The BLUE LINE INVESTING® March 2019 Primary Trend Update

Commentary:

The US stock market, as measured by the S&P 500 Index (S&P) finished the month of March 4.00% above the BLUE LINE, compared to +2.81% above the BLUE LINE at the end of February. With price behavior continuing to be volatile with price oscillating through the BLUE LINE, we continue to categorize the primary trend as Neutral.

THE BIG PICTURE

Sometimes it can help to step back and look at the big picture. The chart below is a weekly version of the S&P of the past five years. Each vertical line on the chart represents one week of price behavior.

From a technical analysis perspective, the S&P may be within a second sideways trend. If so, it is possible for price to consolidate over the coming months at or below the current price level, similar to what happened during 2014 and 2015 (See sideways trend 1 above).  At this moment the S&P is back to where it was at the end of January 2018.

We have recently posted a video presentation on our website called A Historical Perspective that illustrates these types of trends, or trend channels, as they are often called. Please visit www.BlueLineInvesting.com/process if you would like to see how these types of trends have played out since the 1930’s.

For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

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.

The BLUE LINE INVESTING® Primary Trend Update

 

Chart courtesy of StockCharts.com

Commentary:

The US stock market, as measured by the S&P 500 Index (S&P) finished the month of January at the BLUE LINE, as compared to -7.7% below the BLUE LINE at the end of December. With all of the price behavior over the past four months occurring below the BLUE LINE, we continue to advise caution. Therefore, we continue to categorize the primary trend as Neutral.

THE TECHNICAL PERSPECTIVE

Sometimes it can help to step back and look at the big picture. The chart below is a weekly version of the S&P over the past three years. Each vertical line on the chart represents one week worth of price behavior.

Chart courtesy of StockCharts.com

What we observe from this chart, from a technical analysis perspective only, is that it appears the S&P is within one of two trends. IF price fails to rise materially higher after today, and turns down instead, the negative trend may be the primary trend and is highlighted by the dashed red lines. If so, we should expect lower prices in the coming weeks or months.

If, however, price breaks out above the red dashed line where you see it now, it is possible it could continue to rally higher. However, that does not necessarily mean it will continue to rise to new highs. It may simply mean the neutral trend is dominant, highlighted by the gray dashed lines. If that is that case, it would not be surprising to see the market decline once again thereafter and possibly retest the price low at the end of December. As a reminder, that is around 2,350 on the S&P, or 13% lower from here.

We encourage all investors to exercise patience and discipline until the picture becomes clearer. For clients of BLUE LINE INVESTING® please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

Blue Line Investing (BLI) is a disciplined, rules-based investment process that attempts to identify the primary trend within the financial markets. The process uses technical analysis, trend-following, and historical pattern recognition to define the primary trend as either positive, neutral, or negative. Once identified, all investment-related decisions are aligned with that trend. BLI is an alternative to traditional, passive investing, in that it attempts to help investors save time and money over a full market cycle, through strategic changes within our strategies as primary trends change within the financial markets.

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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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 Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703. GOR-1901-9

The BLUE LINE INVESTING® Primary Trend Update

Commentary:

The US stock market, as measured by the S&P 500 Index¹ (S&P) finished the month of December 7.71% below the BLUE LINE, down from essentially at the BLUE LINE at the end of November. With the S&P currently below the BLUE LINE, and without having experienced either a Phase 2: WARNING or Phase 3: CONFIRMATION from the BLUE LINE INVESTING® (BLI) Sell Process, we continue to categorize the primary trend as Neutral.

As a quick reminder, when markets are in a rising trend, we have seen that price tends to “bounce” off the BLUE LINE on price corrections before rising higher. But when the trend changes to a declining trend we’ve found that the opposite tends to occur. Price tends to be “rejected” by the BLUE LINE before declining lower. While we believe it is still too early to come to any definite conclusions, the fact that price is below the BLUE LINE, along with other indicators we use, suggests the market “correction” may not be over.

We will be sending out a report to clients in the coming days called the BLUE LINE INVESTING® Contingency Plan to help explain what strategic actions we have taken so far and anticipate taking over the coming weeks and months as long as price remains below the BLUE LINE. It may be time to flip our investment strategy upside down, so to speak.

Please call us at (833) 258-2583 with any questions and we look forward to talking with you soon.

Jeff Link

 

Disclaimers:

Blue Line Investing (BLI) is a disciplined, rules-based investment process that attempts to identify the primary trend within the financial markets. The process uses technical analysis, trend-following, and historical pattern recognition to define the primary trend as either positive, neutral, or negative. Once identified, all investment-related decisions are aligned with that trend. BLI is an alternative to traditional, passive investing, in that it attempts to help investors save time and money over a full market cycle, through strategic changes within our strategies as primary trends change within the financial markets.

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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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 Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703. GOR-1901-1

The BLUE LINE INVESTING® Primary Trend Update

Chart courtesy of StockCharts.com

Commentary:

The US stock market, as measured by the S&P 500 Index¹ (S&P) finished the month of November essentially at the Blue Line, down from 1.60% above the Blue Line at the end of October. With the S&P currently at the Blue Line, and having rallied from underneath the Blue Line, we continue to categorize the primary trend as Neutral.

Technically speaking, the 2,800 price level on the S&P appears significant. If the S&P can rise through that price level, it is possible the market may continue to rally to test the October highs. If however, it fails to rise above and hold above 2,800, the current price “bounce” may prove short-lived. Based on what is being observed at the present time, I am more inclined to begin looking for opportunities to add protective hedges to some of the BLUE LINE INVESTING® strategies as a precaution in the near-term. (Author’s note: this article was written and submitted for compliance approval Monday morning, December 3rd).

For clients of BLUE LINE INVESTING®, please feel free to call me at (833) 258-2583 if you would like to further understand how we use protective hedges, and when used, their potential impact to strategy performance.

Jeff Link

 

Disclaimers:

Blue Line Investing (BLI) is a disciplined, rules-based investment process that attempts to identify the primary trend within the financial markets. The process uses technical analysis, trend-following, and historical pattern recognition to define the primary trend as either positive, neutral, or negative. Once identified, all investment-related decisions are aligned with that trend. BLI is an alternative to traditional, passive investing, in that it attempts to help investors save time and money over a full market cycle, through strategic changes within our strategies as primary trends change within the financial markets.

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.

The volatility (beta) of an account may be greater or less than that of an index. It is not possible to invest directly in an 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only. Forward looking statements cannot be guaranteed.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

The BLUE LINE INVESTING® Primary Trend Update

Commentary:

The US stock market, as measured by the S&P 500 Index¹ (S&P) finished the month of October closing 1.60% below the Blue Line, down from 6.00% above the Blue Line at the end of September. With the S&P declining below the Blue Line we now categorize the primary trend as Neutral.

Last month we commented that “If history continues to repeat, we believe the Blue Line will help inform us again when this positive primary trend in the US stock markets may be coming to an end…whenever that may be in the future.” With this month’s price decline exceeding the Blue Line by over 5% we now have our first Phase 1: WARNING in almost three years. This warning is just that – a warning. It does not require any action now. But it warns us to pay close attention to whether price can rally back up to and through the Blue Line in the near future.

For a summary description of the 3 phases of our Sell Process, please click here and turn to page 7 of the Case Study of the S&P 500 Index at the bottom of the webpage.

Jeff Link

 

Disclaimers:

Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

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.

The volatility (beta) of an account may be greater or less than that of an index. It is not possible to invest directly in an 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only. Forward looking statements cannot be guaranteed.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

Crash? Correction? Or Change in Primary Trend?

With the recent stock market decline I wanted to take this opportunity to reiterate to all clients, both old and new, how we attempt to differentiate between a stock market crash, price correction, and potential change in primary trend using the BLUE LINE INVESTING® (BLI) process. In doing so, I will attempt to do my best to limit my use of technical terms to help relay these concepts in a manner that may be easier to comprehend.

First, let’s define these three terms as follows:

Stock Market Crash – A rapid and often unanticipated decline in stock prices. Two historical examples could include October 1929 and October 1987. In 1929 the stock market declined by approximately 33% from the high to the low, and in 1987 the stock market declined by approximately 31% from the high to the low.

Stock Market Correction – A decline in the market price after extensive price increases. This can occur even when there is no evidence that the increasing price trend should end. A price change of 10% or more from the peak high is common.

Change in Primary Trend – A transition that tends to occur over the course of a few months where prices that have been in a long-term rising trend invert and begin a short-to-intermediate declining trend (or vice versa). One of the better examples of a change in primary trend from positive to negative began back in October 2000 and ended in March of 2003. Over that 30-month period the stock market declined by approximately 49% from beginning to end.

It is somewhat concerning that as I am writing this article it becomes apparent that the examples above all began in the month of October. But moving along, what can be observed right now?

First, using the S&P 500 Index (S&P)¹ as our reference point, the price decline has so far been almost exactly 10% from the recent high earlier this month. So, according to the definitions above it does not fall under the definition of a crash but definitely a correction. So with that said, what would have to happen from here to redefine this recent price decline as a change in primary trend?

Please click here to review the BLI sell process rules and refer to page 7 of the Case Study on the S&P. First, with this month’s price decline, the primary trend can no longer be categorized as positive since the S&P has declined below its Blue Line by over 3%. The primary trend must now be changed to neutral.

Second, as can be seen by our sell process rules, created from historical patterns observed from the S&P dating back to 1926, if the S&P declines by at least 5% below the Blue Line it would trigger a Phase 1: WARNING of a possible change in trend. Since that has not happened yet I will leave off explaining Phase 2 and Phase 3 further. But to visualize what this tends to look like visually, please refer to the following chart of EWI, an exchange-traded fund owning stocks from the country Italy, courtesy of StockCharts.com.

From the recent high, EWI declined by over 7% to the Blue Line. Through today, price has declined an additional 18% since completing Phase 2 and Phase 3. In total, the price decline over the past six months has been approximately 25%. For additional examples of stocks that have experienced these three phases in recent years and their resulting outcomes, check out General Electric and Kraft Heinz Co.

So far the S&P has not triggered a Phase 1:WARNING – yet. But if it does in the days or weeks to come, I believe it will be important to follow the BLI sell process to attempt to limit significant losses that could be on the horizon. Until then, we patiently wait and observe the patterns.

For comparison of what the S&P looks like right now in light of EWI above, please see the chart below.

As I conclude this article, allow me to make one additional comment. On occasion, the BLI process attempts to implement partial protective hedges using inverse exchange-traded funds (ETFs) either preceding or during price corrections. Sometimes they are successful and sometimes they are unsuccessful. But it is only upon a Phase 3: CONFIRMATION event that our process may attempt to profit from a broad-based, stock market downturn, buy using inverse ETFs exclusively. We must have complete belief and conviction that the primary trend has in fact changed from neutral to negative, something that is not remotely close at the present time.

Jeff Link

Founder of the BLUE LINE INVESTING® process

Disclaimers:

Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following using specific Exponential Moving Averages (EMAs) of the market along with other technical indicators. A moving average is a widely used indicator in technical analysis that helps smooth out past price action by filtering out the “noise” from random price fluctuations. EMA’s can be calculated for any time period. Some examples include the 5 day EMA; 50 day EMA; and 150 day EMA. We have attempted to simplify this by calling the various EMAs we use in our process the “Blue”, “Purple” and “Green” lines.

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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only and should not be considered financial advice. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Forward looking statements cannot be guaranteed. 

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

AN EFFECTIVE HEDGE

Price volatility is the price all investors must pay when attempting to increase their wealth through the stock market. And while few complain about price volatility when stock prices rise, some complain, or at least become more concerned, when stock prices decline. Today I want to provide an example of how some investors can apply a protective hedge to their investment portfolios during periods when stock prices are correcting, as they have been in recent weeks.

Before continuing this article, I suggest you first read an article I wrote back in 2016 titled “Attempting to Profit From Falling Prices” that can be found here. As was highlighted in that article there are ways to attempt to profit from falling stock prices, and one particular way is by using inverse Exchange-Traded Funds (ETFs). But that article pertained to stock markets that were already in a negative primary trend. Since we currently believe the stock market continues to remain in a positive primary trend, we believe our goal should be to add a protective hedge to some of our existing investments to attempt to help limit financial losses. Here’s how we do this within our process, and if you have your own process, I believe you can do it too. Before proceeding, allow me to set the stage using technical analysis for illustration.

Look at the chart below of the Vanguard S&P 500 ETF, representing the past twelve months of price activity, courtesy of StockCharts.com.

The red arrow illustrates the point where price began to decline in earnest, or approximately $265. Within a few days price dropped 6 ½% lower to $248. But notice that on this decline price stopped just short of the gray line – a previous technical resistance and support zone that was established earlier this calendar year. When prices began to rally, our expectation – according to technical analysis – should be for prices to retrace 50% of the recent decline, which would be approximately $256.50. That number becomes our target. As it turns out, price rallied to approximately $258, a little farther than expected. But now we come to the purpose of this article – how to implement a protective hedge using inverse ETFs.

Let’s assume you own VOO in your investment portfolio. Based on the technical information observed above, if you believe that prices will soon resume their decline after the “bounce” you could add an inverse ETF, such as SH, to your portfolio that is an inverse ETF to the S&P 500 Index. By doing so, you are attempting to limit further losses on your investment in VOO without having to sell it. Look at the next chart of SH, courtesy of StockCharts.com.

This chart shows that SH performed in an almost exact opposite manner to VOO from the time of purchase. So, if you purchased SH on the “bounce,” based on some percentage of your investment in VOO, you could have effectively “hedged” some or most of your risk in VOO. This “hedge” can help you reduce or eliminate your downside price volatility depending on how much of SH you bought, and the specific price when you purchased it.

The next step will entail deciding when to sell your investment in SH, since this may not be an investment you want to own for very long. In my next article I will illustrate what we are currently monitoring to help with that decision.

Thank you for reading and please share this article with anyone you believe may find it of benefit. We hope this article helps you learn how to view the stock market from two dimensions, rather than one, and how you can take proactive action to attempt to protect some of your stock investments against declining price volatility.

Jeff Link

 

Disclaimers:

Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following using specific Exponential Moving Averages (EMAs) of the market along with other technical indicators. A moving average is a widely used indicator in technical analysis that helps smooth out past price action by filtering out the “noise” from random price fluctuations. EMA’s can be calculated for any time period. Some examples include the 5 day EMA; 50 day EMA; and 150 day EMA. We have attempted to simplify this by calling the various EMAs we use in our process the “Blue”, “Purple” and “Green” lines.

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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only and should not be considered financial advice. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Forward looking statements cannot be guaranteed.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

The primary trend of the US stock market according to BLUE LINE INVESTING®

Commentary:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of September closing 6.00% above the Blue Line, down from 6.81% at the end of August. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

We consistently review a universe of over 500 Exchange-Traded Funds (ETFs) to both search for new potential investment opportunities as well as to monitor the primary trend for several asset classes, which include: US stocks, International stocks, Commodities, Currencies, and Bonds (Fixed Income). We find it interesting that currently, and speaking in general, the US stock market appears to be in a positive primary trend; International stocks and Bonds appear to be in neutral primary trends; and Commodities and many Currencies are in negative primary trends. In other words, it appears capital continues to flow into the US markets at the expense of other financial markets, even those that may be considered less expensive. Investors who claim the US stock markets are “too expensive” might ask themselves a question – “Compared to what?”

History has taught us that “expensive” investments can continue to rise and become even more “expensive” for quite some time. And “cheap” investments can continue to suffer additional financial losses and become “cheaper” longer than expected. This is where we believe the “Blue Line” can be beneficial. It acts as a reference point to help determine the primary trend of an investment, when one can be identified, and when the trend may be changing. It helps remove personal bias and opinion to allow for more objective interpretation. If history continues to repeat, we believe the Blue Line will help inform us again when this positive primary trend in the US stock markets may be coming to an end…whenever that may be in the future.

Jeff Link

 

Disclaimers:

¹ Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

² 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.

The volatility (beta) of an account may be greater or less than that of an index. It is not possible to invest directly in an 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only. Forward looking statements cannot be guaranteed.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

The primary trend of the US stock market according to BLUE LINE INVESTING®

Chart courtesy of StockCharts.com

Commentary:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of August closing 6.81% above the Blue Line, up from 5.11% at the end of July. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

We believe a question investors should ask themselves is which index is the true leader of the US stock markets? According to Armstrong Economics, the Dow Jones Industrial Average³ (DJIA) represents international investors, the S&P represents domestic investors, and the NASDAQ⁴ represents retail investors. Of the three, the DJIA is the only one that has so far failed to break out to a new high. So, are the S&P and NASDAQ the true leaders? Or is it the DJIA which, at this moment, may be hinting at potential caution? We will likely find out in a matter of time.

Until then, we also find it interesting to observe that the Dow Jones Transportation Average⁵ has broken out to new high without the DJIA, resulting in a Dow Theory non-confirmation.

We believe it is currently prudent for investors to hold on to their existing investments but continue to be cautious with new cash purchases until the market paints a clearer picture of the true leader – and resulting trend – for this market.

Jeff Link

 

Disclaimers:

¹ Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

² 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.

³ The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq.

⁴ The NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks.

⁵ The Dow Jones Transportation Average is a price-weighted average of 20 transportation stocks traded in the United States.

The volatility (beta) of an account may be greater or less than that of an index. It is not possible to invest directly in an 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

The primary trend of the US stock market according to BLUE LINE INVESTING®

Chart courtesy of StockCharts.com

Commentary for month ending July 2018:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of July closing +5.11% above the Blue Line, up from 2.53% at the end of June. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

We believe the 2,800 price level on the S&P is currently important and failure to hold above this price may indicate continued consolidation. A couple other notable US stock market indices are not breaking out to new highs yet so until all major indices do so in unison we do not believe new highs are likely – yet. But with price activity remaining solidly above the Blue Line this year we currently believe it may only be a matter of time before new highs occur.

Jeff Link

 

Disclaimers:

¹ Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

² 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

Technically Speaking…The US stock market may be at a crossroads

After recently passing the half way point of the calendar year, the US stock market has so far provided low, single-digit returns. So, what might investors expect for the second half of the year? More of the same or something different? While no one has a crystal ball I have found technical analysis to be a helpful tool to set my expectations. The chart below, in my opinion, provides two important items for investors to pay attention to at present.

Chart courtesy of StockCharts.com

First, the stock market may be on the verge of making a trend decision. There are two patterns that can be identified on the weekly chart above – a consolidating channel and a rising channel. The consolidation channel labeled “1A” and “1B” illustrates a period when stock prices remained range bound and stagnated. Such was the case from late 2014 through early 2016. This pattern eventually became a rising channel labeled “2A” and “2B.” Such a channel illustrates a period when prices rise higher and higher over time.  But now we see the potential for a new consolidation channel labeled “3A” and “3B” forming inside the rising channel. So how can you determine which of the two is the dominant channel right now? Based on the chart it appears the US stock market is at a crossroads. If price rises decisively above line “3A” we believe it is likely the rising channel will continue with higher prices to come. But if prices decline decisively, possibly below line “2B,” it is likely a consolidation channel will continue, with stagnant prices for the foreseeable future.

Second, on each of the stock rallies since February, the relative strength indicator has topped at 60. This can be observed with labels 4A and 4B, 5A and 5B, and 6A and 6B. Historically speaking, I have found that relative strength tends to top out at 60 during consolidation channels, as well as with negative primary trends. Price does not typically continue in a rising channel with relative strength remaining at or below 60.

You may be wondering how this information can be beneficial. The answer has to do with money you already have invested versus money you may be considering investing. For money already invested, this information sets the expectation that prices are likely to consolidate or continue to rise for the foreseeable future. If that is your expectation there is likely no need to hedge or sell any investments over fear of a stock market downturn. For money being considered for investment, the outcome determines a purchase decision. If price decisively rises above line “3A” it could be advantageous to buy. However, if price declines decisively below line “3A” it could signal to delay new purchases, as lower prices may result in the near-term. Whatever happens over the coming days and weeks, the relationship between price and relative strength should help identify which of the two trend channels is dominant at this time.

Jeff Link

Disclaimers:

¹ Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following using specific Exponential Moving Averages (EMAs) of the market along with other technical indicators. A moving average is a widely used indicator in technical analysis that helps smooth out past price action by filtering out the “noise” from random price fluctuations. EMA’s can be calculated for any time period. Some examples include the 5 day EMA; 50 day EMA; and 150 day EMA. We have attempted to simplify this by calling the various EMAs we use in our process the “Blue”, “Purple” and “Green” lines.

² 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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

The relative strength measure is based on historical information and should not be considered a guaranteed prediction of market activity. It is one of many indicators that may be used to analyze market data for investing purposes. The relative strength measure has certain limitations such as the calculation results being impacted by an extreme change in a security price.

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. This information is intended for educational purposes only and should not be considered financial advice. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Forward looking statements cannot be guaranteed.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.

The primary trend of the US stock market according to BLUE LINE INVESTING™

Commentary for month ending June 2018:

The US stock market, as measured by the S&P 500 Index (S&P) finished the month of June closing +2.53% above the Blue Line, almost unchanged from 2.94% at the end of April. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

As can be seen from the chart above, the S&P has made little progress this calendar year and is currently near where it began. But the one constant – at least so far – has been price remaining above the Blue Line. In addition to the S&P, of the 20 investments currently owned within the Blue Line Investing STOCK Strategy, only 2 have recently dropped below their Blue Line’s by more than 5%,  signaling a Phase 1: WARNING. We will continue to monitor those investments closely, and if necessary, apply our sell process to remove them in attempt to limit further financial loss in accord with our sell process.

For clients of the BLUE LINE INVESTING™ strategies we thank you for your continued trust and confidence, and wish all readers of these posts a safe and fun 4th of July holiday.

Jeff Link

Disclaimers:

Blue Line Investing (BLI) is an alternative to traditional wealth management. BLI uses a disciplined, rules-based investment process to seek investment opportunities, regardless of whether financial markets are rising or falling. Based on technical analysis research, the process applies trend-following along with observations of economic moving averages of the market and other technical indicators.

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 Blue Line Investing. The opinions referenced are as of the date of publication and are subject to change without notice. Blue Line Investing 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. This information is intended for educational purposes only.

Advisory services offered through Gordon Asset Management, LLC (GAM). GAM is an SEC-registered investment adviser. 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 (866) 216-1920. The principle office of Gordon Asset Management, LLC is located at 1007 Slater Road, Suite 200, Durham, North Carolina, 27703.