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November 7, 2024

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In Stocks

Short-Term Bearish Signal as Markets Brace for News-Heavy Week

4 Mins Read

Back in the day, I used to look at the weekly S&P 500 chart every weekend and ask myself the same three questions:

  1. What is the long-term trend?
  2. What is the medium-term trend?
  3. What is the short-term trend?

My goal was to make sure that I was respecting the broader market direction, and not fighting it by taking too many contrary positions in my portfolio.  I eventually realized through some trial and error that I could use a series of weekly exponential moving averages to get me to the same place, allowing me to spend more time focusing on what was coming next.

The Construction of the Market Trend Model

As I discussed with Mike Turner in a recent episode of the Market Misbehavior podcast, staying on the right side of market trends is arguably the most important role for any investor.  I realized that by comparing the 21 and 34-week exponential moving averages every week, I was able to clearly define uptrends and downtrends over long-term time frames.

Our short-term Market Trend Model turned bearish on November 1, 2024.

To try and address the lagging nature of such a long-form moving average combination, I added the 5 and 13-week exponential moving averages and found that the signals provided gave me a better signal to track what I consider the medium term time frame of about a couple months.  

I finally added a short-term signal, making a comparison of Friday’s weekly close to the 5-week exponential moving average.  As you can see from the chart above, the PPO indicator allows a very easy and visually attractive method to track these comparisons and recognize shifts from bullish phase to bearish phase.

The Short-Term Model Turned Bearish… Now What?

On Friday, November 1st, the short-term model turned negative for only the fourth time in 2024.  Previous bearish signals in August, July, and April had lined up quite well with tactical pullbacks within the fairly consistently bullish year of 2024.  But note how the medium-term and long-term models are still firmly in the bullish camp?

For now, the current configuration makes me comfortable labeling the current trend as short-term bearish but still long-term bullish.  As we’ve noted in recent weeks, the market breadth indicators I follow have certainly suggested a bearish tilt as they have trended lower into November.

But the point of the Market Trend Model is to show how short-term weakness can often occur within bullish primary trends.  The key is to differentiate between the garden variety “buy on the dips” pullback with a pullback that may be the beginning of a more significant drawdown.

Learning From Previous Market Cycles

Look back at 2021 for a similar example of long-term primary uptrend with a series of short-term bearish signals along the way.  Even as the S&P 500 a remarkably strong and low-volatility uptrend, there were a number of hiccups that caused the short-term model to turn negative.

The key in 2021 was that the medium-term and long-term models remained bullish, at least until they didn’t!  In January 2022, the short-term model turned bearish again, and a couple weeks later, the medium-term model pivoted to a negative signal as well.  The long-term model followed suit in May 2024. 

You can add the Keller Market Trend Model to your Market Dashboard!

For now, I’m watching the medium-term model closely for a potential bearish reversal.  If that comes to pass in November, that would mean that once again the market is resisting the normal seasonal tendencies and showing weakness where there is often strength.  But if the medium-term model remains bullish through year-end, that will tell me to remain positioned for potential further upside as the market trends remain positive.

I am a big fan of analyzing price action using subjective methods to evaluate trends based on the traditional tools of the technical analyst.  And I’m also a big fan of making life easier, using systematic trend-following models to make sure I’m on the right side of the primary trend in the markets!

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

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In World news

German chancellor fires finance minister, collapsing coalition government

4 Mins Read

German Chancellor Olaf Scholz fired his finance minister on Wednesday, leaving the government teetering on the brink of collapse.

In a televised address, Scholz said he had dismissed Finance Minister Christian Lindner saying it “was necessary to prevent harm to our country.”

The firing came after days of political negotiation between the key members of Germany’s ruling “traffic light” coalition government – Scholz of the Social Democratic Party, Lindner of the Free Democratic Party, and Robert Habeck of the Green Party.

Following the announcement, which comes amid fears that an incoming Trump administration could spell bad news for an already ailing German economy, Lindner’s Free Democratic Party said it had left the coalition but Habeck said the Greens would remain.

Scholz said he would now call a confidence vote for January 15, which could allow elections to be held by the end of March next year. He said he would remain in office until January 15 and attempt to get the most important legislation done, suggesting he would talk to opposition leader Friedrich Merz’ of the Christian Democratic Union (CDU) to pass legislation relating to the economy and defense. “The economy cannot wait until after the elections,” Scholz said.

The so-called “traffic light crisis,” as it is known locally in reference to the the colors of the governing coalition, was triggered by competing views on the future of Germany’s economy among the three partners.

Prior to his firing, Lindner had triggered days of wrangling with the publication of an 18-page economic paper published last week, entitled “Germany’s economic turnaround.” It had been described in German media as the coalition’s divorce papers, as its tone and contents appear distinctly at odds with the positions of his government partners.

In the detailed document, which advocates for tax cuts, Lindner said “an economic turnaround with a partly fundamental revision of key political decisions is necessary in order to avert damage to Germany as a business location.”

Aside from the divides it reveals with his coalition partners, cynics are also suggesting that Lindner’s paper looks like a campaign manifesto. Before Wednesday’s developments, Germany’s next scheduled elections were due to take place in September 2025.

The last time Germany had snap elections was in 2005, when they were called by Chancellor Gerhard Schroder, who subsequently lost to Angela Merkel.

Scholz told the press conference Wednesday that “Lindner showed no willingness to implement any of our proposals” and, therefore, “there is no trust basis for any future cooperation” with the outgoing finance minister.

The Chancellor also accused the finance minister of being “not about serving the common good but about serving his own clientele and party.”

According to Scholz, Lindner will also be dismissed by the country’s President Frank-Walter Steinmeier.

Speaking to reporters later Wednesday, Lindner said he had “recommended early elections as a solution to the budget impasse” – a proposal he said Scholz rejected.

Lindner also accused Scholz of having asked him to pause the “debt brake” – a constitutional article that prevents the government from borrowing excessively and amassing debt – something Lindner said he was not willing to do.

“After the US elections we need to show we can be relied on,” Scholz said, adding that “great financial room for maneuver” is needed given the challenges that Germany faces.

The news has been welcomed by far-right Alternative for Germany (AfD) party.

“The end of the traffic light coalition is a liberation for our country. The end of the self-proclaimed ‘progressive coalition’ that took Germany to the brink of economic ruin was more than overdue,” its leader Alice Weidel posted on X.

This is a breaking news story. More to come.

This post appeared first on cnn.com

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In Business

Amazon gets FAA approval for new delivery drone as it begins tests in Arizona

3 Mins Read

Amazon said Tuesday it received regulatory approval to begin flying a smaller, quieter version of its delivery drone, the latest step in its long-running efforts to get the futuristic program off the ground.

The company unveiled the new drone, called the MK30, in November 2022. It said then that the MK30, in addition to the other changes, would fly through light rain and have twice the range of earlier models.

Amazon said the Federal Aviation Administration’s approval includes permission to fly the MK30 over longer distances and beyond the visual line of sight of pilots. The agency granted a similar waiver for Amazon’s Prime Air program in May, though that was limited to flights in College Station, Texas, one of the cities where it has been conducting tests.

Alongside the FAA approval, Matt McCardle, head of regulatory affairs for Prime Air, said the company is starting to make drone deliveries Tuesday near Phoenix, Arizona. In April, Amazon said it planned to spin up drone operations in Tolleson, a city west of Phoenix, after it shut down an earlier test site in Lockeford, California. The company will dispatch the drones near one of its warehouses in Tolleson as it looks to integrate Prime Air more closely into its existing logistics network and further speed up deliveries.

An FAA spokesperson said the agency granted Amazon permission to conduct beyond visual line of sight deliveries in Tolleson on Oct. 31.

Amazon founder Jeff Bezos first unveiled plans for the ambitious service more than a decade ago, remarking at the time that the program could be up and running within five years. Despite Amazon investing billions of dollars into the program, progress has been slow.

Prime Air encountered regulatory hurdles, missed deadlines and had layoffs last year, coinciding with widespread cost-cutting efforts by CEO Andy Jassy. The program also lost some key executives, including its primary liaison with the FAA and its founding leader. Amazon hired former Boeing executive David Carbon to run the operation.

It has also encountered pushback from some residents in the cities where it is trialing drone deliveries. Residents in College Station complained about the noise levels enough that it prompted the city’s mayor to mention the concerns in a letter to the FAA, CNBC previously reported. In response, Amazon executives told residents the company would identify a new drone delivery launch site by October 2025.

Amazon is not the only company trying to crack delivery by drone. It is competing with Wing, owned by Google parent Alphabet; UPS; Walmart; and a host of startups including Zipline and Matternet.

This post appeared first on NBC NEWS

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