If markets are lined up to start a (new) trend, investors better do not ignore the signals.

Typically, trends last between 18 to 24 months. If investors are correctly positioned at the start of a new trend, they can make an awful lot of money in that period of time … by doing nothing (simply holding onto their positions). Imagine the profits of a short position in crude oil between September 2014 and January of 2016.

One of the important pitfalls, however, is that investors ignore new trends, as they are focused on past trends. In the last 24 months, for instance, U.S. stock indexes basically have gone nowhere. That was a consolidation period. Investors tend to hold onto their belief that this will continue even if the market is sending one signal after another that it wants to move from a consolidation to a new trend.

What matters most in all this is the primary trend. If investors can read what the primary markets forces are, they will be largely rewarded. In the last 24 months, crude oil was the primary market force, pushing commodities much lower and creating panic among equity investors. That trend has run its course, and a new trend is starting ‘as we speak’.

The new primary trend, according to the signals the market is emanating, is a ‘risk on’ sentiment based on rising yields. That may sound hard to believe, right at a time when interest rates are going negative and gold is exploding, but there are several indicators suggesting our point of view:

• gold is hitting major resistance, as explained here
• stock market internals broke out and started a new bull market rally in April and June, as shown here
• yields have reached rock bottom levels not seen in many years, see here

At the same time, stocks indexes are breaking out.

Moreover, from a timing perspective, a new cycle is due. As the Dow Jones chart shows, the 18 to 24 month cycle is very consistent for a long time. That is not an argument on its own to suggest a new trend, but, combined with all other data points explained above, it simply confirms that all data points are lined up for a new uptrend in stocks.

We see U.S. stock markets going much higher in 2016 and 2017. We emphasize “U.S. stock markets” as the setup in the U.S. is by far the most interesting and powerful one.