After six months of price decline, the S&P 500 Index finally experienced a price rally during the month of July that now has the media ablaze. I have even read headlines that suggest a new bull market began in June. I’m sorry to say, but the “old” bull market still hasn’t ended. So far, it appears we are in a “corrective” phase in a rising trend – not an outright change in trend.
Please refer to the pink circle below to see where the market is within the current crossroads of identified rising and declining trend channels:
PRIMARY TREND: RISING (but correcting)
Chart courtesy of StockCharts.com
The type of price rally experienced in July is common during most channel (and trend) corrections. So far, last month appears to be a counter-trend rally in an ongoing channel correction. Take a closer look at the red box and arrow below:
Chart courtesy of StockCharts.com
Price continues to remain under the Blue Line, and the “gap,” or space between the Blue Line and Purple Line is significant. Consider a similar pattern back in late 1969 identified below with the red box and arrow:
Chart courtesy of StockCharts.com
In 1969 (as one example), the price rally in October stalled around the Blue Line with the Purple Line below. The eventual outcome was a continued price decline. In other words, applying these same patterns to today’s market does not negate the potential for new price lows somewhere ahead – at least not yet.
According to the BLUE LINE INVESTING® process, what I would ideally like to see is price rising above the Blue Line and remaining above it, along with the Purple and Green lines rising above the Blue Line as well. Until that happens, I believe caution is warranted.
THE “BLUE LINE”: A CLOSER LOOK
Chart courtesy of StockCharts.com
The S&P finished the month of July 1.40% below the Blue Line, compared to 10.90% below the Blue Line at the end of June.
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Jeff Link
Disclaimers:
The BLUE LINE INVESTING® (BLI) investment process was founded on over 95 years of stock market history. It seeks to identify and align investment decisions with multiyear trends. Various aspects of this process have been illustrated in my book Protecting The Pig: How Stock Market Trends Reveal the Way to Grow and Preserve Your Wealth.
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.
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