Adam Khoo Monthly Market Analysis Framework

Last updated: 16 September 2026

Apply Adam Khoo's systematic, rules-based monthly market analysis process to assess trend direction, valuation, macro context, and sector positioning — without emotion, without prediction, without hair-pulling.

// TL;DR

The Adam Khoo Monthly Market Analysis Framework is a systematic, rules-based process for reviewing the stock market at the start of each month before making any buy, hold, or accumulate decisions. It assesses trend direction using a five-moving-average trend stack, checks valuation via forward P/E, confirms whether a rally is earnings-driven, maps dynamic support levels, and treats macro data as entertainment only. Use it monthly to remove emotion from investing, or anytime markets move sharply and you feel the urge to panic, chase, or predict. The output is a probabilistic outlook — never a prediction.

Framework

// When should you use the Adam Khoo Monthly Market Analysis Framework?

Use at the start of each month to conduct a structured market review before making any buy, hold, or accumulate decisions. Also use whenever markets experience a sharp move and you feel the urge to panic or chase.

// What data and inputs do you need before running the analysis?

Current date / monthrequired
The month and year being analysed
Index proxy chartsrequired
Daily, weekly, and monthly candle charts for your chosen S&P 500 proxy (SPY, CSPX, or VOO) with EMAs plotted: 20 EMA, 40 EMA, 50 MA, 150 MA, 200 MA
Forward PE datarequired
Current forward P/E for the S&P 500, plus the 5-year and 10-year averages
Earnings season resultsrequired
Most recent quarter's actual earnings growth vs. analyst expectations, broken down by sector where possible
Sector performance datarequired
Month-to-date and year-to-date sector performance rankings across the 11 GICS sectors
Macro data snapshotrequired
Latest readings on: Fed funds rate, 10-year Treasury yield, yield curve shape, CPI/PCE inflation, jobs/payrolls, and GDP
Seasonality context
Historical average market performance for the current month (e.g., September is historically the weakest month)
Portfolio year-to-date performance
Your own portfolio return on a time-weighted and/or money-weighted basis vs. the index

// What are the core principles behind Adam Khoo's market analysis?

Path of Least Resistance

When the short-term trend, medium-term trend, and long-term trend are all pointing up simultaneously, the path of least resistance is up. Trade and invest with the dominant trend until the trend actually changes — not until you think it might change.

Wave Pattern Acceptance

In an uptrend, prices do not go up every day, every week, or every month. They move in wave up, wave down, wave up, wave down patterns. Corrections within an uptrend are normal and expected — they are part of the grand plan, not a signal to panic.

Earnings-Driven vs. PE-Multiple-Driven Markets

An earnings-driven market rally — where price rises are justified by actual earnings growth — is more sustainable than a PE-multiple-driven or money-supply-driven rally. Always distinguish which type of market you are in.

Macro is Entertainment

Macro news and economic data are consumed purely for entertainment and general knowledge — they have absolutely zero influence on buy and sell decisions. The market frequently moves in ways that are logically opposite to macro data (weak GDP = market goes up), so using macro to time trades will make you pull your hair out.

Secular Compounding Sectors

Prioritise sectors with higher margins, stronger economic moats, and higher ROE and ROIC over long cycles. Avoid commodity companies (basic materials, energy) because they are cyclical, unpredictable, and have weak economic moats — even when they outperform in a given month.

Dynamic Support Levels

Support levels are anchored to major moving averages across multiple timeframes (daily, weekly, monthly). The first support is the 20 EMA on the daily chart; deeper supports coincide with the 20 EMA, 40 EMA, and 50 MA on the monthly chart. These dynamic levels tell you how far a pullback is likely to go and where to look for a bounce.

Follow the Rules

The antidote to emotional decision-making is a fixed set of rules: don't FORO (Fear Of Running Out), don't panic, don't chase. Apply the same analytical process every month regardless of market noise.

// How do you apply the Adam Khoo framework step by step?

1
Assess the Trend Stack on the Daily Chart
Check all five moving averages in order: (1) Is the 20 EMA above the 40 EMA? → Short-term trend up. (2) Is the 50 MA above the 150 MA? → Medium-term trend up. (3) Is the 200 MA sloping upward? → Long-term trend up. Record each as UP or DOWN. If all three are UP, state: 'The path of least resistance is up.' If the 50 crosses below the 150 AND both begin sloping down AND the 200 slopes down, flag a likely bear market. Do not act on partial signals alone.
2
Confirm the Trend on the Weekly Chart
Switch to weekly candles to see the wave pattern more clearly. Identify the sequence of wave up / wave down moves. Label any significant corrections (e.g., caused by a macro event). This step validates what the daily chart showed and prevents overreacting to short-term noise.
3
Map the Four Support Levels Using Multi-Timeframe MAs
Using the monthly candle chart, identify four dynamic support levels: Support 1 = 20 EMA on daily (first bounce zone for small pullbacks). Support 2 = 20 EMA on monthly (strong bounce zone). Support 3 = 40 EMA on monthly. Support 4 = 50 MA on monthly. Record the price values. These levels answer the question 'if we pull back, how far?' — not as predictions, but as probabilistic landing zones. Update these every month.
4
Check Valuation via Forward PE vs. Historical Averages
Note the current forward P/E of the S&P 500. Compare it to the 5-year average and the 10-year average. Classify the market as: cheap, undervalued, fairly priced, overvalued, or very overvalued. Note: this is not the primary valuation method — it is a quick sanity check. Also check what the forward PE was at the start of the year; if the market has risen but PE has fallen, this signals an earnings-driven rally (more sustainable).
5
Analyse the Most Recent Earnings Season
Record: (a) actual earnings growth % for the S&P 500 in the latest reported quarter, (b) what analysts had originally expected, (c) how many of the 11 sectors reported double-digit earnings growth. A large positive surprise (actual >> expected) explains and justifies a strong market. This step confirms whether the rally is earnings-driven or something else.
6
Review Sector Performance and Align With Your Philosophy
List the best and worst performing sectors month-to-date and year-to-date. For each sector, apply the secular compounding filter: Does this sector have high margins, strong economic moats, high ROE and ROIC? Flag commodity sectors (basic materials, energy) as avoid except for rare exceptions that behave like non-commodity businesses. Note which sectors you own and whether underperformance is short-term noise or a structural problem. Do not chase this month's best-performing sector.
7
Consume Macro Data as Entertainment Only
Record the key macro readings: Fed funds rate and direction, 10-year Treasury yield vs. start of year, yield curve shape (steepening / flattening / inverted), headline and core PCE inflation, payroll changes (including any prior-month revisions), real GDP growth rate. For each data point, note the market's reaction — especially if it was counterintuitive (e.g., bad data = market up). Do NOT use any of this to make a buy/sell decision. State explicitly: 'This is for entertainment and general knowledge only.'
8
Apply Seasonality Context Without Acting On It
Note whether the current month has a historically bullish or bearish seasonal bias. Present the range of historical outcomes (e.g., September averages negative but has also returned +8% in some years). Use this context only to mentally prepare for volatility — not to sell, short, or time the market. State: 'If the market drops this month, it is part of the wave pattern, not a signal to exit.'
9
State the Probabilistic Outlook for the Period Ahead
Synthesise steps 1–8 into a single forward-looking statement structured as: Trend direction → Valuation status → Earnings backdrop → Key risk (e.g., seasonality, rate decision) → Most probable support level if pullback occurs. Never present this as a prediction. Frame it as: 'Given the trend, earnings, and valuation, the probability is that...' and always acknowledge the alternative scenario.
10
Confirm Your Action Rule and Update Your Watch List
End every analysis session by stating the rule you will follow: dollar-cost averaging continues regardless; accumulate on pullbacks to support levels; no panic selling; no FORO chasing. If you use a valuation tool (e.g., Stock Oracle or equivalent), update your watchlist of undervalued and fairly priced stocks with wide or narrow moats. Avoid stocks flagged as very overvalued unless you have a specific thesis.

// What do real applications of the framework look like?

An investor reviews markets at the start of October after a 6% September decline. The 20 EMA crossed below the 40 EMA on the daily chart, but the 50 MA remains above the 150 MA and the 200 MA is still sloping up.

Step 1 reveals: short-term trend is temporarily DOWN, but medium-term and long-term trends remain UP. This is a wave down within a larger uptrend — not a bear market signal. The investor checks the four support levels: price is sitting near Support 2 (20 EMA on the monthly chart). Per the framework, this is a high-probability bounce zone. Action: continue dollar-cost averaging; no panic selling. Note the parallel to the March correction described in the framework, where the short-term trend dipped but the bigger trend was intact.

A user wants to know whether to rotate into energy stocks after energy has been the best-performing sector year-to-date due to geopolitical events.

Step 6 applies the secular compounding filter: energy companies are cyclical, unpredictable, have weak economic moats, low margins, and low ROE/ROIC over the long run. Even though energy outperformed this year due to a specific geopolitical catalyst, the framework says avoid — long-run secular compounding sectors (tech, healthcare) will outperform over time. The user does not rotate. The exception test: would any energy company behave like a non-commodity business (e.g., an industrial gas manufacturer with predictable, non-commodity-linked revenues)? If yes, it may pass the filter.

GDP growth comes in weaker than expected and payrolls are revised downward. The market rallies 2% on the news.

Step 7 flags this as a classic counterintuitive macro reaction: weak economic data → market assumes the Fed won't raise rates → market rallies. The framework categorises this as entertainment. No investment decision changes. The user records: 'Macro data bearish; market reaction bullish — confirms that macro-based timing is unreliable.' The trend stack from Step 1 remains the primary decision input.

// What mistakes should you avoid when analysing the market?

Acting on macro data as if it directly drives buy/sell decisions — the market frequently moves in the opposite direction of the data.
Panicking during a wave down within a confirmed uptrend — corrections are part of the wave pattern, not signals to exit.
Chasing the best-performing sector of the month (e.g., rotating into energy or basic materials after they outperform) without applying the secular compounding filter.
Treating seasonality statistics as predictions and selling in September (or any historically weak month) to 'avoid' a drawdown — this is market timing and it doesn't work.
Confusing a short-term trend reversal (20 EMA crossing below 40 EMA) with a bear market — a bear market requires the 50 MA to cross below the 150 MA and both to slope downward, with the 200 MA also sloping down.
Using the forward PE ratio in isolation as a valuation verdict — a high PE driven by earnings growth is fundamentally different from a high PE driven by multiple expansion.
FORO (Fear Of Running Out) — chasing stocks or the market after a strong run because you fear missing further gains.
Investing in commodity-based companies (basic materials, energy) based on short-term cyclical outperformance without considering their structural weaknesses: cyclicality, low margins, weak economic moat, unpredictability.

// What key terms do you need to understand this framework?

Path of Least Resistance: The most probable direction of price movement when the short-term, medium-term, and long-term trends all align in the same direction. When all three are up, the path of least resistance is up.
Trend Stack: The layered set of five moving averages (20 EMA, 40 EMA, 50 MA, 150 MA, 200 MA) used to determine short-term, medium-term, and long-term trend simultaneously on the daily chart.
Wave Pattern: The natural wave up / wave down / wave up / wave down rhythm that prices follow even within a confirmed uptrend. Corrections are expected components of this pattern, not trend reversals.
Four Support Levels: Four dynamic price zones derived from major moving averages across daily and monthly timeframes, updated monthly, that represent the most probable bounce points during a pullback.
Earnings-Driven Market: A market rally where rising prices are supported by actual corporate earnings growth exceeding expectations — considered more sustainable than a PE-multiple-driven or money-supply-driven rally.
Secular Compounding Sectors: Sectors with high margins, strong and durable economic moats, and high ROE and ROIC that compound wealth reliably over long periods — the preferred home for long-term capital allocation.
Economic Moat: A company's durable competitive advantage that protects its market position and profitability over time. Wide moat = strongest protection; narrow moat = some protection; no moat = no durable advantage.
FORO: Fear Of Running Out — the emotional urge to chase a rising market or stock because you fear missing further gains. One of the key rules violations to avoid.
Macro is Entertainment: Adam Khoo's operating principle that macroeconomic data and news are consumed for general knowledge only and carry zero weight in actual buy or sell decisions.
Follow the Rules: Adam Khoo's closing discipline: don't FORO, don't panic, don't chase — apply the systematic process every month regardless of noise.
Grand Plan: The broader multi-year uptrend context within which monthly corrections and volatility are expected and acceptable events — not emergencies.
Steepening Yield Curve: A condition where long-term interest rates rise faster than short-term rates, widening the spread. Beneficial for bank stocks and floating-rate private credit instruments.

// FREQUENTLY ASKED QUESTIONS

What is the Adam Khoo Monthly Market Analysis Framework?

It's a systematic, rules-based process for reviewing the stock market at the start of each month before making buy, hold, or accumulate decisions. It assesses trend direction, valuation, earnings backdrop, sector positioning, and macro context — then produces a probabilistic outlook rather than a prediction. The core discipline: trade with the dominant trend, treat macro data as entertainment, and never panic, chase, or FORO.

What is the trend stack in Adam Khoo's framework?

The trend stack is a layered set of five moving averages — 20 EMA, 40 EMA, 50 MA, 150 MA, and 200 MA — plotted on the daily chart to read short-term, medium-term, and long-term trend simultaneously. If the 20 EMA is above the 40 EMA, the 50 MA is above the 150 MA, and the 200 MA slopes up, all three trends are up and the path of least resistance is up.

How do I know if I'm in a bear market or just a correction?

A correction is a short-term trend reversal — the 20 EMA crossing below the 40 EMA — while the 50 MA stays above the 150 MA and the 200 MA still slopes up. A bear market requires the 50 MA to cross below the 150 MA, both sloping down, with the 200 MA also sloping down. Don't confuse a wave down within an uptrend for a trend change.

How do I apply the Adam Khoo framework step by step?

Assess the trend stack on the daily chart, confirm the wave pattern on the weekly, map four dynamic support levels across timeframes, check forward P/E against 5- and 10-year averages, analyse the latest earnings season, review sector performance through the secular compounding filter, consume macro data as entertainment only, apply seasonality context without acting on it, state a probabilistic outlook, and confirm your action rule.

Why does Adam Khoo say macro data is just entertainment?

Because the market frequently moves opposite to the data — weak GDP or bad jobs numbers often trigger rallies as investors bet the Fed won't hike. Using macroeconomic data to time trades makes you pull your hair out because the correlation is unreliable. The framework consumes Fed rates, yields, CPI, and GDP for general knowledge only; the trend stack, not macro, drives decisions.

How does this framework compare to just following market news?

Market news reacts to headlines and predicts direction; this framework ignores predictions and reads price trend through moving averages. News encourages panic selling and FORO chasing; the framework enforces fixed rules — dollar-cost average continuously, accumulate on pullbacks to support, never chase. News treats macro data as actionable; the framework treats it as entertainment, since the market often moves opposite to the data.

When should I use the Adam Khoo Monthly Market Analysis Framework?

Use it at the start of every month to conduct a structured review before making any investment decisions. Also apply it whenever markets experience a sharp move and you feel the urge to panic, sell, or chase. The consistency is the point — running the same process every month regardless of noise is what removes emotion from your decisions.

What is an earnings-driven market versus a PE-multiple-driven market?

An earnings-driven market rises because actual corporate earnings growth justifies higher prices — this is more sustainable. A PE-multiple-driven or money-supply-driven rally rises on multiple expansion without earnings support — less sustainable. A tell: if prices rose but forward P/E fell over the year, the rally is earnings-driven. Always distinguish which type of market you're in before allocating capital.

What are the four support levels in the framework?

The four dynamic support levels are: Support 1 = 20 EMA on the daily chart (first bounce zone for small pullbacks), Support 2 = 20 EMA on the monthly chart (strong bounce zone), Support 3 = 40 EMA on the monthly, and Support 4 = 50 MA on the monthly. They're updated every month and represent probable landing zones during a pullback — not predictions of where price will go.

What results can I expect from using this framework?

Expect calmer, more consistent decision-making rather than higher short-term returns. The framework's value is removing emotion — you stop panic selling during corrections, stop chasing hot sectors, and stop timing the market on macro news. You'll continue dollar-cost averaging and accumulate at defined support levels, letting the dominant trend and secular compounding sectors do the work over long cycles.

Should I rotate into the best-performing sector each month?

No — chasing this month's top sector violates the framework. Apply the secular compounding filter first: does the sector have high margins, strong economic moats, and high ROE/ROIC? Commodity sectors like energy and basic materials often outperform short-term on geopolitical catalysts but are cyclical, unpredictable, and moat-weak. The framework prioritises durable compounders like tech and healthcare over long cycles.

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