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Weekly eLetter 6/14/2019 — The Trend is Your Friend…Again

You’ve heard the phrase ‘The trend is your friend’.  To technicians it means that one should continue to stay with a trend until it changes.  So, we’ve had a bit of an indeterminate trend since the last quarter of 2018.  Today, however, the bigger trend is pretty clear, and the trend is up.  Knowing the overall trend is helpful as it defines our actions.

Frankly, it is sometimes hard to leave our own biases at the door and just see the market for what it is.  (or as Tom Dorsey would say, ‘What is, is!) Our first place to look for trends is the S&P 500 Index* as it is the most important market barometer and so it drives our broad market assessment.  All of those other factors- small-caps, retail stocks, economics, tariffs, oil-tanker attacks, and the FED positions are all interesting, but the market makes up its own mind- and the clues are generally to be found in the actions and reactions of the S&P 500 Index.

-Chart courtesy of stockcharts.com

What do we see now?  The long-term trend is up for this index, and it hit all-time highs in the latter part of April.  The current numbers are only 2% below these highs.  In addition, the current prices are above the 200-day moving average (shown on the chart with a red line) and the 20-day moving average is above the 200 MA.  This is usually a good indicator that the direction is up.

What does that tell us?  When we perceive that the trend is up, unusual formations usually end by heading upward, support areas usually hold, and we tend to be a bit heavier with our stock allocations. We still look at relative strength and see that the US markets look better than non-US markets, and US midcaps look better than smallcaps.  As always, we lean heavier on the stronger relative strength areas.

Does this tell us the future?  No, but it gives good clues.  Mr. Market will always make up his own mind, but we are moderately optimistic that even with the weaker summer season nearly here (112 degrees today in Phoenix!) we are likely to see new highs by the fall.

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