Brief-Time period Bearish Sign as Markets Brace for Information-Heavy Week

Again within the day, I used to take a look at the weekly S&P 500 chart each weekend and ask myself the identical three questions:

1. What’s the long-term pattern?
2. What’s the medium-term pattern?
3. What’s the short-term pattern?

My purpose was to guarantee that I used to be respecting the broader market route, and never combating it by taking too many opposite positions in my portfolio.  I finally realized by means of some trial and error that I might use a sequence of weekly exponential transferring averages to get me to the identical place, permitting me to spend extra time specializing in what was coming subsequent.

The Building of the Market Pattern Mannequin

As I mentioned with Mike Turner in a current episode of the Market Misbehavior podcast, staying on the best aspect of market tendencies is arguably a very powerful position for any investor.  I noticed that by evaluating the 21 and 34-week exponential transferring averages each week, I used to be capable of clearly outline uptrends and downtrends over long-term time frames.

Our short-term Market Pattern Mannequin turned bearish on November 1, 2024.

To try to handle the lagging nature of such a long-form transferring common mixture, I added the 5 and 13-week exponential transferring averages and located that the alerts supplied gave me a greater sign to trace what I think about the medium time period time-frame of a couple of couple months.  

I lastly added a short-term sign, making a comparability of Friday’s weekly near the 5-week exponential transferring common.  As you may see from the chart above, the PPO indicator permits an easy and visually engaging methodology to trace these comparisons and acknowledge shifts from bullish section to bearish section.

The Brief-Time period Mannequin Turned Bearish… Now What?

On Friday, November 1st, the short-term mannequin turned damaging for less than the fourth time in 2024.  Earlier bearish alerts in August, July, and April had lined up fairly effectively with tactical pullbacks inside the pretty persistently bullish 12 months of 2024.  However observe how the medium-term and long-term fashions are nonetheless firmly within the bullish camp?

For now, the present configuration makes me snug labeling the present pattern as short-term bearish however nonetheless long-term bullish.  As we have famous in current weeks, the market breadth indicators I comply with have definitely urged a bearish tilt as they’ve trended decrease into November.

However the level of the Market Pattern Mannequin is to point out how short-term weak spot can typically happen inside bullish major tendencies.  The secret’s to distinguish between the backyard selection “purchase on the dips” pullback with a pullback that could be the start of a extra important drawdown.

Studying From Earlier Market Cycles

Look again at 2021 for the same instance of long-term major uptrend with a sequence of short-term bearish alerts alongside the way in which.  Even because the S&P 500 a remarkably sturdy and low-volatility uptrend, there have been quite a few hiccups that prompted the short-term mannequin to show damaging.

The important thing in 2021 was that the medium-term and long-term fashions remained bullish, at the least till they did not!  In January 2022, the short-term mannequin turned bearish once more, and a pair weeks later, the medium-term mannequin pivoted to a damaging sign as effectively.  The long-term mannequin adopted go well with in Might 2024. 

You’ll be able to add the Keller Market Pattern Mannequin to your Market Dashboard!

For now, I am watching the medium-term mannequin intently for a possible bearish reversal.  If that involves go in November, that will imply that after once more the market is resisting the traditional seasonal tendencies and exhibiting weak spot the place there’s typically energy.  But when the medium-term mannequin stays bullish by means of year-end, that may inform me to stay positioned for potential additional upside because the market tendencies stay optimistic.

I’m a giant fan of analyzing value motion utilizing subjective strategies to guage tendencies primarily based on the normal instruments of the technical analyst.  And I am additionally a giant fan of constructing life simpler, utilizing systematic trend-following fashions to verify I am on the best aspect of the first pattern within the markets!

RR#6,

Dave

PS- Able to improve your funding course of?  Try my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Analysis LLC

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation.  The concepts and methods ought to by no means be used with out first assessing your personal private and monetary scenario, or with out consulting a monetary skilled.  

The writer doesn’t have a place in talked about securities on the time of publication.    Any opinions expressed herein are solely these of the writer and don’t in any means symbolize the views or opinions of another particular person or entity.