The Bull Plateau: The Pulse As Of December 1, 2023

Introduction

There is a special market, which means either “a bear-market rally” or “a bull plateau”. Bears hug the former, whispering “Do not rally too long”, while bulls do a red-carpet welcome to the latter, cheering “Stay longer, at least for 3 years”.

Historically, the market has been extremely bear-biased:

“We did a good job of naming a bear market when the market dives sharply (and it’s exciting), while a bull market when the market moves steadily and smoothly upward month to month year after year (and it’s boring).

As a consequence, the media and commentators are fond of reporting about Bears not Bulls, so that most investors tend to follow Bearish Stories than Bullish Ones, in turn, to lean more shorter terms by chasing sweet bear-market recommendations, and hot-tipped riskier equities in short terms.”

(From “A Bear? Or A Bull? It Really Doesn’t Matter”, Sep 12, 2022)

The Focus

How long do we expect the bull plateau to remain in the current condition? What kind of symptom can we detect when the plateau is at the final stage? What data points can we deploy when we want to measure the pulse of the plateau’s life line?

The focus of the post is to find the true answers of the above questions.

The Current Market Cycle and the Current Business Cycle

Per the idiom “the end justifies the means”, where “the end” is measuring the pulse of the Bull Plateau, and “the means” are “1) the current market is the super-bull market [SBM], started in March 2009, and 2) the current upswing is the great expansion [GE], stated in June 2009”.

As the author, I sincerely suggest that all readers, bears or bulls are better to adjust the market positions to the 2009 origin, by disregarding 1) the “NBER (National Bureau of Economic Research) recession” and ensuing “bear market” in March 2020, and 2) the “expansion”, stated in March 2021.

After a few years with the bull plateau, I expect a “bear market” and about six months later a “recession”. The stock market is a leading indicator and the business cycle is coincident indicator. Hence a bear market first and a recession follows, as in 2009, not the other way around.

The Covid-Pandemic, however, turned this sequence upside down by the “invalid NBER recession” and a “wrong bear market”, and a “fake expansion”, and a “false bear market’ again, in my opinion.

Any readers want to know the original source of the PPO approach, Uptrend, and related indexes, such as the “TDI” or the “SDI” click here.

Two Rocket Launches in Mar and in Oct 2023

The PPO approach has evolved as an invaluable momentum/trend tracking method since Sep 2022. The approach has traced the somewhat weak uptrend in Oct. 2022, but the uptrend was overturned in Dec 2022. The January effect helped the uptrend become reinstated. but in Feb, the aggressive bear attacks almost overthrew the uptrend which barely survived.

Finally, the Uptrend skyrocketed on Mar 31 (Friday), 2023. For six months between Sep 2022 and Mar 2023, any clever algorithms or fundamental or technical analyses have been mostly silent on the momentum/trend front.

Investors have been quite misoriented because of the Pandemic Recession [PR] of the NBER in Mar 2020. The PR was short lived for one year until Mar 2021. Most investors thought the expansion, starting in Mar 2021, was an expansion in a bear market. Normally, a bear market, as a leading indicator, leads to a recession (not an expansion). Here, clearly the sequence was disordered. The “current expansion” is 2 years-and-eight months old now, but a recession is not expected in the foreseeable future.

In fact, the GE, starting in Jun 2009, wasn’t stopped by the hiccup of the Covid-Pandemic, and the “PR” in my view. The current SBM started, three months earlier, so we have to go back to 2009. We witness a right sequence: A bull market started first, and an expansion followed three months later.

Since Mar 2023, most investors, bears or bulls, have ridden the “bull/expansion bandwagon” together. All crowds are not in unison: ordinary bulls, confusing bears, desperate short-sellers, naming a few. As a consequence, the market has boiled fiercely, as a hot pot cooks an inedible soup.

Bulls have 14.5 years+ since the SBM and GE (starting Mar 2009 and Jun 2009, respectively), while Bears have a 13 months old bull (starting in Oct 2022) and 2-years-and-8-months old expansion (starting Mar 2021).

As a result, the market has been unsettled until Oct 30 (Monday), 2023, when the second rocket launched towards the bull plateau, following the first one on Mar 31, 2023.

In the current special market, there is a third animal in addition to Bears and Bulls, which I’ve coined “Pigs”. Most investors do not know what Pigs are, although some of them might be in the “pigs camp”. Bears and bulls can make money but Pigs can’t.

In the bull plateau (or the bear-market rally) where almost major securities don’t proceed much, the traditional long/short investors possibly would be identified as in this group because they would not set any reliable trading strategies in this climate. The second candidate would be some investors who lack any clear market taste, bullish or bearish, missing a properly signified investment goal, so they would buy any securities, from time to time.

Pulse Check #1 by The TDI (Trifecta Distribution Index)

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The trifecta has been an accurate monitor of the current Uptrend from Sep 2020 to date. Since the last week of Dec 2022, the multiple trifectas ratcheted the stock market, an extension of the PPO approach has been demanded to reconcile the current Uptrend, and to give investors more broad and feasible evidence.

In Jan, upward movements of the trifactor were significant enough: the “Market Insider [MI]” advocated to buy the market. The actions of MI didn’t consider the negative effect of the minus trifectas (“Tms”), so the Bull advance in the later months was harmed by Tms.

In Feb Bears and bulls tied. Bears threatened the then Uptrend, which was re-started in Dec 2022, making almost another toppling of It. SPY and QQQ, whose overlapping is just 46%, fell quite a lot, leading by descending tech-giants

The bear-camp investors, nevertheless, believed that 1) The market’s steady advance was “a bear-market rally [BMR]”, meaning “short-lived.” The so-called BMR, however, had been steady and resilient, strengthening advocate month after month.

The reason was obvious: The market was not in a “bear” market but was in a genuinely strong Bull market, starting in Mar 2009. Finally, they revolted because of their frustration

The last month of 1Q, Mar, recovered the bullishness, right next from Feb, when the market was upside down. Historically, the end of Quarter, half Year or Year has been strong. Then Mar nicely repeated the history. In May, the battle was much escalated, and bears made the first win, after a tie in Feb

A Signal was Proudly on in Jun: Trifecta occurred in six days (Jun 07, Jun 08, Jun 09, Jun 12, Jun 13, and Jun 14) in a row. This was extremely rare.

Table 1 exhibits a very high level of bullishness: Bulls vs. Bears are 14 (= 13 (Nov) + 1 (Dec)) vs. 3 (= 3 (Nov) + 0 (Dec)), as of Dec 01.

We want to stay on the plateau as long as possible. Therefore, any one-sided score is not good with either bull’s or bear’s favor.

Pulse Check #2 by The SDI (Sector Diffusion Index)

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The TDI has nicely reached readers. The quite positive response encourages me to examine capturing the rotation trend of 11 Sectors of SPY, comparing other equal weighted ETFs, Russell 2000 ETF, and mid-cap ETFs.

12 years ago, I published my first article in 2011. At that time, every day, I posted my TANER (which stands for “Topping, Advancing, Neutral, Ending, and Reversing.”) TANER has several Diffusion Indexes with 40 stocks, 40 short-term bonds, Vanguard ETFs, and so on. Many investors followed my TANER.

In Jun, I extracted 11 Sectors of SPY for six months. It was an awesome volume of data. I compiled them on EXCEL, and made the Diffusion Indices for six months in 2023.

The PPO approach recently has contributed on 1) the Momentum/Trend Analysis, 2) The Trifecta Distribution Front in particular. As the third contribution, the PPO approach to monitor the stock-market breadth and turning direction.

Uptrend, Trifecta Front, and Diffusion Index have a common thread of the PPO approach which distinguishes any movement with a plus (“P”) and a minus (“m”) without considering the size differences.

In any special situations with any external shock such as oil embargo or Covid Pandemic or internal impacts of over-tightened monetary policy and undue fiscal expansion, the PPO approach has worked to fill the vacuum of traditional approaches.

Every day 11 SPY sectors together make a Diffusion Index [“DI”] which oscillates between 0% to 100%. If all 11 sectors rose, the DI is 100%, and if all fell, DI is 0%. We have 11 sectors so we don’t have an exact 50%. The DI also indicates market breath which mean how tightly the components stick together. As DI goes advocate more sessions, more weeks, more months, the breadth is more accurately revealed.

Table 2 reports 62% as of Dec 01. The SDI has increased steadily in recent months. In the same token, we want the SDI to remain at around 50% in the future in order to avoid a high level of pulse.

Pulse Check #3 by the Uptrend

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Table 1 prints as “P” had edge over “m” on 6″P”s (1), 5”P”s (1), and 2 “P”s (1), while ‘m’ had only on 3”m”s (1) and 1”m” (3), summarizing that bulls vs bears are 16 (=15 (Nov) + 1 (Dec)) vs 6 (= 6 (Nov) + 0 (Dec)), as of Dec 01.

Table 2 reported the Friday votes as “P” vs “m” was 6 vs 3. This secondly criterion supports the above primary one, as a similar fashion.

Putting two Tables together, the current 8 months old Uptrend firmly rides on the bull plateau, but we really want the Uptrend to somewhat slowdown in coming months

The Market Perspective in 2023 and Beyond

Recently (Dec 01, 2023), the S&P 500 closed at its best level since Mar 2022. The index failed to cross 4,600, reaching 4,599. The Nasdaq and the DJIA (Dow Jones Industrial Average) printed gains of 0.6% and 0.8%, respectively.

The 2-year Treasury Note yield sank 14 BPs (basis points) to 4.56%, and the 10-year Treasury Note yield registered 13 BPs lower at 4.23%. Recently, the Treasury Yield Curve has shifted downward and flattened more, being more bullish and less inclined to a recession.

The stock market is expected to advance steadily on the Bull Plateau, with the SBM and the Uptrend until perhaps 2026.

The Conclusion

This is the first physical for the Bull Plateau. The health of our Plateau depends primarily on a sound and proper pulse, as human beings.

I do gladly deduce that our Plateau is not only healthy now but also probably will perform well for at least 3 years. More physicals are scheduled. I didn’t do this kind of work before, so I am on the learning curve. The more assess results, the better ideas and practices.