The Zweig Breadth Thrust (ZBT) is a variant of the IBD Follow-Through day pattern, but on steroids. Steven Achelis at Metastock explained the indicator this way [emphasis added]:
A “Breadth Thrust” occurs when, during a 10-day period, the Breadth Thrust indicator rises from below 40% to above 61.5%. A “Thrust” indicates that the stock market has rapidly changed from an oversold condition to one of strength, but has not yet become overbought.
According to Dr. Zweig, there have only been fourteen Breadth Thrusts since 1945. The average gain following these fourteen Thrusts was 24.6% in an average time-frame of eleven months. Dr. Zweig also points out that most bull markets begin with a Breadth Thrust.
Monday’s strong NYSE breadth has pushed the ZBT Indicator into buy signal territory.

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

I got some pushback from a reader to my weekend post (see How to spot the bear market bottom) about the FT Alphaville article indicating that former Secretary of Defense Mattis raised concerns about how the White House lacked a decision making process. The reader went on to defend Trump’s decisions.
I try very hard to remain apolitical on this site. Everyone is entitled to their own opinion, but there is a distinction between a decision, and a process. Here is an example from the investment realm. Josh Brown recently ranted about people “who called the correction”. Click this link if the video is not visible.

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Josh Brown’s main complaints can be summarized as:
Anyone can make a market call. If you are wrong, very few people will remember, or you can delete your

Mid-week market update: Happy 2019 to everyone. The post-Christmas period started off with a bang. After bottom out on December 24, the stock market enjoyed four consecutive days of gains – until today when it was spooked overnight by a series of disappointing PMI prints.
The Caixin Manufacturing PMI fell to 49.7 from 50.2 (50.0 expected), indicating contraction. As a reminder, the Caixin PMI differs from China`s official PMI as the Caixin measures mostly the activity of smaller companies, while the official PMI measures the activity of larger SOEs. 

Beijing has responded to past episodes of weakness with a stimulus program, but the stimulus announced so far has been underwhelming, as it has consisted mostly of targeted tax cuts. Anne Stevenson-Yang of J-Capital observed that China

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

The year is nearly over, and it is time to issue a report card for my investor and trading models. Overall, both had good years, except for the trading blemish at year-end.
My inner investor could not have asked for much more. He was correctly bullish during the run-up from early 2016, and turned cautious at the January top. He turned bullish again as the market corrected in February, and became cautious again in August (see A major top ahead? My inner investor turns cautious).

The cautiousness turned into bearishness in early December when my Ultimate Market Timing Model flashed a sell signal after a 10% drawdown (see A bear market is now underway). As a reminder, the Ultimate Market Timing Model is a very slow turnover model that changes its views only every few years. It was

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”
My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model

Mid-week market update: I had expected to begin to wind down and relax for the holidays this time of year. Instead, we got a bloodbath in the stock market.
To say that the market is oversold is an understatement. Sure, standard measures indicate oversold conditions, such as the VIX Index had risen above its upper Bollinger Band. Interestingly, the VIX Index failed to rise today despite the carnage in the stock market, which could be a sign of hope for equity bulls.

The Fear and Greed Index is also showing extreme conditions.

Oversold markets can become more oversold. How oversold? This report from UBS puts the velocity of the sell-off into context.

Here is the full chart from UBS:

Rebound ahead?
Here is what happened next. Out of the 14 instances, 8 of the following

In a past post (see Pax Americana or America First?), I showed how the combination of the unequal sharing of productivity gains and the inward looking America First policies were eroding US competitiveness, and raising the fragility of the post-WW II Pax Americana boom.
Even though the US and China appears to be locked into a Cold War 2.0, I would like to demonstrate how both countries appear to be locked into paths that will eventually stall their growth.

Andy Haldane’s about face
We begin the story with the Bank of England’s chief economist Andy Haldane, who recently made a remarkable speech to some students at Oxford. Haldane said that he had changed his mind about the drivers of economic growth:
I thought I understood the story of economic growth, its drivers and determinants. But

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?” 

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: This market is becoming increasingly jittery. Indeed, the chart below shows that the stock market moves more per dollar traded than usual, indicating a lack of liquidity. 

This indicates that volatility is likely going to increase. Such an environment can be both profitable and trying for traders, as I have both good news and bad news from the sentiment front. 

Long-term complacency = More downside risk
Let us start with the bad news. My former Merrill Lynch colleague Fred Meissner of The FRED Report is finding signs of long-term complacency in the Investors Intelligence data, and readings are similar to levels observed before the Crash of 1987.

The Investor’s Intelligence poll has three categories: Bulls, Bears, and those expecting a correction. We only

December is the season for investment advisors and portfolio managers to meet with their clients. Here are some thought on your an allocation framework as you prepare for those meetings. As a cautionary message, let’s begin with a “buy and forget” portfolio featured in Fortune in 2000 and how they performed by 2012. 

Haha. Experienced portfolio managers and advisors don’t make those kinds of mistakes. We all know that diversification is the only free lunch in investing.
For the simple answer on personal investing, I refer readers to a Business Insider article by Chelsea Brennan, “I spent 7 years working in finance and managed a $1.3 billion portfolio — here are the 5 best pieces of investing advice I can give you”:
Understand your goals
Index fund investing is the easiest way to

I have been engaged in a running debate about the possibility of a Trump Put in the market. My friend believes that Trump is likely to pull back from a full-scale trade war with China, as it would tank the stock market and increase the likelihood of a recession. The Republicans lost the House in 2018 with the unemployment rate at 3.7%. A recession in 2019 or 2020 will not only lose them the White House, but probably both houses of Congress. Trump wants to avoid that scenario at all costs.
The WSJ reported that Trump has been glued to the stock market and therefore highly sensitive to price gyrations:

As the stock market churned this week, President Trump anxiously called advisers both inside and outside the White House looking to ensure that his talks with China were not driving the

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: In the wake of the Powell speech last week and the FOMC minutes, the market implied odds of rate hikes have plunged. While the base case calls for two rate hikes by June, the odds of a once and done policy after a December hike is rapidly increasing, while the probability of three more hikes by June has plunged. 

Curb your dovish enthusiasm. 

The Fed is abandoning forward guidance
I believe the market is reacting erroneously to the Fed’s new policy of abandoning forward guidance. They simply are not going to tell you where they think rates are going anymore.
The initial reaction to Powell’s speech was the Fed Funds rate was just below neutral. What he really said was:

Interest rates are still low by historical standards, and they remain just below the

Last week, Donald Trump tweeted his dissatisfaction with General Motors’ decision to close four US plants.

I feel his pain. Indeed, wage growth in Old Economy industries have been stagnant for quite some time.

The WSJ wrote an editorial in response:
President Trump believes he can command markets like King Canute thought he could the tides. But General Motors has again exposed the inability of any politician to arrest the changes in technology and consumer tastes roiling the auto industry.
I agree. Trump’s 1950’s framework for analyzing the economy has become outdated. The world is moving on, and investors should move on too.

The death of P/B
Notwithstanding the pros and cons of the decisions of GM management, here is the message from the market. Jim O’Shaughnessy of

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: I suppose that this may sound counter-intuitive now that the market is undergoing a relief rally, but Ralph Acampora warned about a possible Dow Theory sell signal about two weeks ago should the DJIA decline to break its March lows. 

What are the odds that the Dow will test its March lows, or break them to flash a sell signal? 

Here are the bull and bear cases. 

The bull case
I have highlighted extreme levels of equity bearishness in the past, in the form of AAII sentiment and the NAAIM Exposure Index, so I won’t repeat myself. Another data point of a crowded short appeared this week in the form of II sentiment. The bull-bear spread has fallen to levels not seen for two years. 

Helene Meisler also very succinctly summarized the bull case last

Is the Fed about to blink? There has been a growing chorus of analysts like Kevin Muir at The Macro Tourist who thinks so.
It is clear to me the Federal Reserve was intent on raising rates until something broke, and that last week enough things “broke” that they finally blinked.
What broke? Muir mentioned a number of possible triggers. First, there is the dire picture of global asset returns this year.

He also cited:
The collapse in oil prices;
Widening credit spreads; and
Political pressure from the White House (the WSJ reported that Trump expressed displeasure with Treasury Secretary Steve Mnuchin for his recommendation of Jerome Powell for the position of Fed Chair because the Fed’s tightening policy).
As a result, the trajectory of Fed Funds expectations has collapsed.

Muir

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?” 

My inner trader uses the trading component of the Trend Model to look for changes in the

I normally don’t comment on individual stocks because I don’t have the resources to analyze a zillion companies in detail, but here is a Black Friday thought on Apple, which kicked off a revolution in consumer electronics and created new product categories when it unveiled its iPods, IPads, and iPhones. The share price of Apple have cratered on reports of poor iPhone sales. The chart is a bull’s nightmare. It broke down through the 190 key support level, and violated a long-term uptrend. 

In some ways, AAPL is turning out to be a Rorschach test for investors and traders. 

Different perspectives on AAPL
Bespoke`s chart depicts the history of the stock’s drawdowns since the inception of the iPhone. Is the current weakness a buying opportunity, or the signs of a busted growth stock

Mid-week market update: In light of the US holiday shortened week, I thought I would do one of my periodic sector reviews to analyze both sector leadership and the implications for stock market direction.
As a reminder, 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 rotates to lagging groups (bottom left), which changes to improving groups (top left), and finally completes the cycle by improving to leading groups (top right) again.
The latest RRG chart shows the defensive

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?” 

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: Even as stock prices weakened this week, the market appears to be setting up for a year-end rally. The SPX is exhibiting a number of positive divergences. Both the NYSE and NASDAQ new lows are not spiking even as stock prices have fallen. In addition, the percentage of stocks above their 50 day moving averages (dma) are making a series of higher lows, which are all bullish. 

What are the risks and opportunities in positioning for a year-end rally? 

The bull case
The tactical bull case is relatively easy to make. Sentiment is becoming washed-out. The latest Investors Intelligence bull-bear spread is at levels seen in recent intermediate bottoms. 

SentimenTrader also observed that Rydex traders are panicking, which is contrarian bullish. 

I recently

In the past week, a number of readers have expressed the conviction that US-China trade tensions are likely to ease in the near future at the upcoming Trump-Xi meeting, which will occur at the sidelines of the G20 meeting November 30-December  Bloomberg reported that American farmers are so hopeful that they are storing significant amounts of their soy crop for future sale. What are the odds that will happen?
Certainly, there are some signs of a thaw. The strength of the USD Index indicates that there is more room for CNYUSD to decline further. But the PBOC dropped a pledge to allow the market to play a larger role in setting the exchange rate in its latest quarterly monetary report, which is a signal that the central bank is prepared to intervene to cushion yuan weakness. 

While

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: The midterm election performed roughly as expected. The Democrats regained control of the House, and the Republicans held the Senate and even made some gains. Is this bullish or bearish for equities? It depends on your time frame.
Here is my outlook from a strictly chartist’s viewpoint, starting with the long-term to the short-term.
From a very long-term perspective, the negative monthly RSI divergence and MACD sell signal is too worrisome to be ignored. These conditions suggest that the market is making a broad-based top.

The latest MACD sell signal is unlikely to be resolved with a minor 2015 style correction. The technical breach of the relative performance of bank stocks, which was accompanied by a similar relative support violation of the regional banks,

The CBOE Short-Term Volatility Index (VXST) measures volatility over a 9-days. In effect, it’s the 9-day VIX, which measures 1-month volatility.

VXST closed at 21.17 last week. indicating that the market expects an annualized volatility of 21.17% over the next 9-days. When I translate that to a weekly volatility by taking the 52nd root (52 weeks in a year), it comes to 1.1%. That figure seems low for several reasons. First, the SPX rose 2.4% last week and its low to high range was 5.9%. The midterm elections on Tuesday could pose an unknown event risk. As well, we have an FOMC meeting on Wednesday and Thursday, which could also shake up markets.
The higher than normal probability of disruptive events creates fat tails for market returns. Fat tails could mean fat profits for

Preface: Explaining our market timing modelsWe 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 Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, “Is the trend in the global economy expansion (bullish) or contraction (bearish)?”

My inner trader uses the trading component of the Trend Model to look for changes in the

Mid-week market update: Will investors get tricks or treats this Halloween?

Here is the good news. The sentiment backdrop was sufficiently washed-out for a reflex rally to occur. For some perspective, I refer readers to Helene Meisler’s recent Real Money article:
Long time readers know I am not known for my sunny disposition when it comes to markets. I am a contrarian; when we’re going up, I look for what can take us down and when we’re going down I look for what can reverse us back up.
But it struck me when I took the mute off the television on Monday how really bearish everyone was. All of a sudden no one is interested in buying the dip. No one is even interesting in “picking.” All of a sudden everyone is talking about at least a revisit of the February lows or more.
Remember when