Nine reason why this rally has legs

November 04, 2023 at 15:21 PM EDT

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 “neutral” on 28-Jul-2023)*
Trading model: Bullish (Last changed from “neutral” on 27-Oct-2023)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. 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. This rally has legsLast week, I outlined bullish and bearish scenarios and estimated their odds at 70% and 30%, respectively. The bulls won.

A relief rally was more or less inevitable. Once the S&P 500 violated a rising trend line that began at the COVID Crash bottom, it scared the daylights out of the bulls and caused a panic. The weekly slow stochastic touched 10, which has marked either important bottoms or tactical bottoms in the past.

I believe the combination of a severely oversold condition, washed out sentiment and the lifting of market concerns will spark a durable rally into year-end. I can think of nine reasons why this rally has legs. The reading of 10 on the weekly slow stochastics is just the first. The full post can be found here.