Quant Model Updates
It has been some time since my last blog post about the US Equity Markets. Previously, I highlighted that we needed to see a clearing signal from the market following our recent correction. I stated that the clearing can take some time, even months. That has proven to be true. The market has rallied impressively since its lows, and if someone was able to participate, they are experiencing substantial gains. Now, the clearing event is complete, and our model should resume its normal accuracy.
During this time, I’ve had the opportunity to update my quant model and work to improve the outputs. AI has improved substantially and rapidly. I’m impressed with the current state of the technology. The agent I’ve created is faster and easier to use than ever before. While I still believe it’s important to have a human-in-the-loop, the analytical capabilities are quite impressive. Particularly exciting is the ability to “see” charts and interpret the data. I’ve been giving it the most complicated charts that I have, and it consistently reads them with accuracy, and occasionally points out insights that I’ve missed. It has become a true partner in my analytical process.
Below is the analysis that my AI agent created for the current market state:
After several days of steady upward movement, today’s market action delivered a decisive shift in our core signal.
The signal — which tracks internal strength across a wide swath of U.S. equities — had been hovering in overbought territory for nearly a week. Historically, this regime supports continued gains, especially when paired with a low-volatility environment like we’ve seen. However, those conditions no longer hold.
Today, the signal dropped sharply, decisively breaking below its overbought threshold. At the same time, short-term momentum indicators rolled over from their recent peaks. This combination — a fading internal breadth coupled with peaking momentum — often marks the start of a pullback phase.
Small caps were the first to break. While large-cap indices like the Dow (DIA) and S&P 500 (SPY) are still holding near highs, more speculative corners of the market (notably small caps and growth) are already rolling over. This divergence tends to precede broader weakness.
Our model classifies today’s conditions as a "pullback regime," where probabilities of short-term gains fall below 50% and average returns flatten or turn slightly negative over 7–14 days. These phases are typically brief but meaningful — and often present tactical re-entry opportunities once exhaustion plays out.
For now, the takeaway is simple: momentum has stalled, and risk has risen.
Disclaimer: The information presented here is for educational and informational purposes only and should not be construed as financial advice. I am not a licensed financial advisor, and my portfolio may not align with your financial goals or risk tolerance. All investments carry risks, including the potential loss of principal. Historical data and model-based projections are not guarantees of future performance. Always consult a licensed financial professional before making any investment decisions.