Back in June our proprietary quantitative model gave us a warning signal by dipping below the neutral bracket into what we consider mildly bearish territory (see the red line in the chart). The fact that the external models we follow were also behaving similarly had us somewhat concerned. However, that turned out to be a brief signal, as the model quickly reversed course and crossed the neutral bracket in just a few weeks, landing in mildly bullish territory last week. The message was again confirmed by the external models, which all turned up over the past couple of weeks.
In our model as well as in the external models, this latest improvement was mostly driven by technical factors, while other, more fundamentally-driven factors are lagging. In order to see the model move to full bullish readings, we would likely need to see a more widespread improvement in the data. However, as the market advance continues, it is more likely that some factors will deteriorate rather than improve. This would be consistent with a view that is prevalent within our team, that the current bull market could still have some upside potential, but that we are probably getting into the later innings of the game. For the time being, the models are still giving us an “all clear.” Historically, from mildly bullish readings, the S&P 500 return has averaged 6.7% over the following six-month period, with 66% of returns following between 14.4% and -0.8%.
Historically, from mildly bullish readings, the S&P 500 return has averaged 6.7% over the following six-month period, with 66% of returns following between 14.4% and -0.8%.
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