“What determines your wealth is not how much you make
but how much you keep of what you make”
– David Bach
The US stock market, as measured by the S&P 500 Index (S&P), finished the month of February -4.2% below the Blue Line, compared to 6.20% above it at the end of January. With last week’s price decline, a Phase 1: WARNING! has been triggered, warning that a potential change in trend is now possible, but not necessarily probable.
BLUE LINE PERSPECTIVE
Chart courtesy of StockCharts.com
I have removed the downward-sloping red-dashed lines from last month’s blog because of concern they will cause more confusion than clarity. So, I will simply show this chart going forward as a simple way to illustrate whether the S&P is trending above, at, or below the Blue Line. Remember, the S&P is the primary US stock market index, and other investments tend to trend in a similar direction.
PRIMARY TREND PERSPECTIVE
Even after last week’s price decline, price still managed to remain within the broad rising trend shown below (modified slightly from January’s update). As a result, I continue to view the current primary trend as a rising trend. However, with the decline, the market is currently at a crossroads. Based on technical analysis, price now finds itself within both a potential declining and sideways trend, in addition to the rising trend illustrated below. Over the coming months the market is likely to reveal which trend is the primary trend.
Chart courtesy of StockCharts.com
In my opinion, price would need to decline below trend channel support, identified in the chart above as the lower green dashed line, for a more significant price decline to occur over the coming months. Two potential forms of price decline that could occur here would be a Channel Correction or a Trend Correction, concepts that will be illustrated and explained in Chapter 5 of my new book due out the first week of August.
Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call (833) 258-2583 with questions or if we may be of service.
BLUE LINE INVESTING® (BLI) is an actively managed investment process that pursues our mission by combining a trend following investment philosophy and a “buy low, sell high” investment strategy. Our mission is to grow our client’s financial wealth over a full market cycle in a risk-managed and tax-efficient way.
We monitor the relationship between price and the Blue Line over time to help identify which stock markets worldwide are experiencing rising, sideways, 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.
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.