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Introduction

Guess who’s back in town? Our old friend, the “Power Trend.”

If that sounds familiar, it should. Back in April, we published a similar report highlighting the emergence of this powerful market condition. Given its return, it’s worth revisiting exactly what it means—and why we pay attention when it appears.

A Power Trend, as defined by Mike Webster of Investor’s Business Daily (IBD), is a specific, rules-based condition designed to identify periods when a major index has transitioned into a strong and potentially sustained uptrend. Developed as part of IBD’s Market School methodology, its purpose is straightforward: objectively identify the “sweet spot” of a bull move—when market conditions favor increasing exposure, buying weakness, giving winners more room, and allowing the dominant trend to work.

Power Trends can vary considerably in both duration and magnitude, but historically they have tended to occur during some of the market’s strongest advances. In other words, their significance isn’t that they guarantee higher prices; it’s that they identify a market environment in which the risk/reward has shifted decisively in favor of the bulls.

The last Power Trend triggered on April 22nd for both the S&P 500 and Nasdaq.

For the SPX, that signal preceded another ~7% of upside over the following 28 trading days. More importantly, the broader bullish regime ultimately persisted well beyond the official Power Trend itself, supported by the breadth expansion we have repeatedly highlighted over the past several months. That underlying strength proved especially important as the Nasdaq and former leadership absorbed the brunt of the market’s recent correction.

Now, after that reset, our old friend is back.

And given what has changed beneath the surface of the market, we think its return deserves attention.

For the Nasdaq, the onset of the Power Trend preceded another ~10% advance into the June 1st peak. Importantly, however, the Power Trend did not officially end with that high. The condition remained intact for another three weeks, until the Nasdaq finally gapped lower and closed below its 50-day moving average. From activation to termination, the entire Power Trend lasted roughly 42 trading days.

That distinction is important: the Power Trend is not designed to identify the exact top. Rather, it is designed to keep investors aligned with the dominant trend until the underlying conditions materially deteriorate.

It’s important to distinguish the return of the Power Trend from our July 29th call to get long the market. That initial call was tactical in nature, driven by what we believed was an attractive risk/reward setup following the correction. From there, we progressively advocated for increasing exposure as the rally reclaimed our previously identified resistance thresholds and ultimately delivered a follow-through day, providing further confirmation that buyers had regained control.

The emergence of a Power Trend is therefore not the catalyst for our bullish positioning—it is additional confirmation of it. More specifically, it reinforces our decision to move to a fully overweight long-equity posture and increases our confidence that the market can continue toward the upside targets we have previously outlined.

That does not mean the path higher will be a straight line.

A Power Trend does not eliminate volatility, and the calendar suggests we should be prepared for some in the weeks ahead. This week brings OPEX, where positioning and expiring hedges can create larger-than-normal swings, potentially becoming more pronounced following Wednesday’s VIX expiration.

Interestingly, the options market appears relatively sanguine about what lies ahead. As the chart below illustrates, implied SPX moves are pricing less than ~0.8% swings around the remaining major events this month, despite a calendar that includes NVIDIA earnings and the Jackson Hole Fed Symposium.

That relative calm is occurring with the VIX closing at its lowest level of the year.

Some will argue that this reflects excessive complacency. We don’t necessarily disagree. In fact, when volatility expectations become this compressed, the hurdle for an upside volatility surprise becomes increasingly low. But low volatility and bullish market structure are not mutually exclusive. Volatility can interrupt a Power Trend without invalidating it.

For now, we would distinguish between volatility within the trend and a change in the trend itself. The former should be expected—and could create opportunities to add exposure. The latter requires actual deterioration in the evidence.

Until we see that deterioration, the Power Trend argues that the benefit of the doubt remains with the bulls.

Short-dated volatility skew has collapsed as FOMO-driven demand has increasingly migrated toward upside calls, leaving downside volatility protection relatively inexpensive. In other words, the cost of hedging has fallen at precisely the same time that investor skepticism appears to be disappearing.

To be clear, cheap protection is not, by itself, a reason to expect a volatility event. Markets can remain complacent far longer than many expect. However, given the macro pressures still lurking beneath the surface, the apparent lack of concern strikes us as somewhat misplaced. With hedges this inexpensive, the asymmetry of owning protection is becoming increasingly attractive, even as we remain firmly bullish on the broader trend.

This dynamic is also showing up at the single-stock level, with the CBOE SPX Constituent Volatility Index collapsing. While the disappearance of skepticism can signal complacency, it can also be interpreted bullishly. Investors are rapidly shedding protection against large, stock-specific moves as earnings uncertainty fades and confidence returns.

That matters because elevated single-stock volatility increases hedging costs and encourages defensive positioning. Its reversal releases that pressure, allowing capital to migrate from protection toward exposure. So while collapsing volatility warrants some caution, in the context of improving market structure and a new Power Trend, it may be as much a reflection of strengthening risk appetite as complacency.

The rapid shift from skepticism to euphoria is not entirely misplaced. As we highlighted last weekend, earnings continue to materially exceed expectations, creating a powerful upward revision cycle. SPX earnings have increased roughly 31% year-over-year in Q2, providing fundamental support for the market’s improving risk appetite.

Much of that earnings strength is being attributed to margin expansion, as companies increasingly deploy AI-driven strategies to improve productivity and reduce costs. That is particularly impressive given the challenging macro backdrop, with higher oil prices, elevated costs of capital, and persistent uncertainty surrounding the war in Iran. In other words, corporate profitability is improving despite—not because of—the macro environment.

While NVDA still needs to deliver to keep the party going, Technology is once again driving the market’s upside acceleration. That leadership is important: if earnings continue to validate expectations—particularly from the market’s AI bellwether—it would provide another fundamental tailwind for the newly confirmed Power Trend.

Last week, our market indicators were calling for at least a pause, with the potential for some mean reversion. That proved largely correct, as the major indexes spent the week consolidating with very little net movement.

Last week, our indicators correctly called for a pause and potential mean reversion, with the major indexes ultimately making very little net progress.

The question now is whether we should expect more of the same—or whether our old friend, the “Power Trend,” is ready to assert itself and drive the next leg higher.

Let’s review the charts.