This week your feed is going to be wall-to-wall with people showing you their winning trades.

Every green screenshot they can find.

So today I’m going to do the exact opposite and give some tough love.

The market is up 9 weeks in a row…… if you’re not in winning trades right now, you’ve got bigger problems than which stock to buy next.

So instead of pounding my chest, I want to talk about the thing that actually matters when the market looks like this.

The psychology and the data behind trusting a bull market.

That’s the hard part.

Not finding a winner.

It’s trusting the thing while half your timeline is calling a top.

Let’s rip through it.

Like anything, let’s start by defining what we’re actually talking about.

A few standard ways to do it:

• The 20% rule. Index rises 20% off a low → bull. Falls 20% off a high → bear. This is the one cable TV loves.

• Trend. Price above a long-term moving average – most people use the 200-day. Simple, mechanical, hard to argue with.

• Cycle dating. The fancy one where you map peaks and troughs and assign time frames to them.

• Common sense. The most underrated of the bunch. Are more stocks going up than down? Are the offensive sectors leading, or is everyone hiding in consumer staples?

My Approach? I use a combination of trend and common sense.

I use some black-and-white rules — because that’s what you actually backtest.

I use common-sense breadth and momentum readings as confirmation.

Stack them together and you’ve got your backdrop.

The chart I run every single week

(Momentum) – Top panel: RSI and its bullish regimes (green).

(Trend) Middle: SPY with the sustained uptrends labeled.

(Breadth) Bottom: the share of S&P 500 members trading above their own 200-day.

I post a version of this every week, and it’s not decoration.

It sets my posture for the whole week.

Three questions:

Is RSI in a bullish regime (holding above 50)?

Is price above the 200 day moving average?

Are more than half the S&P’s members above their own 200-day?

When it’s yes, yes, yes, you’re in a bull market and you position with optimism.

Bull Market Checklist Chart

Here’s the data.

To get clean data and test it yourself cost money.

So I paid up for clean data for the S&P back to the 1920’s.

For this example I kept it simple, because simple works.

Simply above the 200-day versus below it.

• Above the 200-day (the bull regime): ~68% of all days, ~11.6% annualized return at ~14.5% volatility.

• Below it (the bear regime): ~32% of days, ~1% return at ~25.4% volatility.

Look at that return-to-volatility relationship.

Above the line you get more return and a smoother ride.

Below it, you’re working twice as hard nearly double the volatility for a savings-account return.

Honesty check: that 11.6% isn’t statistically miles above the long-run average.

But it’s above it, and it comes with a lot less heartburn.

Two takeaways:

1. Above the 200-day → be optimistic.

2. Below the 200-day → you can still make money, but buckle up for the volatility.

This is why we trust markets above their 200 day (once you add in additional filters the data can get even better but we’re keeping it simple today).

Most people stop at the 200 day part but adding context to it is important, data alone is not the edge it’s the ability to understand the nuance that comes with it.

The 200 day is not this holy grail system – it’s simply a filter for how we should posture ourselves towards the market.

Quick word on “annualized,” because it’s doing a lot of heavy lifting in this table.

An annualized return is just whatever the market did over some stretch a week, a couple months, whatever scaled up to a full-year pace.

It’s how you compare apples to apples across periods of different lengths.

Handy.

Here’s the catch, and it’s a big one for execution: annualizing assumes that pace keeps going, and in real life it doesn’t.

When the market only spends, say, three weeks below the 200-day before it V’s straight back up, that little burst gets stretched out as if it ran all year — so the number prints huge.

But you were never down there long enough to actually grab all of it.

That’s the gap between a clean backtest stat and what your account would really do.

A number can be 100% accurate and completely impractical to capture at the same time.

Look at the “below the 200-day” column for the 1990s, 2010s, and 2020s.

The returns are high and the old heads love to point at that and go, “See? Trend following doesn’t work.”

They’re misreading it.

Those big below-the-line numbers are V-bottoms, typically pretty hard to capture all of the return as we just talked about.

Price plunges below the 200-day, snaps right back, and the annualization machine makes a three-week round trip look like a career year.

Real to capture in a live account?

Not even close.

It’s a quirk of the math, not a free lunch, which is exactly why I pull the chart back instead of staring at a table.

The 1990’s – A Solid Grind

Mostly above the 200-day, steady returns.

The early ’90s had a slow scoop-bottom that didn’t generate much, but ’98 and ’99 gave you sharp V’s.

Those V’s are what juice that 23% “below” number.

Capturing the ~15% above the line was real.

The ~23% below was the annualization talking.

The 2000s — the decade every permabear anchors to.

Two catastrophic bear markets in one decade between the dot-com, then the GFC.

And this is precisely where trend following earns its keep.

You get below the 200-day, you step aside, you avoid the ruin.

The market gave you all the time in the world to get out.

That’s the job.

We get below the 200 day fine, go ahead and start believing the scary headlines, the Iran stories, the moon-landing stuff, whatever you want, because now price agrees with you.

All that time there were articles telling you to stay out entirely; trusting price, you could’ve made money and dodged the wipeout.

The 2010s — the V-bottom decade.

2011, 2018, and the start of 2020 all had sharp V’s, strong recoveries.

This is the case for pairing trend with a little mean reversion.

Trend keeps you out of trouble; mean reversion lets you actually buy the turn.

The 2020’s…Just Getting Started…

Covid, then 2022 that was a real tech-led bear and then more dip-and-rips, right through the one we just had.

The point: outside of the 2000s, the last 30-plus years simply haven’t handed us the sustained, catastrophic bear a lot of folks in their 50s and 60s seem to be rooting for.

The data says the V is more likely than the abyss.

There are no catastrophes above the line as the bad stuff only shows up below the 200-day.

Stay optimistic until price says otherwise, and you avoid ruin.

Step one is always: don’t lose your money.

Here’s the part nobody wants to hear, myself included.

• Doubt your doubts. Make your list of problems – it’s good to have one. But hold it loosely. The data that looks bearish is the same data that can flip bullish. That’s the wall of worry.

• Innocent until proven guilty. The market gets the benefit of the doubt until price says otherwise. Once it’s below the 200-day, fine go ahead and start believing the bad news. Until then, you’re optimistic.

• The market is smarter than you and me. It solves the problems you can see and the ones you don’t even know about yet.

None of this is voodoo, and it’s not dogma.

It’s robust data that backs one simple idea: doubt your doubts in a Bull Market.

If you missed it yesterday I went live.

Why trusting a bull market matters.

Why all-time highs are often a feature, not a bug.

And why the biggest risk is sometimes refusing to believe what price is telling you.

Check it out.

🚀 Throw it on 1.5x speed and let it rip.

👍 Give it a like. It’s the easiest way to show me some love.  

The Sunday Stalk List

Tomorrow, I’ll break down more of what I’m buying in the Sunday Stalk List.

If you want clean charts, clear setups, and tactical insights, this one’s for you.

It hits your inbox every Sunday so you know exactly what to stalk for the week ahead.

Cheers,

Larry Thompson, CMT CPA

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