

 

 

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don’t buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

 

 

The latest signals of each model are as follows:
  • Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)
  • Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)
  • Trading model: Neutral (Last changed from “bullish” on 31-Jul-2025)

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.
 

Subscribers can access the latest signal in real time here.

 

 

Risk Appetite Normalization

Last week, I observed that the stock market was on the verge of a buy signal. I got that signal this week when the VVIX, or the volatility of the VIX Index, dipped below 100 after a spike. This is a signal of reduced market risk appetite anxiety, which sets the stage for a market advance. In the meantime, the S&P 500 has been rising in a well-defined channel.
 

 

 

An Intermediate Bull Trend

The latest episode of elevated risk appetite anxiety was sparked by Trump’s surprise announcement of the imposition of an additional 100% tariffs on China. Now that the U.S. and China have achieved a trade truce, macro risk is receding and the stock market’s intermediate trend can reassert itself.
A review of my Trend Asset Allocation Model, which is based on the application of trend-following models on global stocks and commodities, shows the market has been in a bull trend since late June.
There is nothing more bullish than a new high. Global breadth, as measured by the percentage of world equity markets reaching an all-time high in the last month, is soaring, indicating strong momentum and a bull trend.

 

 

The S&P 500 and other major U.S. averages reached new highs last week. European averages are at or near fresh highs.
 

 

Asian markets are also showing similar signs of price strength.
 

 

Commodity prices are a bit of a mixed bag. Headline commodity indices have been trading sideways as they have been weighed down by the weakness in energy prices. However, the equal-weighted commodity indices are trending upwards, indicating broad cyclical strength.
 

 

 

Buy the Dip

Putting all together, the technical picture is a broadly based momentum-driven bull market. Tactically, the S&P 500 underwent an upper Bollinger Band ride and cooled off late last week. Past instances of upper BB rides have resolved in brief periods of consolidation that were good dip buying opportunities.
 

 

In addition, the market is entering a period of positive year-end seasonality. In light of the bullish support provided by the intermediate trend, investors should be positioning for a rally into year-end.
 

 

1 thought on “Prepare for the Year-End Rally!”

  1. Global stocks are floating on a surge of fiscal deficit spending in virtually every country. The K economy in America sees solid spending by well off people while low earners struggle. Technology stocks are supported 1000% by the Trump administration while companies serving regular folks aren’t.

    The stock markets are divided by consistent winners and losers. This is a perfect environment for momentum-style long ETFs and long/short alternatives.

    A potential big problem is the American wealth disparity has grown dramatically. To date that hasn’t caused stock market problems. But now in the immediate time frame, the SNAP food stamp program is running out of money with the government shutdown. Sixty million hungry Americans might get angry.

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