Again within the day, I used to take a look at the weekly S&P 500 chart each weekend and ask myself the identical three questions:

1. What’s the long-term development?
2. What’s the medium-term development?
3. What’s the short-term development?

My aim was to ensure that I used to be respecting the broader market course, and never preventing it by taking too many opposite positions in my portfolio. I finally realized, by means of some trial and error, that I may use a sequence of weekly exponential shifting averages to get me to the identical place, permitting me to spend extra time specializing in what was coming subsequent.

The Development of the Market Pattern Mannequin

As I mentioned with Mike Turner in a current episode of the Market Misbehavior podcast, staying on the proper facet of market tendencies is arguably an important function for any investor. I spotted that, by evaluating the 21- and 34-week exponential shifting averages each week, I used to be in a position to clearly outline uptrends and downtrends over long-term time frames.

Our short-term Market Pattern Mannequin turned bearish on November 1, 2024.

To try to deal with the lagging nature of such a long-form shifting common mixture, I added the 5- and 13-week exponential shifting averages. I discovered that the alerts offered gave me a greater sign to trace what I take into account the medium time period timeframe of a few couple months.

I lastly added a short-term sign, making a comparability of Friday’s weekly near the 5-week exponential shifting common. As you may see from the chart above, the PPO indicator permits an easy and visually enticing methodology to trace these comparisons and acknowledge shifts from bullish section to bearish section.

The Brief-Time period Mannequin Turned Bearish… Now What?

On Friday, November 1st, the short-term mannequin turned damaging for less than the fourth time in 2024. Earlier bearish alerts in August, July, and April had lined up fairly nicely, with tactical pullbacks throughout the pretty constantly bullish 12 months of 2024. However observe how the medium-term and long-term fashions are nonetheless firmly within the bullish camp?

For now, the present configuration makes me comfy labeling the present development as short-term bearish however nonetheless long-term bullish. As we have famous in current weeks, the market breadth indicators I observe have definitely advised a bearish tilt as they’ve trended decrease into November.

However the level of the Market Pattern Mannequin is to indicate how short-term weak point can typically happen inside bullish main tendencies. The hot button is to distinguish between the backyard selection “purchase on the dips” pullback with a pullback that could be the start of a extra important drawdown.

Studying From Earlier Market Cycles

Look again at 2021 for the same instance of long-term main uptrend with a sequence of short-term bearish alerts alongside the way in which. Even because the S&P 500 skilled a remarkably robust and low-volatility uptrend, there have been a variety of hiccups that induced the short-term mannequin to show damaging.

The important thing in 2021 was that the medium-term and long-term fashions remained bullish, at the very least till they did not! In January 2022, the short-term mannequin turned bearish once more, and a pair weeks later, the medium-term mannequin pivoted to a damaging sign as nicely. The long-term mannequin adopted go well with in Might 2024.

You possibly can add the Keller Market Pattern Mannequin to your Market Dashboard!

For now, I am watching the medium-term mannequin intently for a possible bearish reversal. If that involves move in November, that may imply that when once more the market is resisting the traditional seasonal tendencies and exhibiting weak point the place there may be typically energy. But when the medium-term mannequin stays bullish by means of year-end, that may inform me to stay positioned for potential additional upside because the market tendencies stay optimistic.

I’m a giant fan of analyzing value motion utilizing subjective strategies to guage tendencies primarily based on the normal instruments of the technical analyst. And I am additionally a giant fan of constructing life simpler, utilizing systematic trend-following fashions to verify I am on the proper facet of the first development within the markets!

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Analysis LLC

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your personal private and monetary state of affairs, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any means characterize the views or opinions of every other individual or entity.