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Articles by Troy

Announcement: BullMarkets.co is now a part of SentimenTrader.com

9 days ago

Hi everyone,
I’m excited to announce that effective immediately I will join and publish content on SentimenTrader.com. Jason and his team at SentimenTrader approach trading in a similar way as I do: thorough quantitative analysis that uses historical data to guide future trading decisions.
I will be publishing my “market stats” and trading models at SentimenTrader.com. The format will be similar to what you’re used to seeing here at BullMarkets.co:
Blog posts for market stats
Individual webpages updated on a daily basis for the trading models
This transition will take some time, so please be patient with us during the process. I will probably start to publish market stats on SentimenTrader this week, and the models will be ported over to SentimenTrader over the coming days.

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What is the wild bond market saying about the stock market?

11 days ago

While the stock market’s decline isn’t extreme by any means, other related markets seem to show heightened fear. The correlation between stocks, bonds, and gold has been strong recently. Risk-on days see stocks & yields go up, while gold falls. Risk-off days see stocks & yields go down, while gold rallies. Today’s headlines:
Double volatility spikes
Stocks & bonds: part 1
30 year bond yield sinking to a new low
Both yield curves
Stocks & bonds: part 2
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Double volatility spikes
Here’s how a correction usually plays out:
The first wave in which the S&P goes down, VIX explodes and makes a high.
But as the S&P keeps going down, VIX’s spikes

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Macro Index Model (NASDAQ 100 version)

12 days ago

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Weekly update: our models & indices right now

13 days ago

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Market outlook: is this a V-shaped recovery?

13 days ago

The stock market bounced this week after it tanked last week on trade war news. Is the stock market making a V-shaped recovery? Probably not.
Technicals (short term, next 1-3 months): mixed. If I had to assign a probability to a V-shaped recovery, it would be < 40%
Technicals (medium term, next 6-9 months): mostly bullish
Fundamentals (long term): no significant U.S. macro deterioration, but the long term risk:reward doesn’t favor bulls.

Technicals: Short Term & Medium Term
*For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

6% corrections
Traders usually define “corrections” as S&P declines that exceed 10%. I usually define them as declines that exceed 6%, because most 6%+ declines have at least 2 DOWN waves.
*I’m

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August 9, 2019: leading indicators macro update

14 days ago

Instead of trying to predict when the economy will deteriorate in the distant future, we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Financial conditions
Loans
Inflation-adjusted new orders
Heavy Truck Sales
Inflation-adjusted retail sales
Neutral
Corporate profits
Negative factors
Housing
Yield curve
Average weekly hours
High yield spreads
Earnings revisions
Conclusion
Overall, macro points to continued economic growth. A recession is unlikely to start within the next few months.
Right now, the most likely start date for a recession is in 2020. If macro remains decent when

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Is the stock market making a V-shaped recovery?

15 days ago

The U.S. stock market continues to rally. V-shaped rallies are uncommon, but not impossible. Today’s headlines:
V-shaped bounce
Volatility is falling
% of stocks above their 50 dma is rising
AAII sentiment crashed
NAAIM sentiment crashed
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

V-shaped bounce
The S&P fell 6 days in a row, and is now up 3 days in a row.

When this happened in the past, the S&P often bounced over the next month. More importantly, V-shaped bounces were almost exclusively bullish for the S&P 9 months later.

Volatility
But as I said, V-shaped recoveries are not very common.
VIX has fallen more than 25% in just 3 days from a 2 month high.

When this happened in the

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Comparing the NASDAQ vs. the S&P 500

16 days ago

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Market’s flight-to-safety: should you buy stocks now?

16 days ago

The stock market and bond yields recovered today from an early morning decline. Meanwhile, financial markets have exhibited some extreme flight-to-quality over the past few days. Today’s headlines:
Lots of gaps
Put/Call ratio remains high
Flight to quality: part 1
Flight to quality: part 2
Similarities between today and 2016
Bullish Percent falling to a new low
Gold spiked (again)
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Gaps
The S&P 500 has gapped a lot recently on the open. Gaps are common in a:
News-driven environment
Stock market crash (big swings during non-market hours)
The past 7 days have seen 4 opening gaps that are greater than 0.4% (absolute value %).

Similar

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Was the recent stock market top just another false breakout?

17 days ago

The stock market bounced today, recovering some of yesterday’s losses. From a big picture perspective, the stock has gone nowhere since January 2018. Many traders are once again asking “is the recent breakout just another false breakout”? Today’s headlines:
Trendless stock market
Down volume
Short term breadth recovery
Stock market’s risk-off stance
Recession probability

Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Trendless stock market
As Bespoke noted on CNBC, the S&P’s long term trend (200 day moving average) has been in a consolidation for months.

There are many different ways to define the phrase “200 day moving average has gone nowhere”. One such way is to look at the 200

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Should you be afraid of the trade-war market selloff?

18 days ago

The stock market tanked today on trade-related news. Some short term bullish signs continue to emerge, but these are not decisive. Among these short term bullish signs are other signs that suggest further short term selling. Overall, there is no clear selling exhaustion. Today’s headlines:
Financial markets: risk off
Volatility spike
Put/Call ratio spike
Economic barometer made 2 year low
Stocks down for a 6th day
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Risk:off
The S&P:gold ratio is a reasonably useful indicator that demonstrates the risk-on vs. risk-off mood of the market:
When stocks outperform gold, it suggests that market participants are generally bullish on future

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Weekly update: our models & indices right now

20 days ago

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Market outlook: is the stock market selloff over?

21 days ago

Last week we explained why the market’s short term outlook is bearish. The stock market is now making a pullback, and trade war news isn’t helping bulls. Over the past year, tariff-related news has not been good for stocks in the short term.
Technicals (short term, next 1-3 months): mixed
Technicals (medium term, next 6-9 months): mostly bullish
Fundamentals (long term): no significant U.S. macro deterioration, but the long term risk:reward doesn’t favor bulls.

Technicals: Short Term & Medium Term
*For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

Quick reversal
The S&P has fallen 5 days in a row immediately after reaching an all-time high.

While this doesn’t necessarily mean that the stock market’s bottom is in,

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August 2, 2019: leading indicators macro update

21 days ago

Instead of trying to predict when the economy will deteriorate in the distant future, we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Financial conditions
Loans
Inflation-adjusted new orders
Heavy Truck Sales
Inflation-adjusted retail sales
Neutral
Corporate profits
Negative factors
Housing
Yield curve
Average weekly hours
High yield spreads
Earnings revisions
Conclusion
Overall, macro points to continued economic growth. A recession is unlikely to start within the next few months.
Right now, the most likely start date for a recession is in 2020. If macro remains decent when

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The stock market fell and volatility spiked. What’s next

22 days ago

The S&P fell today on trade war-related news and volatility spiked. Today’s headlines:
More economic weakness in manufacturing.
Long streak of bad economic surprises
Stock market’s volatility spiked
AAII sentiment
Short term bounce ahead for stocks?
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

ISM
As we examined yesterday, manufacturing is a weak point in the U.S. economy (along with housing). The latest ISM manufacturing PMI data confirms this. ISM has fallen to 51.2

It’s easy to automatically assume that this is bearish for the stock market. Here’s what happened next to the S&P when ISM manufacturing PMI fell to 51.2 in the past.

Far from being bearish, the S&P went up 1 year

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When to buy gold: part 2

22 days ago

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Various bearish signs for stocks from the Fed, economy, and volume

23 days ago

Stocks fell today as the Fed cut interest rates. Today’s headlines:
Rate cut and stocks
The economic expansion cycle
Manufacturing weakness
Stock market’s volume
U.S. Dollar breakout

Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Rate cut
The Fed cut rates today for the first time in this economic expansion cycle. The Fed has cut rates many times over the past few decades, so if we just look at “what happens next to the S&P when the Fed cuts rates”, the answer is “anything can happen”.
That’s why when most traders look at how rate cuts impact the stock market, they usually apply a filter such as:
Fed cuts rates while the S&P is within -2% of an all-time high
Fed cuts rates for the

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Volatility is low while the Fed is about to cut rates. What’s next for stocks

24 days ago

The stock market’s volatility has been low for weeks. The Fed is about to make a late-cycle rate cut. Today’s headlines:
7 weeks of low volatility
Fed is about to cut rates
Consumer Confidence is high
Stock market’s seasonality
Gold miners overbought?
USD’s momentum
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

7 weeks of low volatility
As the WSJ points out, the S&P has not had a daily move greater than 1% in either direction (+ or -) in the past 7 weeks:

Such a long period of low volatility is slightly more bearish than random for the S&P over the next 2 months (below-average 2 month gain of 0.51%)…

… and is mostly bullish for VIX over the next 2 months.

Rate cut
The Fed is

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Medium-long term bullish case from a trend following perspective

25 days ago

The stock market is going nowhere as traders prepare for a rate cut. Today’s headlines:
The stock market’s MACD
S&P’s indecision is coming to an end
Put/Call remains very low
Finance stocks are finally going up
Materials are no longer lagging the stock market.
Go here to understand our long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Trend following: MACD
From a trend following perspective, traders should be long right now. If the stock market does make a short term pullback/correction, it will probably go up after that.
Here’s a monthly chart for the S&P 500. With 1 day left in July, the S&P’s MACD histogram is about to turn positive after being negative for more than half a year.

Historically, this was very

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When to buy gold: part 1

26 days ago

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Weekly update: our models & indices right now

27 days ago

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Market outlook: stocks’ next few months will be unlike the past few months

28 days ago

It’s been 7 months since the stock market’s December 2018 bottom, and the S&P has rallied 28% since then. The rally is slowing down, and it is unreasonable to expect the next 7 months to be like the previous 7 months.
Technicals (short term, next 1-3 months): lean bearish. Short term risk is higher than normal.
Technicals (medium term, next 6-9 months): mostly bullish
Fundamentals (long term): no significant U.S. macro deterioration, but the long term risk:reward doesn’t favor bulls.

Let’s begin with technicals because most traders prefer technical analysis over fundamental analysis.
Technicals: Short Term & Medium Term
*For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

Basic trend
The S&P is above its 20, 50, and

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July 26, 2019: leading indicators macro update

28 days ago

Instead of trying to predict when the economy will deteriorate in the distant future, we simply look for deterioration among the leading indicators. Instead of predicting the next 10 steps, we seek to predict the next 1-2 steps for the economy.
Here’s a brief summary of the leading economic indicators we track
Positive factors
Labor market
Corporate profits
Financial conditions
Loans
Inflation-adjusted new orders
Heavy Truck Sales
Inflation-adjusted retail sales
Negative factors
Housing
Yield curve
Average weekly hours
High yield spreads
Earnings revisions
Conclusion
Overall, macro points to continued economic growth. A recession is unlikely to start within the next few months.
Right now, the most likely start date for a recession is in 2020. If macro remains decent when January

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Sectors Model

July 25, 2019

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Many investors & traders expect a correction over the next few months

July 25, 2019

After a big 7 month rally, many investors and traders are expecting a pullback/correction sometime in the next few months. This begs the question: if everyone thinks this way, will they all be right? Today’s headlines:
A big 7 month rally.
“The stock market today is just like 1998.”
Volatility continues to fall.
Semiconductors v-shaped recovery
Gold:silver ratio continues to fall
U.S. Dollar’s extremely low volatility
These headlines are from CNBC:

Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

A big 7 month rally
It’s been 7 months since the December 24 low, and the S&P has rallied 25% since then.
After such a long rally, the next 1-2 months tend to be choppy.

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Risk:reward over the next few months doesn’t favor bulls

July 24, 2019

The past 7 months saw stocks and bonds surge together (bond yields fell). With stocks trending sideways, bond yields are also bottoming. Today’s headlines:
Yield curve un-inverted
Leading indicator for the economy & industrial production
Put/Call ratio tanked
Consumer Staples surge
This defensive sector is no longer outperforming
Silver’s golden cross
Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Yield curve
The popular 10 year – 3 month yield curve has turned positive after being inverted for 40+ consecutive days.

A steepening yield curve is typically more worrisome than an inverted yield curve. The yield curve tends to steepen in a recession, whereas the yield

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Breadth warning signs for the stock market’s rally?

July 23, 2019

As the stock market trades on light volume, various breadth indicators are flashing short term warning signs. Today’s headlines:
A real breadth divergence.
Weaker than average economic growth
Lagging margin debt
Baltic Dry Index surge
Gold:silver ratio
Netflix
Go here to understand our fundamentals-driven long term outlook. For reference, here’s the random probability of the U.S. stock market going up on any given day.

Breadth
With the major stock indices (S&P, Dow, NASDAQ) near all-time highs, various breadth indicators are flashing warning signs. One of these is the % of NASDAQ stocks above their 200 dma.
As you can see, fewer than half of NASDAQ stocks are above their 200 dma, while the NASDAQ Composite is near all-time highs. This suggests that many stocks are lagging the

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Where outperformance comes from

July 22, 2019

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Weekly update: our models & indices right now

July 21, 2019

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Market outlook: what you really need to know about the stock market

July 20, 2019

If you read financial news & market analysis from pundits every day, it’s easy to be overwhelmed by countless charts, data, indicators, opinions, etc. In this post, I’m going to focus on what I think really matters for the stock market right now. A quick recap:
Long term risk:reward does not favor bulls
Fundamentals (next 6-9 months): favors bulls
Technicals (next 6-9 months): favors bulls (i.e. late cycle rally)
Short term: mixed/bearish

Long term risk:reward
It is extremely hard to predict the exact top of each bull market or exact bottom of each bear market. Sure, some people get lucky once or twice. But no one can consistently and accurately predict each exact top.
That’s why it’s better to think about the long term from a risk:reward perspective. Risk:reward will not tell

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