How To Leverage The Miracle Of Compounding In A Secular Bull Market

In this week's video, we'll review the latest charts and data to help us better understand how to leverage the miracle of compounding in a secular bull market. As clients and regular viewers know, we are trying to navigate between a point A and a point B that could hypothetically be several years down the road. The same would apply here in the context of a secular bull market. We're trying to navigate between a point A and a point B that could be several years down the road. And the same applies to the present- day market. And we know that secular does not mean easy. Drawd downs even within the context of a secular trend are 100% normal and to be expected. Since the present- day base case is a secular bull market primarily driven by demographics that could last until 2035 and talk a little bit about asset allocation. What are we trying to accomplish in these secular bull market windows? And in a perfect world, if we had 100 investment options and we knew their performance between the end of 1949 and the end of 1968, between the point A and the point B, we would want to own the long-term leaders. Hypothetically, if you held SPY, assuming SPY existed in 1950, it did not. between the end of 1949 and the end of 1968 and you performed no trades between point A and point B. That's almost a perfect world in terms of leveraging the miracle of compounding. So leaders or leadership or what we want to own that's an opportunity cost topic. So the first question does the present day market look stable? If the answer is yes, the next question is what do we want to own? And we always want to maintain realistic expectations about how markets operate in the real world. In our hypothetical case, if you held SPY or the S&P 500 between 1950 and the end of 1968, there would have been a lot of gut-wrenching drawdowns along the way. However, this is the primary trend. This is a counter trend move. By definition, the primary trend, as long as it remains in force, will go on to print a higher high. So, if we were able to ride out this volatility as our balance dropped, eventually when we get up here, hypothetically, it would have been higher. The same is true for leadership. leadership experiences 100% normal and to be expected counter trend moves that occur within the context of even the strongest bullish trends. So from a leadership perspective, we don't want to buy counter trend moves. We want to own the positions or in the present day the ETFs. They're in primary uptrends. That's our goal. And when the market structure changes and we flip from a secular bull to a period of secular stagnation shown here and shown here, the odds are different. The odds are much more favorable in the blue boxes relative to the orange boxes. So in these periods of secular stagnation that can last a long time, 1969 to 1981, 2000 to the end of 2012, we want to diversify. We want to tone down our asset allocation. Our pie chart in this window should look significantly different relative to our pie chart in this window, and this window. Thus, in the present day, our pie chart for a secular bull market at some point will have to be adjusted for a period of secular stagnation. Now, let's flip back to the question of leadership. And some of the most common tools used by institutions to monitor leadership and to rotate between market leader A to the new market leader B. One common tool is the 10-month simple moving average shown in red here. It's a monthly chart of the S&P 500 in isolation. This is price in black. This is the 10-month simple moving average. That's what SMA means. So, how can the 10-month moving average be helpful from an asset allocation perspective? Now, we're looking at a ratio. This is foreign stocks, ACWX. So think of a

global index. They just take out the United States relative to SPY. So foreign stocks relative to large cap blend in the United States. This is a great setup down here. And there's no question there is observable, measurable, and meaningful improvement on this chart, the chart in front of us. How meaningful this is depends on your time frame and your strategy. In this environment, our time frame and our strategy is a very long time frame, potentially years, and our strategy is to stay with the market leaders as long as the market allows. Thus, for us, the commonly used 10-month moving average, the observable improvement on this chart and the observable improvement in the performance of foreign stocks relative to the S&P 500. How meaningful is that for us and what we are trying to accomplish? Let's take that 10-month moving average and port it to our time frame. Same time frame we kick the video off with. This is a monthly chart between 1949 and 2026. How useful would that 10-month moving average be for what we are trying to accomplish? The answer is not very useful. This is whipsaw city in here. Price is in blue. The 10-month moving average is in red. So, this wouldn't be very helpful in terms of trying to stay with the long-term leaders between point A and point B. If we were using this for leadership, this would be a lot of trading in our portfolio. Now, the 10-month moving average is still useful. We just have to understand how to use it in the context of what we are trying to accomplish. So, if this doesn't work particularly well on this time frame, what does? There's no magic bullet answer to that question. However, you might have surmised something slower. So, this is the 40month moving average in blue and the 60-month moving average in red. And this is the same time frame early 1950 lower leftand corner of your screen present day up here. Just visually this does a much better job relative to what we are trying to accomplish. If we wanted to hold on to the market leaders from point A to point B, blue is above red the entire time. And when we get into the period of secular stagnation, the moving averages look different. This looks discernably different in here relative to this window in here. And once again, helpful when we get the secular turn in 1982. Blue is above red the entire time for the entire secular bull market. helpful again in this window here, this period of secular stagnation where we want to diversify and tone down our risk. This period looks significantly different relative to this period here. And the present- day secular bull. In fact, bull looks a lot like this secular bull. And No magic bullets here. There's no free lunch in the markets. These are simply reference points. And we never make a decision based on two moving average pairs. We use a weight of the evidence approach. Having said that, this seems to align with at least a lot closer in terms of alignment relative to what we want to accomplish. We want to own leaders between point A and point B. Leaders, point A, point B. This looks a lot more useful than the faster 10-month moving average. So, what can we learn in 2026 relative to long-term market leaders? Even if we use the 10-month moving average, we can see for the most part this chart is moving from the upper left to the lower right. That's a downtrend, but it looks like it's trying to break that downtrend. This, if you've been studying charts for decades, looks a lot better than anything in the rearview mirror here. That is a factual statement. This is a

nice setup and it should be respected and we are respecting it. That's why we're talking about foreign stocks in this week's video and why we've been talking about them for several weeks and/or months. This could be a significant turn and we're open to that. But we also have to understand the chart that we're looking at here that's improved really doesn't align with what we are trying to accomplish. This is the same 10-month moving average. The blue is the S&P 500. This is the long-term chart that we looked at earlier. So on February 27th, 2026, question number one, how healthy does the S&P 500 look in isolation? Now, it's probably fair to say this looks like a secular bull market, at least if we compared it to the two periods of secular stagnation on your screen. So, it doesn't look like the long-term S&P 500 trend isn't out. And that aligns with our secular volatility model scores that we've been covering in recent weeks. And the same is true this week. These are good numbers up here. They tell us to try to relax and be patient. They don't predict anything. They tell us based on what we know today, the secular bull market at the moment is alive and well. Understanding that painful drawd downs absolutely positively have happened in the past in secular bull markets and they will happen again in secular bull markets. That's the bad news. The good news is your balance drops here. It's higher here. your balance gets whacked here, it's higher here. It gets drilled here, That's not really the case in these windows here. It's a lot more frustrating, a lot more difficult. This is a 12-ear window where the market, for the most part, goes nowhere. From 1969 into the early 1980s, for the most part, the market went nowhere. We don't treat this the same as this or this. So, we know relative to our time frame, the S&P looks good. Foreign stocks using the same time frame look good. That's exactly what we would expect in a secular bull market that looks healthy at the present time. This is the 40 and 60-month moving averages for foreign stocks in late February. Thus, the million-dollar question is, how do foreign stocks look relative to the S&P 500 on a time frame that's relevant to our time frame and goals and objectives? The answer, if we were to just look at these moving averages, this is very, very close to a fullbore bearish look. Blue, the fastest moving average is on the bottom. Red, the slowest top and the slopes for the most part are down. this. It really doesn't look anything like this or the secular window from 1950 to 1968. It really doesn't look anything like the secular window from 1982 to 2000. And it really doesn't look anything like the exact same moving averages in the context of a secular bull market in 2026. here. Blue, the fastest moving averages is on top. Red the slowest moving averages on the bottom. And the slopes are up. Now, none of this means that a turn isn't going to happen. What it means is that we have to be careful that we're not looking at a counter trend move. And we've already said this looks a lot better than anything that we've seen. Having said that, there have been counter trend moves in the past. And in every case, including this rally here in 2012, 100% of the outperformance was retraced. And in every case, 100% of the draw down was gained back and then some. 100% of the counter trend move was retraced after the higher high. Again, that's not going to be the case in the

same manner in a period of secular stagnation. Hence why we have the secular volatility model. This is what an uptrend looks like. This is what a long-term downtrend looks like. what an economically sensitive and techoriented semiconductors look like on the same time frame with the same moving averages relative to the market which is another way of saying have semis lost their long-term leadership trend in the context of this secular bull market given that SMH is beating SPY by 1. 67% 67% in the present day and blue the fastest moving average is on top. Red the slowest the bottom and the slopes are both up and the fact that visually this looks nothing like this. The answer is no. Semis have not given up their leadership trend in the context of the secular bull market. How about XLK, the tech sector, in terms of a time frame that aligns with our goals and objectives and our asset allocation strategy. How does the trend of XLK relative to SPY look at the end of February? If we're just looking at the moving averages, it's a fullbore bullish look up here. Blue, the fastest moving average on top. white space is increasing between the faster moving average and the slower slopes are strong. This is an indecisive market down here. This is a mini period of secular stagnation within the context of a bull behind it and a bull on the other side of it. Thus, in the present day, if this starts to morph into something more like this, it doesn't mean tech is dead. Fact, tech did quite well between January 1st, 2012 and the end of 2017. It just means spy did very well. They both made money. So, right now, the trend in XLK relative to SPY is strong. And the trend in spy in isolation is strong. Hence why we're trying to be patient. Also noteworthy about XLK, the tech sector. I noticed late today that XLK on a shorter term time frame has a gap in early February. We're still trading above that area in late February, meaning we haven't been making lower lows in the month of February. We've been consolidating lately. Signal just triggered. Source of this signal here. X handle here. XLK, the tech sector ETF for the S&P 500, just went 222 consecutive days without an RSI oversold signal. Meaning there has not been significant selling pressure in XLK. It's basically been moving sideways or treading water. And in the past, here are your signals over here. 6 months later, 100% of the cases XLK was higher for those that were patient. Gains right around 16%. 3 months out even 100% of the cases higher gains somewhere around 10 to 11% in XLK. 9 months out, 21. 58 and 20. 33 are the median and average gain for XLK after this signal. And even 12 months later, roughly 88% of the historical cases, XLK was higher. Median gain just under 27% a year later. Average gain 20. 15. So this is a reason, one reason, part of the weight of the evidence to try to remain patient. The look of XLK relative to SPY on February 27th in the context of what we're trying to accomplish is another reason to try to remain patient. Patient doesn't mean stubborn. Patient doesn't mean predict. We'll continue to take it day by day. same long-term time frame. We know foreign stocks in isolation look fine. They're having a great February and SPYG not having a great February. Down 3. 66%. But the trend fullore bullish look blue the fastest moving average on top. Red

the slower moving average on the bottom. There's white space between the moving averages and their slopes. They're up. And maybe more importantly, six of the seven MAG seven are held by this ETF. Everything except Tesla and SPY in isolation. Does it look like it's on the ropes in terms of its long-term trend? Not yet. So, we know large cap US growth stocks, MAG 7 heavy in late February. The long-term trend is strong. foreign stocks, the same can be said. Same moving averages, same time frame. Thus, the million-dollar question using the same moving average pair and using a time frame that's very relevant to what we are trying to accomplish within the context of a secular bull market. How do foreign stocks ACWX look relative to MAG7 heavy spyg? Are the moving averages sloping from the lower left to the upper right? They are not. They are sloping from the upper left to the lower right and they are still very close to a full bore bearish look. Secular volatility model. What are we trying to accomplish? We're trying to identify secular bull regimes early enough to act on them. And then from an asset allocation perspective, we want to try to stay with the leaders long enough to leverage the miracle of compounding. And we want to avoid being shaken out by cyclical noise. Now, I'm not saying this is cyclical noise. That's to be determined. But the current classification is that this improvement is not particularly relevant to what we are trying to accomplish. It's improvement nonetheless and we have to respect it keep an open mind that improvement is going to start to bleed over into other time frames. But we know foreign stocks look good in isolation, but they've got work to do in terms of shifting to a secular leadership position. And it's also possible that the demise of the MAG 7 is greatly exaggerated. And what do I mean by that? We're not going to know the answer to that until possibly 2 to 3 years down the road. We're talking about a secular bull market that could last until 2031, 2032, 2033, 2034. Demographics, say even 2035. The point is the long-term leaders can have counter trend moves where they underperform for long periods of time. This is 1956. This is early 1958. But guess what happened? A higher high, higher profits. After this plunge, We are taking this improvement seriously. And this is significant measurable improvement. As we've mentioned, to make sure that we're not being stubborn or overconfident or complacent, we've been building a secular regime change model. I would call this a late stage prototype. But right now if we score on meaningful time frames to what we are trying to accomplish VA very similar to ACWX basically foreign stocks diversified basket of foreign stocks relative to SPY and we ask 26 relevant questions that are relevant to our time frame. The score favoring VA is 30%. The way this model is built, that score would have to get up to 45 to 60ish for us to really start thinking about overweighting foreign stocks. And that may happen very, very soon. It just hasn't happened yet. And we have a tool that can complement what we already have. looks at things from a different perspective to make sure that we're staying aligned with the data, the charts in front of us. And we all know the only way that we can do that effectively is if we head into next week and every week with that flexible, unbiased, and open mind. The material in this video has no regard to the specific investment objectives, financial situation, or particular needs of any viewer. This video is presented solely

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