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). As this site is shutting down on March 31, 2026, my inner trader is retiring so that there will be no tradings outstanding at the end of the quarter. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 to 16-Jan-2026 is shown below, and the chart will no longer be updated.
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: Neutral (Last changed from “bullish” on 20-Mar-2026)
Poised for a Relief Rally
The tape of the S&P 500 looks dire. The index decisively breached its 200 dma and violated a support zone defined by its Q4 2025 lows. In the short run, it’s experiencing a series of positive divergences in the VIX and VVIX, which formed lower highs as the S&P 500 reached a lower low.
The market is poised for a short-term rebound, which President Trump may have triggered when he wrote late Friday on Truth Social, “We are getting very close to meeting our objectives as we consider winding down our great Military efforts…” The thinly traded Dow CFD contract is rising strongly, will investors see a V- or W-shaped bounce?
An Oversold Market
Here is the short-term case for an oversold rebound.
Three of the five components of my Bottom Spotting Model recently flashed buy signals. The VIX Index spiked above its upper Bollinger Band, indicating an oversold condition. The NYSE McClellan Oscillator (NYMO) fell to an oversold extreme. As well, the term structure of the VIX Index inverted, which is a signal of fear in the option market. Moreover, the intermediate term overbought/oversold indicator is within a hair of an oversold condition (bottom panel). Historically, two or more simultaneous buy signals have been sufficient to indicate a short-term bottom.
The NAAIM Exposure Index, which measures the sentiment of RIAs who manage individual investor funds, fell below the lower 26-week Bollinger Band. Based on the entire history of this index going back to 2006, such conditions have always signaled a tradable rebound.
I observed last week that the Zweig Breadth Thrust Indicator had become oversold. Pink vertical lines on the chart mark oversold conditions, and dotted blue lines are the ZBT buy signals. The market weakness late last week plunged the ZBT Indicator back into oversold territory again.
Panicked Enough?
On the other hand, a number of technical analysts have raised doubts about the longevity of any potential rebound. While bearish sentiment is elevated, they may not be panicked enough for a durable bottom, which opens the door to a W-shaped rebound in the near future.
The accompanying chart shows the 10 dma of the CBOE put/call ratio. While readings are elevated, they are nowhere near the panicked levels exhibited at the bottom of the “Liberation Day” panic.
The accompanying chart shows the percentage of bears from the Investors Intelligence Survey, courtesy of Fred Meissner. Meissner likes to look for spikes in bearish sentiment instead of the usual bull-bear spread because newsletter writers tend to have a natural bullish bias. Surges in bearish sentiment is what makes him sit up and take notice.
As the chart shows, the 10 week MA of bears is still very depressed and nowhere near the “Liberation Day” bottom, which I use as a benchmark. That said, the weekly reading of 24.1% bears is elevated, though it is not the panicked levels seen at past major bottoms.
Similarly, the level of portfolio risk taken by the respondents of the latest BAML Global Fund Manager Survey are in retreat, but sentiment is not extreme enough compared to past major bottoms.
From a longer-term perspective, the monthly AAII investor allocation survey, which asks members what they’re doing with their portfolio instead of their opinion, shows historically low cash levels, which is consistent with major market tops.
One key metric that stands out is the behaviour of corporate insiders. This group of smart investors have tended to step up and buy their own stock during periods of extreme market stress. While insider buying has risen, so has selling, indicating few signs of strong confidence. I would prefer to see the convergence in the levels of insider buying and selling as it did last April as a bullish signal.
Channelling Jay Powell
On top of that, I am seeing a developing stampede of strategists cutting their year-end S&P 500 targets and economists raising their recession odds, especially if Gulf War III were to continue. The post by Moody’s chief economist Mark Zandi is just one example of many.
On the other hand, a historical analysis from Deutsche Bank shows that the S&P 500 is within the geopolitical risk bottom window even as Gulf War III intensifies. On the other hand, the “consider winding down” Trump social media post may mark a turning point in market psychology.
There is much geopolitical uncertainty in the market. I am consequently channeling Fed Chair Jay Powell’s reply when he was asked about the effects of the energy spike on the economy and monetary policy, “I really want to emphasize that nobody knows. The economics effect could be bigger, they could be smaller, they could be much smaller or much bigger. We just don’t know.”
In light of the trend reversal, I am downgrading the reading on my Trend Asset Allocation Model from bullish to neutral. The Trend Model is based on a composite of signals from trend-following models as applied to global equity markets and commodity prices. Equity market trends were designed to measure the strength of different and important global economies, and commodity prices were designed to measured real-time market signals of global industrial demand, especially from China. I recognize that the latest episode of commodity price strength is reflective of a supply shock, and not the demand that it’s designed to measure.The downgrade in the Trend Asset Allocation Model is mainly attributable to the weakness in global equity markets. This model went risk-on last July, and equities have performed well since then. It’s time to take some chips off the table and re-balance portfolios to a more risk-neutral position. It is emphatically not a sell everything sell signal. Investors should take the opportunity to lighten up equity positions should the anticipated rebound materializes.
In conclusion, the equity market is sufficiently oversold that it is poised for a reflex rally which President Trump may have triggered when he wrote late Friday on Truth Social, “We are getting very close to meeting our objectives as we consider winding down our great Military efforts…”. The jury is still out on whether the anticipation rebound will be V- or W-shaped. In light of the elevated level of macro risk and uncertain technical backdrop, I am advising investors to reduce risk to a neutral level in their portfolios.
The global economy is built on energy and Hormuz is the jugular vein of energy. Iran can and will block it. Drone warfare has changed the battlefield. Air power can’t stop them. Gulf States are too vulnerable. Desalination plants are critical to their basic survival and Iran just threatened to destroy them if Trump enacts his 48 hour threat. Iran wants America out of the Gulf and Trump voted to a lame duck status in November.
The America market has held up due to recession proof technology growth stocks with future earnings strong. Value oriented industries and countries plunged. Last week fed funds futures shot up as investors finally started to facture in a long war with high inflation and resulting high interest rates. High rates equals lower PEs. That is when the Growth stocks join the bear market.
I don’t know how US politicians are going to put boots on the ground for this very unpopular war but if they manage to somehow do it, Trump would probably be invoking emergency powers to stop next presidential election.
As an early boomer I can attest that one become less risk tolerant with time. How this will manifest in view of this epic rise of the markets since 2009 as we fear losing this crazy pile of money I don’t know, but for me at least, it’s there.
Covid was an exception, in that the “unemployment” went sky high as people were told to stay home and the money helicopters started flying, and 2021 was peak exuberance so to speak. For many of us AI was unexpected , at least not expected so soon. I don’t believe what they say, THIS WILL COST JOBS!. As opposed to the Great Depression era where money was fixed to gold we have fiat and they will simply print and pay social support.
Why is it that we don’t see a forex crash ? Because we’re all in the same boat, except maybe Guyana with its small population and oil. Well, we’re all in the same boat with AI/robots, so it’s not that America will lose jobs to China, it’s everyone will lose jobs and have a lot of unhappy unemployed people…print money is the most palatable answer.
But how this will ricochet in the economy is a real unknown. Just as an example, consider how google makes tons of money due to search and advertising. What if people just use AI more to make choices? What does this do to advertising? A lot of money is spent there. The advertising world may change a lot which might make those paying for advertising save tons of cash because it’s pointless to advertise to AI because it already knows. Just an example.
We don’t know.
I have not seen destruction of money in huge quantities yet and they can print more. How this will play out, I honestly can’t figure out. “Hang on Ernie it’s gonna be a bumpy ride!”
Is there any possibility of you postponing your well deserved retirement a bit more (or even better until the war’s resolved)? 😀
As there’s some possibility that this could lead to a very volatile period I personally would be glad to pay higher fee.
Yup, we need a Rudder in these storms, so to say. =)
Cam will continue to write on the Fred website.