Fresh Highs = Bullish Tape

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: Bullish (Last changed from “neutral” on 10-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.

 

 

A Bullish Breakout

It is said that there is nothing more bullish than an all-time high. The S&P 500 achieved that feat last week when it staged an upside breakout to a fresh high after making a panic V-shaped bottom in April. The 14-week RSI is not overbought, indicating further potential upside. The equal-weighted S&P 500 also made a marginal closing high for the week.

 

 

While I see some nervousness among traders, there is no denying that this is a bull market. Don’t fight the tape.
 

 

Global Breadth Support

The price advance is broadly based. 8 of 11 S&P 500 sectors made new 13-week highs last week, and five made new 52-week highs.
 

 

The rally is even global in scope. Even before the S&P 500 made its all-time high, Jurrien Timmer at Fidelity pointed out that the MSCI All-Country World Ex-U.S. Index was making new highs, in both USD and local currency terms. Breadth was solid, with 67% of international stocks above their 200 dma.
 

 

Global price momentum is strong. Callum Thomas at Topdown Charts also observed that countries who were up at least 20% from their 52-week lows (red line) had broken out to a fresh recovery high.
 

 

 

A Welcome Leadership Rotation

 

The initial leadership in the rally off the April bottom was driven by speculative growth names and meme stocks. Bitcoin, which is a real-time indicator of liquidity, rose, along with the relative performance of ARK Innovation ETF (ARKK), which is an indicator of speculative growth stocks.
 

 

As the rally progresses, I am seeing signs of a leadership rotation from growth to value, both internationally and across all market cap bands. This is a welcome sign of broadening breadth and indication that the current market leaders are handing the bullish baton to other parts of the market.
 

 

Even cyclical industries may be catching a bid. The relative performance of cyclical industries is either bottoming or starting to form relative uptrends. The emergence of cyclical leadership is a bullish sign of renewed economic growth.
 

 

Signs of a leadership rotation can also be seen in RRG charts. I use RRG charts to tell the story. Relative Rotation Graphs, or RRG charts, are a way of depicting the changes in leadership in different groups, such as sectors, countries or regions, or market factors. The charts are organized into four quadrants. The typical group rotation pattern occurs in a clockwise fashion. Leading groups (top right) deteriorate to weakening groups (bottom right), which then rotate to lagging groups (bottom left), which change to improving groups (top left), and finally complete the cycle by improving to leading groups (top right) again.

 

In the leading quadrant, investors can find the obvious suspects, such as large-cap growth, high beta and the speculatively-driven IPO stocks. Surprisingly, price momentum deteriorated from the leading to weakening quadrant. In the improving quadrant are all the small-cap stocks, such as the Russell 2000, as well as small-cap growth and value. In the lagging quadrant are mostly defensive factors, such as the Dividend Aristocrats (steady dividend growth), quality and low volatility stocks. Large-cap value is also a laggard.

 

This is a picture of a market rally led by growth and speculative growth, which are starting to lose momentum. The next group of leaders are expected to be small-cap stocks, as both small-cap growth and value are poised to assume the leadership mantle in the coming weeks. Defensive groups are still lagging, indicating that the bears are far from taking control of the tape.
 

 

When I apply the same RRG analysis to equal-weighted sectors in order to reduce the effects of the Magnificent Seven weights in the S&P 500, some of the growth to value rotation is already evident. The leading quadrant is technology, which is not a surprise. What may be a surprise are the presence of cyclical and value sectors such as industrial and financial stocks. Cyclically sensitive consumer discretionary and material stocks can be found in the improving sector. Defensive sectors are in the lagging quadrant, such as healthcare, consumer staples, utilities and real estate.

 

The conclusions are similar. A growth to value rotation is underway, and the bears are far from control of the tape.
 

 

 

The Paths Forward

I see two paths ahead for stock prices. The most bullish outcome is the V-shaped recovery. Jurrien Timmer at Fidelity highlighted how the current trajectory of the S&P 500 is following the lines of the LTCM bottom in 1998 and the Powell Pivot bottom in 2018.
 

 

A similar analysis from the Leuthold Group shows that stock prices are following the first year path off a recessionary bear market low, except that the April low wasn’t caused by a recession.
 

 

The caveat is analogs are useful until they fail, and they can fail without warning. The alternative path for stock prices is the realization of stagflation risk from tariffs, or lower-than-expected growth and higher-than-expected inflation, which will probably become evident in late 2025 and early 2026. It’s also consistent with my scenario of the window for a market stall that opens during the August–September period. Investors should watch for bearish tripwires such as weakness in small-cap and cyclical stocks.
 

In conclusion, the stock market is exhibiting a strong broad-based recovery. A leadership rotation appears to be underway from growth to value and cyclical stocks, which would be a welcome sign of broader participation in the rally.

 

The main risk to my bullish scenario is a failure in factor and sector rotation. Small-cap stocks may be too far developed in their rotation in the RRG chart to migrate from the improving to leading quadrant. Under such conditions, the rotation into cyclical leadership could fail. From a top-down perspective, this is consistent with my observation that the negative effects of tariffs will become evident later this year. It’s also consistent with my scenario of a market stall during the August–September time frame.

 

My inner trader remains long the S&P 500. The usual disclaimers apply to my trading positions:

I would like to add a note about the disclosure of my trading account after discussions with some readers. I disclose the direction of my trading exposure to indicate any potential conflicts. I use leveraged ETFs because the account is a tax-deferred account that does not allow margin trading and my degree of exposure is a relatively small percentage of the account. It emphatically does not represent an endorsement that you should follow my use of these products to trade their own account. Leverage ETFs have a known decay problem that don’t make the suitable for anything other than short-term trading. You have to determine and be responsible for your own risk tolerance and pain thresholds. Your own mileage will and should vary.

 

 

Disclosure: Long SPXL