The Primary Trend of the US Stock Market according to BLUE LINE INVESTING™ ‚¹

Commentary for month ending May 2018:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of May closing +2.94% above the Blue Line, slightly higher from 1.47% at the end of April. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

Do you wonder why we are so obsessed about monitoring price in relation to the Blue Line? It’s because since 1926 there have been 34 instances when price dropped below the Blue Line by at least 5%, or what we call a Phase 1: WARNING. Of those 34 instances, 20 became what we call Phase 2: FAILURES. Of those 20 instances, 9 became what we call Phase 3: CONFIRMATIONS. In other words, Phase 1’s became Phase 2’s 59% of the time, and Phase 2’s become Phase 3’s 45% of the time. Of these 9 historical occurrences, from the time when price first dropped below the Blue Line to the eventual end of the decline, the price decline has averaged -38.1%

What we find most interesting is in almost every one of the 9 historical occurrences the stock market decline followed the same pattern. We believe Warren Buffett said it best, “Rule No. 1: Don’t lose money. Rule No. 2: Never forget Rule No. 1.” While the BLUE LINE INVESTING™ process can not predict the future, it can help identify the early stages of the historical pattern that has coincided with significant stock market price declines. Following this process is how we attempt to follow the wise advice quoted above from the Oracle of Omaha. So our advice is simple – pay close attention to the price of most publicly traded investments in relation to the Blue Line.

Thanks for reading.

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.

BLI Market View, April 2018

The primary trend of the US stock market according to BLUE LINE INVESTING™ ‚¹

Commentary for month ending April 2018:

The US stock market, as measured by the S&P 500 Index² (S&P) finished the month of April closing +1.47% above the Blue Line, almost unchanged from 1.58% at the end of March. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

In a recent article entitled Are Price Movements in the Stock Market Random? (click here), we illustrated a potential descending wedge on the weekly charts. According to technical analysis this could be a positive formation suggesting higher prices soon. We believe by observing the market from different periods of time a clearer picture may emerge for how to set our expectations as investors. This technical formation continues to be in play and if prices continue to decline over the coming days to the 2,575 price level on the S&P, we believe this price level represents a preferred entry point for our clients with cash on hand or who are making their initial investments into the BLI strategies. While there are no guarantees the market will decline to this level, or even continue to decline lower if it does, we believe it is an acceptable price level to purchase select financial investments.

Thanks for reading.

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.

Are Price Movements in the Stock Market Random?

Beginning in February price volatility returned to the US stock markets with a vengeance. Down 125 points! Up 108! Down 104! Up 87! Daily price changes like these in the S&P 500 Index may cause worry and anxiety for an investor. But should they? Are these individual price movements random? Or when viewed together do they reveal a pattern as the market attempts to tell investors a story?

Look at the weekly chart above courtesy of StockCharts.com. I believe there are four specific items worth paying attention to. They are:

  1. The rising primary trend channel (identified by the green dashed lines labelled 1A and 1B)
  2. The potential descending wedge (identified by the purple dashed lines labelled 2A and 2B)
  3. Price (identified by the vertical red and black lines)
  4. The “Blue Line.”

Using technical analysis, the current story the market may be telling investors is that prices could continue to rise in the not-to-distant future. First, all the daily price movements since February in the S&P 500 Index (and many other indices) have remained predominately above their “Blue Lines.” The Blue Line is our reference point and at present, we remain optimistic.

Second, the primary trend over the past two years has been positive with prices trading within a rising trend channel. This channel has been identified by the dashed green lines labeled “1A” and “1B.” If price continues to remain within this channel, technical analysis suggests higher stock market prices to come.

The third and final piece of the story, at least in the short-term, includes a potential technical formation called a descending wedge. This formation can be identified by the downward-sloping dashed purple lines labeled “2A” and “2B.” This formation, if correct, has been created by all those individual up and down days mentioned in the beginning of this article. If this formation comes to fruition the market may be suggesting prices should break out to the upside above line 2A – eventually.

I believe the combination of all these pieces of information suggest the market may rise higher over the weeks to come. However, it doesn’t mean it can not drop lower first. Even though the story of the market can and will change over time, I believe these individual price movements, in concert with each other, can help investors set their expectations for what may happen next – even in the face of news headlines that may create noise, confusion, and anxiety.

After reading this article and witnessing the symmetry within the market from the chart provided I hope you will begin to see what I began seeing many years ago – individual price movements in the stock market may not be random at all. While it may take some time for the story to develop, I believe stock market price movements tend to be precise, and once investors learn how to recognize these patterns they can hopefully become more successful investors.

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.

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.

BLI Market View, March 2018

The BLUE LINE INVESTING™ (BLI)¹ Market View of the US stock market for the month ending March 2018

Commentary:

The S&P 500 Index  (S&P) finished the month of March closing +1.58% above the Blue Line, noticeably lower from 5.36% at the end of February. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

In last month’s commentary we shared our belief that the price correction may not be over and that a retest of the recent February price low may be forthcoming. So far that belief appears to be playing out. From a historical perspective only, we believe probabilities now favor a break in price below the Blue Line. For investors who have kept cash on the sidelines, or who raised cash within their investment strategies within recent months, this may create an opportunity to invest that cash at what we believe could be favorable prices.

Thanks for reading.

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.

Kraft-Heinz Joins the GE club

Last November we published an article titled, “GE’s recent stock collapse: Were there advance warnings?” To read the article please click here. In the article we illustrated 3 specific phases of distribution that suggested the majority of investors in the stock were sellers – not buyers. When the sellers outnumber the buyers over time the primary trend turns negative and the stock price tends to decline.

Today, Kraft-Heinz has joined the GE club having fallen in price by over 20% since its Phase 2: FAILURE late last summer. Please refer to the chart below courtesy of StockCharts.com.

We call the three phases of distribution WARNING, FAILURE, and CONFIRMATION. As you can see from the chart above, the price of Kraft stock has not recovered since dropping below the Blue Line last summer.

We believe investors who own or owned this stock could have limited their losses by following a sell process. If you do not have a sell process and would like to learn more about ours, please click here.

We believe using a tested and proven sell process may help you prevent or minimize significant financial losses the next time the primary trend of the US stock market turns negative. Until then, who will be the next company to join the GE club?

Thanks for reading.

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.

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.

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.

 

BLI Market View, February 2018

The BLUE LINE INVESTING™ (BLI)¹ Market View of the

 S&P 500 Index² for the month ending February 2018

Commentary:

The S&P 500 Index (S&P) finished the month of February closing 5.36% above the Blue Line, over five percent lower from 10.81% at the end of January. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

The price “correction” that occurred last month appears suspicious in that while the S&P touched the Blue Line on the sharp selloff  – albeit very briefly –  two other noteworthy US stock indices did not. Experience has taught us to be cautious when major indices diverge. At present it appears the stock market “correction” is not over and the market very well may retest the recent lows in the days or weeks to come.

Even if it does, according to our process the market has not signaled a change in trend…yet.

Thanks for reading.

Jeff Link

  

Disclaimers:

Chart courtesy of StockCharts.com.

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.

Distinguishing a Price Correction from a Change In Trend using the Blue Line

With the current stock market correction in full gear we thought this would be a great time to expound on the comment we made in an article posted on January 26th – “Is the DOW within 3% of a temporary top?” Why would we say “temporary” rather than just “top?” We believe the answer can always be found with the Blue Line.

At the time of this writing, the S&P 500 Index² (S&P) has dropped 7 ½% in under two weeks. But even with that drop the S&P still remains above the Blue Line. Since 1980, the first thing that has to happen before the market can transition into a Negative Trend is price has to drop below the Blue Line. Right now the market is still 4% above the Blue Line (but we would not be surprised to see it drop below the Blue Line before this corrective phase is over). Therefore we continue to believe this to be a “temporary” top and not THE “top.”

So historically speaking, what are some examples of price corrections in the S&P worse than the present that did not cause an end to the bull market that was in process at that time?

1987     30% price correction from October to December (3 months)

1998     21% price correction from July to September (3 months)

2010     16% price correction from April to July (4 months)

2011     18% price correction from July to September (3 months)

2014     09% price correction from September to October (2 months)

Even in 1987, during the long bull market in the Tokyo Nikkei 225 Index ($NIKK), the NIKK experienced a 20% price correction from October through November (2 months) before continuing the bull market.

So what do we expect from here? We expect the stock market to experience a price bounce in the coming days or maybe weeks. We intend on making some strategic changes to our strategies at that time in an effort to protect against what could be another decline that occurs thereafter. We expect the markets to touch the Blue Line before this corrective phase is over. For new clients to Blue Line Investing, the Blue Line is our preferred purchase point when clients are holding cash in their accounts, as well as to invest money held within cash equivalents within our BLUE LINE INVESTING™ Strategies.

Of course, anything can happen, but we are making preparations based on what we expect may happen. If the data changes from what we expect, we will modify our plan accordingly.

Please do not hesitate to call us at the number at the top of the page with any questions or concerns. As a value-added service to our clients, we would be happy to talk with family, friends, or co-workers who may be concerned during the current price correction.

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.

³ The Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It is a price-weighted index, operating in the Japanese Yen, and its components are reviewed once a year. Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to the Dow Jones Industrial Average. The volatility (beta) of an account may be more or less than 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 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.

Almost Everything Eventually Returns to the Blue Line

A mere six weeks ago Bitcoin was the darling to talk about. It was the talk around the water cooler and the one investment that everyone seemed to be clamoring to buy. Fast forward to today and the price has dropped by almost 68% from its high. Is there a simple explanation for this sudden change in trend?

As we wrote recently in our BLI Market View (viewable here), whenever an investment rises too quickly and rises too high above its Blue Line, it is typically followed by a reversion to the mean. When pertaining to our process the Blue Line is the mean.

Take a quick look at the chart below of the Bitcoin Investment Trust, symbol: GBTC, that trades on the over-the-counter (OTC) market for illustration. Do you notice how price reverted to the Blue Line from its recent high?

A lot of money was likely made from early investors in Bitcoin. But for those who joined the party too late, they have likely experienced losses. We believe one of the best ways to limit potential losses is to have a process that helps minimize your emotions from your decision to buy or sell. For us, that process incorporates the Blue Line.

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 Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies. Today’s market cap for all bitcoin (abbreviated BTC or, less frequently, XBT) in circulation exceeds $7 billion.

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.

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.

BLI Market View, January 2018

The BLUE LINE INVESTING™ (BLI)¹ Market View of the

 S&P 500 Index² for the month ending January 2018

Commentary:

The S&P 500 Index (S&P) finished the month of January closing 10.81% above the Blue Line, almost 4% higher from 7.32% at the end of December. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive. However…

…since 1980, it has been very common for prices to “correct” in price back towards the Blue Line from elevated levels. This is commonly referred to as reversion to the mean. As #RichardRussell of #DowTheoryLetters use to say, the market sometimes acts like a rubber band. As prices advance, trending higher and higher, the rubber band stretches out. But once let go, the rubber band snaps back to its normal state. For us, the normal state or mean of the market is the Blue Line.

Are we at a point now where the stock market, like the rubber band, may snap back? Or could the market produce even higher elevated levels before it forms a top? Time will tell. But we have only found a handful of times since 1980 when price exceeded the Blue Line in excess of the current 10.81% before ultimately correcting back to the Blue Line.

Thanks for reading.

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.

Is the Dow within 3% of a temporary top?

With all the emotional euphoria surrounding the continued rise in the US stock market, we thought it beneficial to share one theory, that if correct, could warn the market may be within 3% of a temporary top. To be clear – we are not calling a top, nor do we make investment decisions for clients based on what is being provided within this article. We simply want to provide information for investors to consider before throwing caution to the wind and chasing into a rising stock market.

We will do our best to keep this simple. According to Elliott Wave theory, collective psychology, or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns and a typical optimistic pattern follows a 5 wave advancing sequence. Upon completion of the 5 wave advance, a 3 wave corrective pattern typically follows.

Take a look at the image above of the rally in #theDow going back to the bottom in 2009. What do you notice about the potential wave structure since that time?

Advancing Wave 1: + 98%

Corrective Wave 2: – 19%

Advancing Wave 3: + 75%

Corrective Wave 4: – 16%

Advancing Wave 5 (so far): + 70%

Corrective waves 2 and 4 were almost the same in percentage terms which lends evidence this may very well be a 5 wave pattern. If this theory proves true, the current Wave 5 rally could equal the same percentage advance as wave 3 or wave 1. In other words, according to the Elliott Wave theory the “targets” for the completion of wave 5 could be approximately 27,037 (or 3% higher if equal to wave 3) or 30,900 (or 18% higher if equal to wave 1). The question we believe all investors should consider is “are new purchases worth the risk?”

With this information in mind should you sell out of your existing investments? We believe the answer is “absolutely not.” What if the market rallies another 18% and you sold out of your investments? Rather, we believe investors should be thinking about how to add protective hedges to their existing investments when appropriate. Since stock markets rise and fall, there very well may be a better buying opportunity for new purchases in the months to come.

We hope you found this information beneficial and we will provide more commentary on protective hedges in a future article.

Jeff Link

Disclaimers:

Chart courtesy of StockCharts.com

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 Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. 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. Forward looking statements cannot be guaranteed. Material presented has been derived from sources considered reliable, but Blue Line Investing cannot guarantee its completeness or accuracy.

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.

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.

Be Mindful of Complacency

The illustration above highlights the calendar year performance for the S&P 500 Index (S&P)² since 1928. Do you know what percent of those years the stock market was positive or flat compared to negative? The answer is 71% and 29%. Historically, stock market investors have been favored by a positive ratio of approximately 2-1. But should this ratio bias their investment decisions and cause complacency? How easy it can be to forget that price volatility within individual calendar years can be significant.

Consider 1987 as an extreme example. The S&P began January 1987 around 242 and rose to 336 by the end of August, rising almost 39% over that time. By the beginning of December it dropped to 225, declining almost 33%. By the end of the year it scratched its way higher to close at 247. So even though in hindsight the S&P finished the year in the positive by a boring few percent, the actual experience for the investor was anything but boring.

When experiencing positive trends like at present, with downside price volatility almost nonexistent, can investors become too complacent with investment decisions; specifically, how they manage risk? After all, stock markets rise and fall. Prices ebb and flow. Before becoming eager to chase new money into what seems to be a runaway stock market we believe you should pause, take a step back, and reflect on what history has taught us. Rather than buying more stocks with the expectation they will continue to rise, maybe it is time to challenge your perspective. Rather, we believe it may be prudent to begin looking for opportunities to add protective hedges to your existing investments in an effort to help protect any unrealized gains during the next price correction. We will discuss one way to attempt to accomplish this in one of our upcoming articles.

Jeff Link

Disclaimers:

Illustration courtesy of Macrotrends – www.macrotrends.net/2526/sp-500-historical-annual-returns.

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.

 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.

 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.

BLI Market View, December 2017

The BLUE LINE INVESTING™ (BLI)¹ Market View of the

 S&P 500 Index² for the month ending December 2017

Commentary:

The S&P 500 Index (S&P) finished the month of December closing +7.32% above the Blue Line, almost unchanged from 7.95% at the end of November. With the S&P remaining above the Blue Line we continue to categorize the primary trend as Positive.

Calendar year 2017 was very unique in our opinion. Since 1980, there have only been 3 other calendar years – 1989, 1995, 2013 – when the S&P did not test the Blue Line during the calendar year. This suggests to us the probability of the S&P testing the Blue Line during calendar year 2018 is high.

Therefore, we do not believe a price correction of at least 7% (based on current prices) should be surprising to investors, if one occurs. Our process pays close attention to these metrics to help determine when to consider adding protective hedges to existing client strategies, as well as to help identify preferred purchase prices when investing new money into the stock market.

Thanks for reading.

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.