The S&P 500 is flashing one of my favorite bullish signals, for the first time since November 2020.
In fact, this signal has only occurred 4x in the past 10 years!
Here's the signal and why it's important:
Linear regressions are a common statistical tool, used in econometrics & finance.
I like to convert linear regressions into slopes and track the "rolling" linear regression. I calculate the trailing regression, then plot the point.
It's basically a moving avg. for regressions.
In the chart below, we're looking at the S&P 500 with two linear regression "curves" (aka slopes):
š” 55 weeks
šµ 89 weeks
Why these lengths? They're sequential fibonacci numbers & they give a decent gauge of medium-term dynamics (55 weeks is roughly 1 year).
Similar to moving average crossovers, I had a theory years ago that the crossover in linear regression slopes could provide bullish/bearish signals.
š” > šµ = bullish
š” < šµ = bearish
It's been an effective strategy within my overall toolbox of indicators.
Over the past 10 years, the S&P 500 is up +18.1% on year after this signal flashes (on average) and it's been higher 100% of the time.
The signal also flashed in July 2009, just two months after the actual bottom from the Great Recession (below). What a great time to buy stocks.
However, it's also produced failed signals within a bear market. Take the Dot Com Bubble as an example:
ā¢ Bullish crossover happened at the peak. Ouch!
ā¢ Bullish crossover happened in Dec.'01, then fell -33%.
ā¢ Bullish crossover happened in Apr.'03, just after the lows.
Like all indicators, this one isn't perfect.
As analysts, it's vital to take a "weight of the evidence" approach and analyze a variety of metrics, indicators, and signals that could strengthen or weaken the others.
This signal is bullish right now, but let's see if it works!
It's worth noting that I've also used this indicator for #Bitcoin in the past, both as a bullish & bearish signal.
I formally flipped bearish on BTC in May 2022 (still too late IMO), partially because of this crossover that I shared in real time:
twitter.com/CalebFranzen/statu...
@noremacback For me, bullish/bearish is a scale and isn't a binary "all in" or "all out".
Great to see that this signal is still developing in a bullish manner, for both the S&P 500 and the Nasdaq-100!
It's my proprietary study, so I definitely want to see it succeed while recognizing that statistics don't operate in a vacuum absent of macro/fundamental catalysts.
Here's the view of the Nasdaq-100 $NDX:
Sector:
From Twitter
Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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