The Trend Model is an asset allocation model which is applicable trend following concepts predicated on the inputs of global stock and commodity price. Update routine: I generally update Trend Model readings on my blog on weekends and tweet any changes during the week at @humblestudent. Going back couple of weeks, my designs for the united states collateral market is a bullish view, combined a set up for a rally of item and capital goods industries.
With respect to the first theme of the bullish equity outlook, I use the framework of the Zweig Breadth Thrust from the panic sell-off bottom of August and September (see Bingo! We’ve a buy indication!). In the framework of a strong momentum thrust from a market bottom, this graph is an excellent street map of what may happen next.
We have gone through a short time of consolidation and pullback. Generally, the market will grind up from here. Further, we are approaching an interval of bullish seasonality. Sentiment models are supportive of higher prices also. The NAAIM survey of RIAs show that sentiment has recovered from bearish extremes and they’re trending bullish.
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Risk appetite taken back slightly the other day, however they have further room to perform and portfolios are not fully invested. The BoAML Fund Manager Survey (FMS) implies that global managers remain underweight US equities, which signifies a prospect of a bullish stampede even as we enter an interval of positive seasonality along with the momentum tailwind of the Zweig Breadth Thrust.
I am also motivated by the latest readings from Barron`s of insider activity. We have seen fourteen days of heavy insider buying as the currency markets has pulled back and consolidated its increases. The combination of bullish momentum, positive seasonality and improving, however, not overbought, sentiment readings point to a grind up into year-end. Buy risk (and cyclicals)). That trade set up continue to develop.
Technicians know that the an oversold and wash-out market combined with indicators of reversal is a robust buy signal. We are beginning to see indicators of that today in the late-cycle industries. The BoAML FMS is instructive on sentiment. The very best three most packed investments of long USD, short commodities and short EM equities are correlated and total the same macro theme. Fund managers’ biggest over and underweight positions in accordance with their history reflect the unloved nature of these industries.
The elephant in the area has been China, but managers think that the China growth outlook is recovering and stabilizing. Week that Tom McClellan had determined a 10-month cycle in copper prices I pointed out last, which should be bottoming about now. McClellan also warned that he did not expect a durable bottom until we saw price capitulation, as assessed by the 10-day rate of change. Week We might have observed that last. Before, copper prices have tended to rally whenever the 10-day ROC hit -10% (marked by the vertical blue lines).