The US stock market, as measured by the S&P 500 Index (S&P), finished the month of April 1.3% below the Blue Line, compared to -13.6% at the end of March. Even with a sharp price rally during April, the S&P has only retraced back to the Blue Line and has not exceeded it.
BLUE LINE PERSPECTIVE
Chart courtesy of StockCharts.com
Historically speaking, a sustainable rising trend tends to display the following pattern: Price above the Green Line; the Green Line above the Purple Line; and the Purple Line above the Blue Line (always in that order). At this time, price is below the Blue Line, but above both the Green and Purple Lines (not shown). Until the historical pattern manifests, I believe caution is warranted.
PRIMARY TREND PERSPECTIVE
Attempting to identify primary trends can be challenging at times, and as new information comes to light, existing trend channels should be reevaluated. The rising primary trend channel shown below has been updated dating back to 2008.
Chart courtesy of StockCharts.com
What I see from the rising trend channel above is that for the better part of the past eleven years the S&P has remained within the top portion of a broad rising trend. With the March downturn, price declined to trend channel support (identified by the red circle) and bounced off it. However, the S&P continues to remain below the Blue Line, and if that continues over the coming weeks or even months, I believe a retest of the March price lows is likely.
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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.
Guardian Wealth Advisors, LLC (“GWA”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about GWA’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.