Founder’s Note: Our man Down Under is back after a brief hiatus to hit the links, have some fun, and recharge the battery.
Quantitative Analyst Grant Hawkridge is all about simplicity, data, and perspective. Those things are always better than headlines, stories and panic.
Here’s Grant with more high-quality insights following his time away from the screens. – JC
By Grant Hawkridge
G’day, Grant here again.
I just took some time away from the screens.
Every year around this time, we have our annual golf trip. It lines up with the Melbourne Cup long weekend, which is Australia’s version of the Kentucky Derby, only louder and with a public holiday.
Our golf group is called The Melbourne Croatian Golf Club. I am not Croatian, but a friend invited me to play back in 2014, and I have been part of the group ever since.
I even ended up on the committee this year, though I still do not know how that happened.
This year about 45 of us made the trip up to Deniliquin, a small town about a three and a half hour drive north of Melbourne. We played three rounds in the heat, around 86 degrees Fahrenheit every day.
The golf was fun, but every year on this trip, I find the same thing. Stepping away from the screen is good for the mind and the body.
When you come back, you see things more clearly.
And what I see now is simple. The bull market trend is still intact, no matter what the headlines are saying.
The Trend Is Still Strong
The S&P 500 has now spent 132 consecutive trading days above its 50-day moving average.
That’s one of the longest stretches since 1996, a period that marked one of the strongest advances of the past three decades:
You don’t see that kind of persistence in bear markets. You see it in healthy, trending ones.
When price holds above support for this long, it tells you the primary trend is still dominant. Even with pullbacks, the underlying trend continues to show strength.
This is what healthy bull markets look like – long, consistent runs above key moving averages.
Risk-Off Ratios Are Not Rising
If the bull market were losing steam, we would see defensive areas like Consumer Staples and Low Volatility start outperforming.
This is what happens when investors get nervous. But that’s not what the data shows.
Both Consumer Staples and Low Volatility are sitting near all-time lows compared to the S&P 500:
These are the kinds of readings that appear when capital is still flowing into growth and cyclical areas, not retreating into safety.
If risk appetite was fading, these lines would be ripping higher. They are not.
That tells us the demand for risk is still alive and well.
Breadth Is Still Expanding
Under the surface, participation remains healthy.
The NYSE and NASDAQ Net New High Advance Decline Line has been rising since April:
That means more stocks are making new highs than new lows, and that’s the fuel bull markets run on.
Since 1970, when this breadth trend is rising, the S&P 500 has gained about 9.9% per year on average. When the trend is falling, annual returns drop to around 3%.
Right now, the trend is rising. This is not a sign of a weakening market. It’s a sign that it’s still a constructive one.
Perspective Over Panic
Taking a few days away from the screen reminded me how easy it is to get caught up in the noise.
When you’re zoomed in, every headline feels urgent, and every dip feels like the top. But when you step back, you see what price has been saying all along.
The headlines say the bull market is nearly over. The data says otherwise. Price is trending higher. Risk appetite is strong. Breadth is expanding.
That is not what tops look like. That is what ongoing bull markets look like.
Stepping away reminded me what every trader forgets sometimes. Clarity comes from distance.
The market rewards patience and process, not panic. When the noise gets loud, you do not see clearer by staring harder at the screen.
You see more clearly by stepping back and letting the trend speak.
The trend is still your friend.
And, right now, that friend is still working hard for you.
Happy hitting,
Grant Hawkridge
Quantitative Analyst, TrendLabs