Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

Did Cyclicals Just Confirm the New Uptrend

Dean Christians
2021-11-02
Let's assess the forward return outlook for the S&P 500 when cyclical industries are registering new highs.

In a note on 7/16/21, I shared a risk-off signal that identifies when a basket of cyclical industries fails to confirm a new high in the S&P 500. Typically, when economically-sensitive groups diverge from the broad market, forward returns fall below historical averages.

The S&P 500 index performed well after the non-confirmation signal from cyclical's as the federal reserve remained accommodative in the face of the latest Covid flare-up.

If we fast forward to the current day, participation from the same basket of cyclical industries looks solid. When I measured the percentage of cyclical groups registering a new 252-day in a 10-day lookback period, it returned a reading of 57% on 11/1/21. Please see below for the component list.

Let's assess the forward return outlook for the S&P 500 when the percentage of cyclical industries registering a 252-day high in a 10-day lookback period crosses above 50%. I screened out repeat signals by requiring the indicator to fall to 0% before a new instance could occur again.

CYCLICAL NEW HIGH COUNT COMPONENTS

  1. S&P 1500 Automobiles & Auto Components Industry Group
  2. S&P 1500 Transports Industry Group
  3. S&P 1500 Homebuilding Sub-Industry
  4. S&P 500 Consumer Discretionary Sector Equal-Weight
  5. S&P 500 Financials Sector Equal-Weight
  6. S&P 500 Industrials Sector Equal-Weight
  7. Russell 2000 Small Cap Index

As of 11/1/21, automobiles & auto components, consumer discretionary, financials, and industrials have closed at a new 252-day high within the last ten trading days. And, I would note that the Russell 2000 closed within ten basis points of registering its first new 252-day high since 3/15/21.

HISTORICAL CHART

If we focus our attention on the last two major uptrend periods between 2012-2015 and 2016-2017, we see several instances where cyclical industries confirmed the new highs in the S&P 500. I would also note the lack of signals during the 2018-2019 time frame when the federal reserve was tightening monetary policy. 

HOW THE SIGNALS PERFORMED

Results look good across all time frames with several notable risk/reward profiles, especially in the 2-week window. Please remember the following. Returns and consistency will not show ultra bullish stats when a model uses a 252-day high as a requirement. I would focus more on the risk/reward profiles, which look solid.

KEY TAKEAWAYS:

  • A signal occurs when 50% or more cyclical industries register a 252-day high in a 10-day lookback period
  • The model has a 74% win rate with a solid risk/reward profile over the next two weeks
  • The signal suggests the year-end rally can continue

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard
DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.