Please read the entirety of this update.
The US stock market, as measured by the S&P 500 Index (S&P – see the chart below), finished the month of July +5.00% above the BLUE LINE, compared to +5.20% above the BLUE LINE at the end of June. We continue to categorize the primary trend as Neutral primarily due to price behavior remaining within what we believe to be a sideways trend.
Chart courtesy of StockCharts.com
As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.
SPECIAL INSERT: IS THE DOW JONES INDUSTRIAL AVERAGE HINTING AT ANOTHER PRICE CORRECTION?
The weekly* chart below of the Dow Jones Industrial Average shows three changing trends over the past five years. The gray dashed lines on the left show a sideways trend from 2014 – 2015 (2 years). The rising green dashed lines highlight a rising trend from 2016 – 2017 (2 years). And the sideways gray dashed lines on the right highlight what we believe to be a sideways trend that began in early 2018. However, we notice what may be a technical formation called an ascending wedge identified by the two converging red dashed lines inside the sideways trend. IF this technical formation plays out, investors should expect a price correction in the near future.
Chart courtesy of StockCharts.com
You may notice how price acts like a yo-yo within a sideways trend, first rising, then falling, then repeating. So far there have been three attempts on breaking out to the upside while only two on the downside. We would not be surprised if price corrects back towards 24,000 to the bottom of the gray dashed line once again. So, don’t be surprised with continued stock market price volatility – that is what is most commonly associated with sideways trends.
For readers of this BLUE LINE INVESTING® PRIMARY TREND update, please do not hesitate to call us with questions at (833) 258-2583.
* Each vertical line on the chart represents one week of price change.
BLUE LINE INVESTING® (BLI) is an investment process that seeks to align investment decisions with the prevailing primary trend of the financial markets. BLI seeks to remain fully invested when the financial markets are experiencing either a long-term rising primary trend or a short-to-intermediate sideways trend. When the primary trend begins declining however, the process follows a 3-phase sell process to attempt to limit downside loss. We believe Warren Buffett said it best with his two rules: “Rule No. 1 – Never lose money. Rule No. 2 – Never forget Rule No. 1.”
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 BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI 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 Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. 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 (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama.