The primary trend of the US stock market according to BLUE LINE INVESTING®

Chart courtesy of StockCharts.com

Commentary:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of August closing 6.81% above the Blue Line, up from 5.11% at the end of July. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

We believe a question investors should ask themselves is which index is the true leader of the US stock markets? According to Armstrong Economics, the Dow Jones Industrial Average³ (DJIA) represents international investors, the S&P represents domestic investors, and the NASDAQ⁴ represents retail investors. Of the three, the DJIA is the only one that has so far failed to break out to a new high. So, are the S&P and NASDAQ the true leaders? Or is it the DJIA which, at this moment, may be hinting at potential caution? We will likely find out in a matter of time.

Until then, we also find it interesting to observe that the Dow Jones Transportation Average⁵ has broken out to new high without the DJIA, resulting in a Dow Theory non-confirmation.

We believe it is currently prudent for investors to hold on to their existing investments but continue to be cautious with new cash purchases until the market paints a clearer picture of the true leader – and resulting trend – for this market.

Jeff Link

Disclaimers:

¹ Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

² The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

³ The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq.

⁴ The NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.

⁵ The Dow Jones Transportation Average is a price-weighted average of 20 transportation stocks traded in the United States.

The volatility (beta) of an account may be greater or less than that of an index. It is not possible to invest directly in an index. Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. This information is intended for educational purposes only.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.