VLT Signals

The tale of two markets has existed for years, but now it’s getting ridiculous.

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In the spirit of keeping an open mind, three months ago we observed that our S&P 500 VLT Momentum measure had triggered a “moderate-risk” BUY signal with its August reading.

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There was a major cyclical BUY signal (VLT Momentum) for the S&P 500 in late-May, and as of July’s close, that bullish development was reinforced by a new VLT BUY signal on the Russell 2000.

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Breadth underlying the 4-month upswing has been stronger than that observed during any other rally leg since 2013. Despite just a 14% correction in the S&P 500 from its peak, a new VLT “BUY” signal was triggered. Failed signals are relatively rare, the last one occurred in December 2001.

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Last month we wrote that a big March gain would trigger a Very Long Term (VLT) Momentum BUY signal on the S&P 500 (Chart). The month’s 6.8% S&P 500 gain wasn’t quite enough to do the trick, but we’re intrigued that VLT did issue BUY signals for three of the market’s cyclical sectors, including Energy, Materials, and Industrials.

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As expected, our VLT Momentum algorithm triggered a “low-risk” cyclical buy signal on crude oil in late October, only the 11th buy signal in the past 30 years. This algorithm was originally designed to identify low-risk entry points into the stock market, but we’ve found it useful with other assets as well.

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