Executive Summary:

There are times when it can be difficult to make sense of the contrasting messages from market models and the price action playing out on your screens. For me, it is to understand/remember the time frame you are looking at. Obviously, if you are looking at a daily chart of a stock or market index, you are focused on the short-term action. And from a short-term perspective, it is clear that stocks are in some sort of correction/consolidation mode and the key question of the day is if the decline has run its course. However, our Primary Cycle Board looks at the market very differently as these market models are designed to identify the "primary trend" in play. Think bull versus bear. And the time frame utilized by these models tends to be intermediate- to long-term. So, for me, the review the Primary Cycle board each week helps keep the "big picture" in perspective. And for now at least, the green on the board tells me to give the bulls the benefit of any/all doubt here.

The Big-Picture Market Models

There is one change to note on the Primary Cycle board this week as the Fundamental Factors Model upticked from neutral to positive. While this may sound like a big deal, it was really just one of our monetary models moving up from high-neutral to moderately positive - which was enough to flip the Fundamental Factors model to the low end of positive. As such, I'm going to curb my enthusiasm for the change for now. The key takeaway is that despite the correction/consolidation playing out in the major indices, our favorite market models tells us to remain seated on the bull train and to use the scary pullbacks as opportunities to put capital to work.

View the Primary Cycle Model Board Online
* 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.

Checking In On The "Primary" Cycles

While I don't often make portfolio adjustments based on the long-term trends in the stock market (aka the "primary cycles"), I have found over the years that checking in on state of the cycles and the weekly/monthly charts helps to keep the big-picture in perspective.

View the Primary Cycles Board Online
* 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.

The Secular Market Cycle

Definition: A secular bull market is 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 - Monthly

View Larger Chart Online

The Cyclical Market Cycle

Definition: 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 - Weekly

View Larger Chart Online

Publishing Note: I have an early commitment tomorrow morning and will not publish a report. My plan is to post our technical review on Wednesday, the Early Warning work on Thursday, and our review of the Fundamentals on Friday.

Thought For The Day:

Nothing is more honorable than a grateful heart -- Lucius Annaeus Seneca

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

Disclosures

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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The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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