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Part I: The World Market Model
The market type says “Bull Normal” but how does the market feel to you? To me, it feels more like . . . sideways abnormal? Let’s see what the World Market Model says at the beginning of June.
- Asia/Pacific markets are weak again and slightly weaker than in April.
- US stock market segments strengthened and now have no red segments. Two are now green. Large cap tech (QQQ) is one of the strongest symbols in the database with lots of money flowing in. Institutions and investors are excited about potential profits coming from the AI wave.
- Europe and Africa have come down from a solid bull direction in recent months to more sideways overall.
- US sectors have some spots of real strength—in tech, software and semiconductors. The average for everything else is mildly bearish.
- We might have to update the most talked about sectors. The Market Type SQN scores indicate they aren’t attracting talk or an inflow of funding. The exception seems to be BOTZ. Is that related to the hot segment and strong sectors?
- In currencies, USD is back in a bullish direction but Bitcoin (GBTC) and cryptos (GDLC) remain stronger. Chinese Yuan (CYB) is the weakest currency currently.
- The Americas markets are all positive this month.
Visiting the commodities table, we see a similar picture to last month with a spread of Market SQN scores. Natural gas (UNG) is the weakest issue while blended agriculture (DBA) is the strongest. But Global Agribusiness (MOO) is pretty weak. Most everything else has a score in between, without a strong trend up or down, with the exception of Base Metals (DBB) at -1.
Real estate and bonds across the board have gone from mildly positive in April to mildly negative in May.
Tech and growth symbols dominate the Top 15 List for May with twelve symbols and strong Market SQN scores. Two of the other symbols are Japan-related.
Banking symbols are frequent members on this month’s bottom 15 list. The rest are a hodge podge.
The S&P Market SQN score (100 days) went from sideways in April to bull in May. The sideways “bulge” for the entire database, however, shifted to a bearish bulge in May. At the same time, the database also went from 0% very bullish symbols to 4% very bullish. Other categories stayed within a percent or two of last month’s totals.
- Very Bullish – 4%
- Bullish –13%
- Sideways – 32%
- Bearish – 42%
- Very Bearish – 10%
Part II: The Big Picture
What we see overall at the beginning of June is a strong bull market in tech-related stocks and a continued sideways or slightly bearish direction for most everything else in the database (about 500 cross asset and global issues in total).
What will the Fed do next? Raise rates another 25 basis points or press pause? Will that be in June or July? There’s been at least the mention of a pause by Fed members recently.
Here’s a question: Does the timing of the eventual pause matter much? The yield curve inverted about seven months back. For recent decades, that inversion has led to a stock market decline on average and a recession. The timing and depths of those events vary a good bit, but statistical confidence for them happening is quite high. And we are in the window now.
That’s a bigger picture view. Shorter term, the markets close out the second quarter in a few weeks and, historically, summer is the least directional season in the stock market. Does that matter to your systems or to your trading?
Part III: The Current Stock Market Type is Bull Normal
May saw two changes in market type direction with three of the four measured periods now in sideways mode.
200 days – Sideways (Sideways for the last three months)
100 days – Bull (Sideways for the last four months)
50 days – Sideways (Sideways in five of the last six months)
25 days – Sideways (Bull last month)
While we measure all four durations, we use the 100-day period to label the market type. 100 trading days back puts the start of the period in mid-January. Looking at the price bars below, you can see the meandering but slight rise since then which explains the bullish Market SQN score this month.
The Market SQN chart below shows the score pushing higher since early May putting the line solidly in the bullish zone.
The 20-day ATR% seems to have bottomed out for the month, moving along the lower part of the normal range.
All the primary indexes are positive at the beginning of June. The NASDAQ pulls way ahead of the pack presently with a 39% gain in the calendar year. Are you participating in some way in that trend? Are you prepared to shift if that trend shifts?
Part IV: Van’s Four-Star Inflation-Deflation Model
Five of the model inputs changed from April until May. The final result swung from neutral/inflationary last month to mildly deflationary now.
Part V: Tracking the Dollar
The USD looks to be in a sideways mode until a trend in one direction proves stronger. The Fed’s next few interest rate moves and QT in relation to other central bank’s moves will likely help determine the next move for the dollar.
Conclusion
You read the headlines, you see the numbers, you trade. How does the market feel to you?
And then, what do you do with those feelings?
Van would advise that you feel the feelings. Acknowledge them. Let them express themselves . . . and then follow your process. What’s your process?
In our Systems Development Workshop (you can still sign up if interested), we are about to look at the big picture. Not so much from what the market is doing today—that has a limited value. Rather, we will focus on understanding how to develop a process of monitoring the big picture and how to use the resulting big picture view. Learning the process provides a lifetime of value.
The task starts with the belief that macro forces drive markets in the long term. You can therefore identify markets that are likely to be “attractive” to trade. But what does attractive mean? Well, different traders like different qualities. Some traders want trends. Others want volatility. Still others want different qualities.
Depending on the kind of trading you do, the process will vary by the particular factors observed and by the frequency of monitoring. Van started writing his monthly market update newsletter as a key element of his own big picture process and was happy to share his thoughts with the newsletter readers. He stressed that his big picture process matched his beliefs and he looked for factors useful to him. Someone with different beliefs might find the results worthless or even wrong. When you understand the foundational effects of beliefs on your views about the market (indeed about life overall), you can avoid a lot of arguments and become curious about the beliefs underlying the views.
The big picture process is not an attempt to predict what’s going to happen next but instead to provide a reality check about what’s actually happening. Notice your feelings about the market. Then, check the charts, run the numbers and do the work of objectively measuring markets. That process will help you determine market type which in Van’s trading process then helps you determine which market type-based systems to be trading now.
Your big picture process can also include some scenario planning about what might happen next – without predicting what will happen. Probabilities around various scenarios is a more useful approach in the markets (notice the belief) than thinking you can predict what will happen next.
Developing a process for your big picture provides a professional or business-like approach for your trading. One big shift for many traders who find VTI is learning they are better served by thinking like a business person in the business of trading rather than just being a trader.
To summarize:
Notice your feelings.
Follow your process.
Trade as a business.
Trade well and we’ll see you in early July.
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