It’s quite tempting for new investors to want to track the market’s current behavior while looking for patterns in the past to try to get a feel for how things could go in the future. Of course, there are so many technical moves, patterns, and streaks that tend to pave the way for a certain behavior to follow shortly after.
Whether we’re talking about recession indicators, such as the inversion of the yield curve, or other patterns that have a track record that might not be good enough to be remarked upon, I do think that investors should treat such moves as interesting food for thought and as less of a crystal ball for what to do next with their stocks or portfolio. At the end of the day, time in the stock market beats timing the stock market.
In any case, the current market environment is quite unique. There are many bulls riding high on AI stocks, but, at the same time, there are bears, many of whom are so sure that AI is a bubble. The comparables to the market of the late 1990s are really nothing new. In my view, things are quite different today than during the lead-up to the dot-com bust.
A rare combo signal just flashed. Market momentum was hot, as was investors’ appetite for risk — what’s it all mean?
What’s more interesting, though, is a recent flag from Goldman Sachs, which highlighted something that’s only been seen a few times over the past several decades. According to Goldman, market momentum (as measured by something called the Z-score) and Goldman’s own risk appetite indicator (RAI) came in hot enough after the market’s latest winning streak (it just ended with a mild 2% spill this week).
In short, the market is coming in hot, and, undoubtedly, that’s probably made a lot of investors, especially the AI bears, that much more nervous. Whenever the RAI moves above 1.0 while momentum skews towards the higher end of the range, things are getting hot, perhaps enough that a correction is warranted.
The last eight times it’s happened, what followed was capped upside and, of course, a rise in volatility. Not all too surprising. It’s no guarantee of a bear market, though. More often than not, things were flatter, or markets continued to move higher.
Indeed, such a momentum-appetite combo is less ominous than you’d think, but the key takeaway is that momentum can keep going and that timing the peak can be a dangerous thing to do, especially if you’re thinking about going short the market or purchasing bearish put options against some of the overheated AI names out there, as Michael Burry has done.
It’s no indicator of a market peak — and it shouldn’t be used as such!
In any case, Goldman analysts noted that a high RAI “is not a sufficient indicator to time the peak.”
Given this, I do think investors should take notes whenever momentum, risk appetite, and all sort start to enter overheated conditions. Instead of making drastic moves, either way, though, I’d treat the momentum as a chance to take a few profits off the table in some of the stocks that have surged well over where you thought they would in this past year, rather than a sign that it’s time to lighten up in a big way.
In short, the market signal is intriguing but shouldn’t be treated as an accurate predictor of market tops because it’s not. In my view, perhaps it’s best to leave timing the market to the market timers, regardless of what signal flashes and whatever the past suggests is up next.
The takeaway: stay the course and stop trying to time the market!
In short, while rare, the momentum-RAI combo is more of a sign that choppiness and perhaps near-term flatness should be expected.
Perhaps overheated signals should act as more of a checkpoint for your enthusiasm, a gentle nudge or a reminder, if you will, rather than something to make you turn bearish or bullish over the near term. As we move into the back half of 2026, investors might wish to stay the course, given how incredibly resilient this market has been.
After the latest dip to start the week (it felt that much more painful given the rally that followed, didn’t it?), things are cooling off, and investors might have a shot to put new money to work in some of the names that haven’t been nearly as hot as the market.
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