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The BLUE LINE INVESTING® PRIMARY TREND Update: January 2020

“The only thing that is constant is change”

 – Heraclitus

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of January 6.2% above the Blue Line, compared to 8.40% at the end of December. As such, we view the current primary trend as a rising trend.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

 

However, last month I expressed my concern that the 4th quarter 2019 rally appeared very “steep.” Unless the S&P is about to break out and rise much higher, this “steepness” may be warning of a temporary price “top.” IF that proves true, there are only two other directions the stock market can go: sideways or down. In the chart above I have added downward sloping arrows to highlight possible price targets if the stock market continues to decline over the coming weeks or months.

Something else worth taking notice of is the divergence that took place on January 22nd. The S&P and the NASDAQ made new price highs, but the Dow Jones Industrial Average did not.  The reason this may be important, at least in the shorter-term, is the last time I recall this happening was at the price bottom in January 2016. During that month, the S&P and the NASDAQ made new price lows, but the Dow Jones Industrial Average did not. Therefore, if a price rally does not materialize relatively soon, the market may retrace some of the price advance from last year.

 

PRIMARY TREND PERSPECTIVE                  

 

To better align this monthly update with both our process and my book scheduled to be published this summer, I will use the following chart going forward to illustrate and monitor the primary trend as we view it.

Chart courtesy of StockCharts.com

 

The two rising dashed green lines represent the primary trend. In the past few years, each time price rose to the top line labeled “Trend Channel Resistance,” shortly thereafter it experienced a price correction. As of today, price is turning down once again from that green line where the red down arrow has been circled. Will it drop all the way back to the bottom of the channel, or even break down through it? Stay tuned to find out over the coming months.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Disclaimers:

BLUE LINE INVESTING® (BLI) is an actively managed investment process that pursues our mission by combining a trend following investment philosophy and a “buy low, sell high” investment strategy. Our mission is to grow our client’s financial wealth over a full market cycle in a risk-managed and tax-efficient way.

We monitor the relationship between price and the Blue Line over time to help identify which stock markets worldwide are experiencing rising, sideways, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The Blue Line helps us identify these trends, and when changes may be taking place.

The S&P 500 Index is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. It is comprised of 500 large companies having common stock listed on the NYSE or NASDAQ. The volatility (beta) of the account may be greater or less than the index. It is not possible to invest directly in this index.

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volumes. Technical analysis attempts to predict a future stock price or direction based on market trends. The assumption is that the market follows discernible patterns and if these patterns can be identified then a prediction can be made. The risk is that markets may not always follow patterns. There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical analysis is one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity. The opinions expressed are those of BLI. The opinions referenced are as of the date of publication and are subject to change without notice. BLI reserves the right to modify its current investment strategies based on changing market dynamics or client needs.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.

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.

ACA-20-22

The BLUE LINE INVESTING® PRIMARY TREND Update: December 2019

“The only thing that is constant is change”

– Heraclitus

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of December 8.40% above the BLUE LINE, compared to 7.10% at the end of November. As such, the current primary trend is categorized as a rising trend.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

As a quick reminder, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

At the present time, my primary concern pertains to the “steepness” of the current price rise. Just two years ago the S&P experienced a steep rise where price exceeded the BLUE LINE by almost 13%, right before it experienced a violent price correction back to the BLUE LINE. Please refer to the red circle on the chart below, courtesy of StockCharts.com.

 

Chart courtesy of StockCharts.com

 

Whether the US stock market is currently rising because of “a good economy”, capital flight out of the Eurozone, or some other reason entirely, sharp price rises tend to be followed by sharp price declines. While the past does not have to repeat, I believe this bears close monitoring over the coming weeks.

 

TOP HEAVY(er?)

In a special report published to this blog on November 15, 2019, a reference was made to the top five largest stocks in the S&P 500 Index measured by market capitalization. If you would like to read it, please click here. Out of the 505 stocks that comprise the S&P, Apple, Inc. was the second largest at that time with a weight of 4.34%. In other words, price changes to Apple stock alone will likely impact the price of the index to a larger degree than the combined smallest 100+ stocks of the index.

Chart courtesy of StockCharts.com

As of the end of December, Apple now represents the largest weight in the S&P. Of the 30 stocks that comprise the Dow Jones Industrial Average, Apple is now the third largest priced stock and represents 6.97% of that index. And of the 100 stocks that comprise the Nasdaq 100, Apple is also the largest weight, representing 11.6% of the index. This information is as of December 31, 2019 and can be found at www.slickcharts.com.

It is interesting to note that Apple’s stock price is trading 31% above its BLUE LINE, which according to the BLUE LINE INVESTING® process is high. This is being pointed out to illustrate that the major US stock indices are becoming more top heavy with each passing day.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Would you find this service more beneficial in video format? If so, please let me know by sending an email to Info@BlueLineInvesting.com. I am considering changing format to a Zoom presentation to narrate this in the future for further clarity.

 

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.

ACA-19-42

 

 

The BLUE LINE INVESTING® PRIMARY TREND Update: November 2019

“The only thing that is constant is change”

– Heraclitus

 

The US stock market, as measured by the S&P 500 Index (S&P), finished the month of November 7.10% above the BLUE LINE, compared to 4.91% at the end of October. The primary trend is currently categorized as Positive.

 

BLUE LINE PERSPECTIVE

Chart courtesy of StockCharts.com

 

As a quick reminder, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

 

TREND CHANNEL PERSPECTIVE

Last month I mentioned I was cautiously categorizing the primary trend as positive. With several client inquiries I will clarify what I meant by that, by putting the current stock market trends into context with the past. Please review the chart below of the S&P 500 Index from 1965 through 1969.

Chart courtesy of StockCharts.com

When looking at the five-year chart above, what you see is a rising trend channel labeled “A” that experienced a price correction labeled “C” in 1966. When the price correction completed, a price rally resumed forming a new rising trend channel labeled “B.” As prices rose, they were stopped by the previous green dashed line, identified by the three gray arrows. Thereafter, price corrected further down to the lowest green dashed line to establish the new rising trend. Price bounced off that green line and rose higher, eventually experiencing a “price top” in late 1968, declining thereafter. The S&P 500 lost over 25% of its value when the trend changed and declined from late 1968 into 1970.

How does the current trend today compare to the mid-to-late 1960’s? Please review the chart below of the S&P 500 Index from 2015 through today.

Chart courtesy of StockCharts.com

When looking at the five-year chart above, what you see is a rising trend channel labeled “A” that experienced a price correction labeled “C” at the end of 2018. When the price correction completed, a price rally resumed forming a new rising trend channel labeled “B.” With this year’s price rally, price has been stopped at the previous green dashed line, identified by the three gray arrows. So, if history decides to repeat itself, it is possible for price to correct down to the lowest green dashed line at some point in the months ahead to establish the new rising trend. Unless the S&P 500 eventually rises back into the original trend labeled “A”, I believe the danger increases that the market could form at least a temporary top within the next year or two, like the late 1960’s. If this occurs, a sell process could come in handy to attempt to limit investment loss should price decline below and remain below the BLUE LINE.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call us at (833) 258-2583 with questions or if we may be of service.

Jeff Link

 

Would you find this service more beneficial in video format? If so, please let me know by sending an email to Info@BlueLineInvesting.com. I am considering changing format to a Zoom presentation to narrate this in the future for further clarity.

 

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.

ACA-19-20

 

 

 

The BLUE LINE INVESTING® PRIMARY TREND Update: August 2019

“The only thing that is constant is change”

– Heraclitus

The US stock market, as measured by the S&P 500 Index (S&P, see the chart below), finished the month of August +2.70% above the BLUE LINE, down from +5.00% above the BLUE LINE at the end of July. We continue to categorize the primary trend as Neutral primarily due to price behavior remaining within what we believe to be a sideways trend.

Chart courtesy of StockCharts.com

As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

SPECIAL UPDATE: THE DOW JONES INDUSTRIAL AVERAGE

The weekly* chart below has been updated from last month for the Dow Jones Industrial Average. I suggest you click here to familiarize yourself with last month’s comments before reading further.

Chart courtesy of StockCharts.com

Over the past thirty days, price declined out of what is believed to be an ascending wedge, identified in the chart above by the converging, red-dashed lines. When you compare this chart to the one from last month, you will notice price corrected down through the bottom red-dashed line. Thereafter, each rally attempt over the past three weeks has stopped rising when price reached the bottom red dashed line. IF our assessment of this technical formation as an ascending wedge is correct, we believe investors should expect further price decline in the days or weeks ahead.

With that said, we continue to believe the primary trend is a sideways or consolidating trend. As such, if the Dow Jones Industrial Average declines back towards the 24,000 price level, we do not believe investors should be surprised. If price remains within the horizontal gray-dashed lines, the sideways primary trend is prevailing. We suggest you ignore the media narrative and stay focused on the primary trend.

Thank you for reading the BLUE LINE INVESTING® PRIMARY TREND update, and please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

 * Each vertical line on the chart represents one week of price change.

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: July 2019

Please read the entirety of this update.

The US stock market, as measured by the S&P 500 Index (S&P – see the chart below), finished the month of July +5.00% above the BLUE LINE, compared to +5.20% above the BLUE LINE at the end of June. We continue to categorize the primary trend as Neutral primarily due to price behavior remaining within what we believe to be a sideways trend.

Chart courtesy of StockCharts.com

As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

 

SPECIAL INSERT: IS THE DOW JONES INDUSTRIAL AVERAGE HINTING AT ANOTHER PRICE CORRECTION?

The weekly* chart below of the Dow Jones Industrial Average shows three changing trends over the past five years. The gray dashed lines on the left show a sideways trend from 2014 – 2015 (2 years). The rising green dashed lines highlight a rising trend from 2016 – 2017 (2 years). And the sideways gray dashed lines on the right highlight what we believe to be a sideways trend that began in early 2018. However, we notice what may be a technical formation called an ascending wedge identified by the two converging red dashed lines inside the sideways trend. IF this technical formation plays out, investors should expect a price correction in the near future.

Chart courtesy of StockCharts.com

You may notice how price acts like a yo-yo within a sideways trend, first rising, then falling, then repeating. So far there have been three attempts on breaking out to the upside while only two on the downside. We would not be surprised if price corrects back towards 24,000 to the bottom of the gray dashed line once again. So, don’t be surprised with continued stock market price volatility – that is what is most commonly associated with sideways trends.

For readers of this BLUE LINE INVESTING® PRIMARY TREND update, please do not hesitate to call us with questions at (833) 258-2583.

Jeff Link

 

Disclaimers:

* Each vertical line on the chart represents one week of price change.

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: June 2019

“The only thing that is constant is change”

– Heraclitus

The US stock market, as measured by the S&P 500 Index (S&P – see the chart below), finished the month of May +5.20% above the BLUE LINE, compared to -1.00% below the BLUE LINE at the end of May. We continue to categorize the primary trend as Neutral.

 

As a quick reminder to our readers, we monitor the relationship between price and the BLUE LINE over time to help identify which stock markets worldwide are experiencing rising primary trends, sideways primary trends, and declining primary trends. We prefer to invest in those markets experiencing rising or sideways primary trends, while avoiding those markets experiencing declining primary trends. The BLUE LINE helps us identify these trends – and when changes may be taking place between them.

Chart courtesy of StockCharts.com

 

THE TREND PERSPECTIVE:

The weekly* chart below of the S&P shows three changing trends over the past five years. The rising Green dashed lines highlight a rising trend; the sideways Gray dashed lines highlight a sideways trend; and when pictured, declining Red dashed lines highlight a declining trend.

Chart courtesy of StockCharts.com

Based on the observable pattern above (see Sideways Trend #2?) the S&P appears to be continuing in a sideways trend. As we wrote in a previous post, until the S&P breaks out above the dashed gray line (significantly), the risk continues that it may still decline to test the bottom dashed gray line of the channel. For informational purposes only, if that were to happen over the coming weeks or months it would equate to a price decline of approximately 10%. This is the third or fourth time the S&P has hit a “high” going back to early 2018. But as you can see, so far, the S&P has declined thereafter. While we do not know if that will happen again soon, it remains a distinct possibility.

 

For readers of this BLUE LINE INVESTING® PRIMARY TREND update, please do not hesitate to call us with questions at (833) 258-2583.

 

Jeff Link

 

Disclaimers:

 * Each vertical line on the chart represents one week of price change.

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.