Marketview: A Quick Look at Trends

I was out of pocket most of the week travelling. I feel a bit behind the curve but does the narrative even matter anymore? My thoughts are fairly simple:

  1. We are in the mature phase of a bull run. If you’re just getting constructive and looking for monster moves now, your timing is late.
  2. It is impossible to know how long a bull market will last. Markets are predisposed to long-tails.

These two points may appear contradictory, and that’s fine. The market is designed to put you on tilt. If you’ve missed out on the bull run, you might be feeling the need to chase. The market looks invincible; doubters look like losers, and your inner monologue is saying, “What if it never pulls back?”

The other reaction is to bet against the herd. The market looks like a bubble, and you’re running crash scenarios in your mind because, “This market is overvalued and will crater any minute!” Bulls look like lemmings led to the slaughter.

Be careful with those two extremes. Take inventory of your emotions and look at the data.

When the $SPY has been above the 50-day moving average for a month (blue highlighting), what happens over the next 20-days (dark grey highlighting)? Notice that we are in this condition at the present time (light grey).



The screencap above is zoomed in for illustrative purposes. The screen is based on the last four years of the bull market.

The Alpha Curves below show the most dominant pattern is for momentum to continue to the upside (Patterns 1 & 2):


Regardless of your opinion, the Alpha Curves accurately depict the behavior of trends in this particular bull market. Of course, this screen doesn’t take into account where we are in the overall trend (VERY late in the cycle). However, it does do a good job of modelling what the long-tails of a trend typically look like (relentless upside). I have two takeaways on this data: 1. The market is expecting new highs, and it is very unproductive to fight the seasonal and momentum trends, 2. Although it is the far less probable outcome, a selloff would be so rare and unexpected that it would probably lead to a wholesale trend change.

Charts and analytics by (BETA)

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