- I've decided to make a change in the way our reports are presented.
- Instead of one very long report, we will publish more concise daily reports.
- On Monday's we will review the primary market cycles and my favorite, big-picture market models.
Good Monday morning. After careful consideration, I have decided to make a change to the presentation of our market models and my oftentimes meandering morning market missives.
It has been brought to my attention that many websites now publish the number of minutes required to read the article. My brother, Mike, who is a skilled professional photographer at Michael Moenning Photography informed me last week that, according to LinkedIn, my report was an "18 minute read."
As you might suspect, my reaction to this news wasn't positive. In fact, I was horrified. The bottom line is I personally wouldn't want to spend 18 minutes reading ANYTHING - even if I did happen to be the author!
So, in keeping with the times, I've decided to create a series of more concise, bite-sized reports, which will be published on a daily basis. I've come up with the following publishing schedule:
- Market Model Monday - A review of my key market models designed to indicate the state of the primary market cycle
- Technical Tuesday - An analysis of the current state of the market's trend and momentum
- Early Warning Wednesday - An examination the potential for counter-trend moves
- Thesis Thursday - My take on the key market drivers (or whatever else may be running through my mind)
- Fundamental Friday - A look of the state of the market's fundamental factors
It is my sincere hope that you find the new schedule easier to consume and more beneficial to your investing endeavors.
Primary Cycle Market Models
We start each week with a review of the primary stock market cycles and our favorite long-term market models. The idea is to enter the week with a clear understanding of what type of market we are dealing with.
The Current State of the Primary Stock Market Cycles
* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.View the Primary Cycles Board Online
The Secular Market Cycle
A secular bull market is defined as a period in which stock prices rise at an above-average rate for an extended period (think 5 years or longer) and suffer only relatively short intervening declines. A secular bear market is an extended period of flat or declining stock prices. Secular bull or bear markets typically consist of multiple cyclical bull and bear markets. Below is a monthly chart of the S&P 500 Index illustrating the current cycle, which we estimate began on March 9, 2009.
S&P 500 - MonthlyView Larger Chart
The Cyclical Market Cycle
A cyclical bull market requires a 30% rise in the DJIA after 50 calendar days or a 13% rise after 155 calendar days. Reversals of 30% in the Value Line Geometric Index since 1965 also qualify. A cyclical bear market requires a 30% drop in the DJIA after 50 calendar days or a 13% decline after 145 calendar days. Reversals of 30% in the Value Line Geometric Index also qualify. Below is a weekly chart of the S&P 500 illustrating the current cycle, which we estimate began on March 24, 2020.
S&P 500 - WeeklyView Larger Chart
The Current State of the Primary Cycle Market Models
We have hand selected each model for this board and have utilized several of the models in our daily work for decades. Each of the models on the board is designed to provide a standalone reading of market health and each has a strong historical record of staying on the proper side of the market's primary trend. Taken together, the Primary Cycle Model board is intended to help determine the overall "state of the market."
There are no changes to report on the Primary Cycle board once again this week. However, it is worth noting that our Leading Indicators Model is teetering. This model is a series of 10 indicators that have historically shown tendencies to lead the market at major turning points. The good news is the current "signal" from the model is "buy." The bad news is the current reading is very close to turning negative. This doesn't mean it will slip into the red, but since this model has been known to provide timely sell signals, it is something I am watching closely. Overall, I continue to believe the Primary Cycle board supports the idea that stocks are currently in the midst of a cyclical bull market and suggests that the bulls should be given the benefit of any doubt.
* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.View the Primary Cycle Model Board Online
Thought For The Day:
Feed yourself positive thoughts; you can do positive things. Feed yourself negative thoughts; you do negative things. --Dr. Robert Schuller
Wishing you green screens and all the best for a great day,
David D. Moenning Founder, Chief Investment Officer Heritage Capital Research
At the time of publication, Mr. Moenning held long positions in the following securities mentioned: None - Note that positions may change at any time.
Primary Market Models Explained
Leading Indicators Model: A group of indicators that have historically shown tendencies to lead the market at major turning points.
Intermediate-Term Market Model: A composite model-of-models focused on trend and momentum indicators which has been designed to provide identify intermediate-term trading opportunities. The model includes 38 independent indicators covering price trends, volume, breadth, momentum, historical cycles, sentiment, and mean reversion.
Risk/Reward Model: A model-of-models designed to provide an overall view of the state of the risk/reward environment. The model includes tape, monetary, and sentiment indicators as well as 7 big-picture market model readings.
Desert Island Model: If I was stranded on a desert island with access to only one market model to manage money with, this would be the model. The model is a comprehensive model-of-models comprised of trend, momentum, mean reversion, economic, monetary, sentiment, and factor-based indicators/models.
Global Risk Model: A series of indicators designed to gauge the relative risk tolerance of the global investment environment.
Fundamental Factors Model: A model-of-models designed to provide a reading on the "macro state" of the environment. The model is comprised of indicators/models in the areas of monetary conditions, the economy, corporate earnings, inflation, and stock market valuation.
NOT INVESTMENT ADVICE. The opinions and forecasts expressed herein are those of Mr. David Moenning and Heritage Capital Research and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.
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