A Momentum-Driven Start to 2026

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 26-Nov-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.

 

 

A Dow Theory Buy Signal

It is said that there is nothing more bullish than a fresh high. The U.S. stock market achieved the rare feat of printing all-time highs in both the Dow Jones Industrials and Transportation Averages at the same time. In case you didn’t fully understand the implications, that’s a Dow Theory buy signal.
 

 

Simultaneous all-time highs are rare in the Dow Industrials and Transports. In the past century, the market has been higher nine months later 100% of the time (n=12).
 

 

Global markets are also supportive of an intermediate bullish impulse. The accompanying chart shows the MSCI All-Country World Index (ACWI) and the MSCI All-Country World Index Ex-U.S. (ACWX) shown in USD. Both recently reached all-time highs. ACWX has been stronger than ACWI, indicating relative outperformance by non-U.S. stocks. This is what global momentum looks like.
 

 

The U.S. market is exhibiting signs of short-term price momentum; 25% of the S&P 500 exceeded their upper Bollinger Bands. A historical study shows that such episodes have resolved in gains over a 3–4-week time frame.
 

 

 

More Room to Run

I believe the bulls have more tactical room to run. Sentiment readings are in neutral territory and not stretched.
 

 

Market internals like the NYSE McClellan Oscillator (NYMO) are not overbought.
 

 

 

Macro Tailwinds

The equity bull case is enjoying a macro tailwind. Global monetary policy is undergoing an easing cycle, which is supportive a cyclical rebound.
 

 

In addition, G3 fiscal policy is expansionary, which should be supportive of higher stock prices.
 

 

 

Key Risks

The risk to the intermediate-term bullish outlook is investor disappointment. Jurrien Timmer at Fidelity observed, “The consensus going into 2026 seems to be that the US will run it hot, from a combination of fiscal policy and a dovish Fed. The output gap (actual GDP vs potential GDP) is now the highest in 25 years.” Elevated growth expectations is a set-up for market disappointment.
 

 

Investors will see the first test of growth expectations when Q4 earnings season begins next week. So far, forward 12-month EPS estimates are rising strongly.
 

 

Keep in mind, however, that mid-term election years are notorious for equity drawdowns. The S&P 500 has seen an average drawdown of -18.2% in the 12 months before the mid-term elections.
 

 

In conclusion, evidence of strong price momentum is intermediate-term bullish for equities. My technical outlook is further supported by twin macro tailwinds of easy monetary and fiscal policy. However, growth expectations are high and the market is vulnerable to disappointment and the propensity for large drawdowns during mid-term election years.