The US stock market, as measured by the S&P 500 Index (S&P), finished the month of September 7.0% above the Blue Line, compared to 13.2% at the end of August.
BLUE LINE Perspective
Chart courtesy of StockCharts.com
Price is currently above the Green Line, which is above the Purple Line, which is above the Blue Line (the Green and Purple Lines are not shown in the chart above). While this current trend pattern is technically “ideal” in my opinion, other indicators continue to suggest market weakness – at least in the short-term. As of the time of this writing, I would not be surprised if prices were to decline further as we get closer to the election.
PRIMARY TREND Perspective
The possible channels that comprise the current rising trend have been updated below. If identified correctly, they can help serve as potential “targets” for price corrections in the future.
Chart courtesy of StockCharts.com
ON A CAUTIONARY NOTE
Even though price currently resides above the Blue Line, I believe there are some troubling divergences which I am monitoring. First, the NASDAQ Composite and S&P both made new highs for the year in August – but the Dow Jones Industrial Average, the Russell 2000 Index and the New York Stock Exchange Composite Index did not.
I have written in previous posts that the top five stocks that make up the NASDAQ 100 and S&P are the same: Apple (Symbol: AAPL); Microsoft Corporation (Symbol: MSFT); Amazon.com Inc. (Symbol: AMZN); Facebook Inc. (Symbol: FB); and Alphabet Inc. (Symbol: GOOGL). This is likely a contributing factor to the current divergence.
If this divergence continues, it could be signifying a new price low in the stock market somewhere ahead. If so, I believe our sell process, illustrated in Chapter 6 of my new book Protecting the Pig may prove valuable to help preserve financial wealth.
As a quick reminder, the purpose for providing this primary trend update is to illustrate the BLUE LINE INVESTING® process by applying it to the S&P 500 Index. However, this process is applied to all investments held within our strategies.
Thank you for reading this monthly 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.
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