Chart courtesy of StockCharts.com
The US stock market, as measured by the S&P 500 Index (S&P) finished the month of January at the BLUE LINE, as compared to -7.7% below the BLUE LINE at the end of December. With all of the price behavior over the past four months occurring below the BLUE LINE, we continue to advise caution. Therefore, we continue to categorize the primary trend as Neutral.
THE TECHNICAL PERSPECTIVE
Sometimes it can help to step back and look at the big picture. The chart below is a weekly version of the S&P over the past three years. Each vertical line on the chart represents one week worth of price behavior.
Chart courtesy of StockCharts.com
What we observe from this chart, from a technical analysis perspective only, is that it appears the S&P is within one of two trends. IF price fails to rise materially higher after today, and turns down instead, the negative trend may be the primary trend and is highlighted by the dashed red lines. If so, we should expect lower prices in the coming weeks or months.
If, however, price breaks out above the red dashed line where you see it now, it is possible it could continue to rally higher. However, that does not necessarily mean it will continue to rise to new highs. It may simply mean the neutral trend is dominant, highlighted by the gray dashed lines. If that is that case, it would not be surprising to see the market decline once again thereafter and possibly retest the price low at the end of December. As a reminder, that is around 2,350 on the S&P, or 13% lower from here.
We encourage all investors to exercise patience and discipline until the picture becomes clearer. For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.
Blue Line Investing (BLI) is a disciplined, rules-based investment process that attempts to identify the primary trend within the financial markets. The process uses technical analysis, trend-following, and historical pattern recognition to define the primary trend as either positive, neutral, or negative. Once identified, all investment-related decisions are aligned with that trend. BLI is an alternative to traditional, passive investing, in that it attempts to help investors save time and money over a full market cycle, through strategic changes within our strategies as primary trends change within the financial markets.
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.
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. Forward looking statements cannot be guaranteed.
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. GOR-1901-9