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Select Industries gross composite fell 1.4% in April and is down 2.1% YTD.  Global Industries (based on Global Industries, L.P. gross return) fell 1.4% in April and is down 3.0% YTD.

Major Trend Index Positive: Net Equity Exposure Increased To 53%

Similar to March, Value was the only factor to perform well in April. Profitability, Momentum, and Volatility all had spreads worse than –5%. 

Based on data through the week ended April 22nd, on the back of a 100-point gain in the Momentum/Breadth/Divergence category, the Major Trend Index pushed a bit further into positive territory, rising 0.03 points to a 1.13 ratio. Leuthold tactical portfolios remain positioned with net equity exposure of 54%.

The Major Trend Index returned to bullish ground based on data through the week ended April 15th, rising 0.07 to a ratio of 1.10. While it’s a struggle to put together a compelling fundamental (and especially value-based) argument for U.S. equities here, we can’t ignore the improvement in the MTI and related models used for reinforcement. But prices move ahead of fundamentals, and perhaps the work is discounting better times in the months ahead (rebounding earnings?).

The Major Trend Index fell 0.01 to a ratio of 1.03 based on data ending April 8th, with moderate gains in the fundamental inputs (Valuation, Economics) offset by losses in components related to market action and investor psychology.

While net cash flows were negative for equity funds through February 2016 (not too surprising given the sharp equity market sell-off), bond funds collected net cash inflows.

Our AdvantHedge gross composite fell 8.9% in March, lagging the inverse performance of the S&P 500 (+6.8%), NASDAQ (+6.9%), and Russell 2000 (+8.0%).

Select Industries gross composite gained 6.4% in March and is down 0.7% YTD. Global Industries (based on Global Industries, L.P. gross return) gained 7.5% in March and is down 1.6% YTD.

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.