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The MTI moved up into marginally Neutral territory in early March and continued to strengthen during the month, landing near the top of its Neutral zone as of the week ended April 1st.

Even though Low Quality spends the majority of time outperforming, investors benefit exponentially from holding High Quality during the bad times.

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.

A late March issue of The Economist proclaimed “profits are too high” and “America needs a giant dose of competition.”  Funny. NIPA Corporate Profits figures released that week show The Economist’s plea for lower profits had already been fulfilled—and not just in the latest quarter.

Last spring’s “Double Death Cross” in the Dow Transports and Dow Utilities had been partially reversed even before the February low, when the Dow Utilities’ 50-day moving average crossed above its 200-day moving average (thereby issuing a “Golden Cross”). The Dow Transports remain in a bear pattern based on the 50/200-day relationship, but the gap is closing fast.

We like to think our models and indicators help us preserve a high degree of market objectivity. But sometimes we wonder: the latest rally has progressed to the point where we see trouble afoot in both the strongest and weakest charts we can find.

If our market disciplines turn bullish in the weeks ahead, we’ll certainly follow that lead—covering remaining shorts, re-establishing a semi-aggressive market position, and wiping egg off our faces for having called a “cyclical bear market” that slammed the Russell 2000 (-26%), EAFE (-26%), and Emerging Markets (-37%)… but somehow not the one most followed, the S&P 500 (-14%).

The stock market rally off the February 11th lows has been powerful enough to lift the Major Trend Index into its Neutral zone (in fact, a high-neutral ratio of 1.04), and therefore certainly deserves some level of respect.

Two months ago, we suggested a short-term bounce in oil might prove to be the fundamental “hook” that would rationalize a bear market rally. We thought a bounce to $45 might do the trick—and oil futures essentially cooperated, reaching $41.90 on March 22nd.

The current environment will likely persist longer than most expect which will put further downward pressure on profit margins. As margins come under pressure, companies increase leverage to prop up ROE. However, the market wants higher duration, not higher leverage.

Group Selection (GS) Score strength among insurance-related industry groups has been a long-running theme within our quantitative framework.

An update on a topic we’ve covered twice before—the wave of U.S.-listed Chinese companies that were mulling over going private. Because of relatively large discounts to offer prices, the taking-private targets represent a unique lower-risk investment opportunity.

Food Retail & Distributors, Leisure Products, and Trading Companies & Distributors caught our eye this month.

With the exception of Value, March was a bad month for quantitative factor performance. Every other factor category we follow underperformed, with Momentum posting its second consecutive –5% spread.

The final month of 2015 earnings reports registered an Up/Down Ratio of 1.07. Once again, we have to go back to the dark days of 2009 to find a lower “three-month” ratio.

After spending two months in discount territory, in March the Ratio of Ratios headed closer to its historical median premium of 4%.

Signs of a leadership change are starting to spring up between Growth and Value. Since mid-2015, Mid and Small Cap Value stocks have outperformed Growth.

From the lows on February 11th to the end of March, the S&P 500 rallied nearly 14%, propelling the index into positive territory for the YTD. Our Equal Weighed Average sprung back to life in the past two months; the largest handful of firms are no longer driving performance.

We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.

We are getting more constructive on credits but we are still keenly aware of the highly volatile market environment and would recommend modest exposure to lower quality credits at this point.