​What's a Trend Stage?

Trend Stage Analysis is a method of evaluating market cycles by dividing price trends into four stages:
  1. Stage 1 – Base: Sideways movement after a decline.
  2. Stage 2 – Uptrend: Sustained price rise with higher highs and moving averages turning up.
  3. Stage 3 – Top: Flattening trend, signaling a potential peak.
  4. Stage 4 – Downtrend: Declining prices and downward-sloping moving averages.
July 2025

Strengthening Global Uptrends

Key points:
​
  • S&P 500: V-shaped rebound; watch 6,150 support.
  • Developed ex-US: Breakout holds; trend stays strong.
  • Emerging Markets: Fresh uptrend with strong momentum.
U.S. Market (S&P 500) – Entering Stage 2 Breakout

The S&P 500 has rebounded strongly following the resolution of recent tariff and geopolitical concerns, forming a sharp V-shaped recovery. As of now, both the 10-week and 30-week EMAs are trending upward, signalling early signs of Stage 2 action and improving momentum. However, initial support lies near the 6,150 level. If the index fails to hold this level, it could slip into a prolonged Stage 1 consolidation, pausing the current uptrend and signaling caution for trend-following investors.
Developed Markets ex-US – Stage 2 Advancement

There remains no change in the technical structure of the Developed Markets ex-US index it continues to hold its Stage 2 breakout, as previously noted. Despite the broader market uncertainty, the index has shown impressive relative strength, with the iShares MSCI EAFE ETF moving swiftly from 84 to 88 since our last update. Both the 10-week and 30-week EMAs remain in a firm upward slope, reinforcing the ongoing bullish trend and confirming its place in the advancing phase of Stage 2.
Emerging Markets – Entering Stage 2

Emerging Markets have now transitioned into Stage 2, following a prolonged basing phase after the Stage 4 decline that ended in 2022. This remains one of the most promising areas of the global market, having entered its advancing phase with notable momentum. Both the 10-week and 30-week EMAs are now trending upward, confirming the shift in trend. While the recent surge suggests the need for a brief pause or consolidation to cool off near-term overextension, the broader trend remains positive supporting a constructive view and warranting meaningful allocation.

Trend analysis helps us follow strength, avoid weakness, and reduce emotional decisions.

Timing Entry and Exit:
  • Enter positions during Stage 2 (uptrend) for growth opportunities.
  • Exit or reduce exposure in Stage 3 (topping) or Stage 4 (downtrend) to manage risk.
Portfolio Allocation:
  • Overweight assets or regions in Stage 2 showing strong momentum.
  • Underweight or avoid those in Stage 4, where downside risk dominates.
​Risk Management:
  • Align exposure with market stages to stay on the right side of the trend.
  • Use Stage 1 and Stage 4 signals to tighten stops or raise cash.

Evidence-based approach

Persistent Outperformance

AQR (2015) – "Trend Following is an Effective Strategy"
​
  • Analyzed data across 60+ markets (equities, bonds, commodities, and FX) from 1880 to 2014.
  • 12-month trend-following strategies delivered Sharpe ratios of ~0.5, with low correlation to traditional assets.
  • Consistently profitable across asset classes and decades, even during crises (e.g., 2008).
Positive Skew

Moskowitz, Ooi & Pedersen (2012) – "Time Series Momentum"
​
  • Buying assets that rose over the past 12 months and shorting those that fell led to average annualized returns of ~18%, across global futures markets (1985–2009).
  • Breakouts and trend continuation explained much of the alpha, especially in volatile regimes.
Breakout Confirmation

​James O'Shaughnessy – "What Works on Wall Street"
  • Portfolios formed using relative strength (momentum)—a common breakout filter—outperformed over long time periods.
  • Top-quintile momentum stocks produced average annual returns of ~17%, far above market averages.

Power your portfolio

Trend methods, especially those grounded on relative strength, form the core of many systematic trading and tactical asset allocation models, designed to deliver higher risk-adjusted returns with reduced drawdown risks over long time horizons.
Copyright 2026. Dantes Outlook LLC
Content is for informational purposes only, not investment advice.

1 0  Y E A R S