On the surface, that seems like a simple enough question. Anybody can, at any time, just take a peek at the index of their choice and see the current status and see: is it positive or negative? So, most of the time when we get that question from our valued clients here at DSWP, the questioner is looking for a bit of insight as to ‘…what is the market really doing?’ Since we are hearing that question with greater frequency in recent days I think it might be a good time to re-visit some of our basic rules about how to interpret market behavior. Of course nothing is absolute and we never want to convince ourselves that we have the power to actually predict the future. Instead what we can do, to a large degree, is identify trends that are actually occurring.

The day-to-day activity always seems to be up and down – because it usually IS. But that very short-term motion can cloud the bigger picture. Our objective (and yours as an investor) is not to catch every little tittle in the market’s whims, but rather to ride the larger positive trends and dismount from the negative ones. Today we’ll look at one of the easiest indicators of the market’s direction, and next week we’ll dig a bit deeper for those of you who are a bit more technically inclined.

When we talk about the ‘market’ we are generally referring to the S&P 500 Index.* We use this one because it is a very big block of stocks and it represents the bulk of the invested dollars in the USA. Online, there are a number of websites that will give you information on this index, and we find that stockcharts.com and finance.yahoo.com to be very good. CNBC.com and Google Finance also provide well-presented information. Granted you won’t find a lot of the technical tools that professionals use, but they don’t cost thousands of dollars either. In fact, they are completely free.

We don’t really want to look at the daily activity, but rather what’s going on over a longer time frame. A good tool for looking at the direction of the market is the ‘moving average’. As its name implies, a moving average takes the value of the index over a period of days and averages that value. Every day that the market is open the moving average adds the most recent closing figure and drops the oldest day’s value. This way, the average value expressed is the latest possible information but still smoothed out to minimize the impact of momentary anomalies. A very common moving average tracked by technical analysts is the 200 day moving average. Most of the financial websites will calculate and chart the value of the 200 day moving average for you.

Here’s a picture of the S&P Index from the stockchart.com website.  (It’s one of those free websites that can give you a LOT of data.)  See the chart.

You’ll note that the black line (the actual daily values of the Index) has a lot of up and down motion. This chart goes back to April of 2015. A look ONLY at the black points that show the actual values of the index can be a bit confusing. However, the red line, which is the 200 Day Moving Average is much easier to see and interpret. We can see that during the second half of 2015 the red line (moving average) was drifting downward and conclude that markets were generally drifting downward. This was, therefore, a time when investors mostly saw their balances drift lower. Now note that the red line appears to have bottomed about March of 2016. Since that time it has moved upward along with the Index, and it also appears to be moving more sharply upward over the past four months or so. Also note that the actual values of the market (black line) are above the red line. Values of portfolios which contain stocks in the index have moved up (for the most part) along with the red line.

This is a pretty good indicator that the market is moving upward, and that it’s a good time to be invested in the stocks that make up the market. It’s certainly true that a very close inspection will show periods of up and down motion, but trying to pay attention to the micro movements is a futile effort for most people. Pay attention to the big picture, and you will generally be on the right side of the market’s movements.

We admit this is a simple exercise and of course things can get much more complicated but, all in all, this is generally accurate and therefore useful. No one actually knows what will happen tomorrow in the markets, and there is a lot of ‘noise’ — those momentary anomalies that can make you nervous if you let them but should normally be ignored. This is just Mr. Market’s effort to confuse you.

Next week we’ll look at some additional clarity that can be obtained by looking at two moving averages.

But for today, the big picture is positive. Enjoy being invested, and ignore the squiggles.

Market Minute 3/10/2017 –Tax Season Returns!

Now that income tax season is getting into full swing again, we find there’s some confusion over one’s ‘tax bracket’.  We hope the attached chart will help clarify the matter.  To help clarify, here’s an example.  If we have a married couple that files jointly (most of you) that has an income after deductions and exemptions of say $35,000 they can find their actual blended tax rate by looking at the chart.  We have a ‘tiered’ tax rate system, so lower income levels are taxed at lower rates than higher incomes.  

In the example, the first $18,650 of their income is taxed, according to the chart, at 10%.  The balance of their income ($35,000 – $18,650 or $16,350) will be taxed at the next tier, or 15%. Thus their total tax is ($18,650 x 10% or $1865) plus ($16,350 x 15% or $2,453) making a total tax of $4,318 which is 12.3% of their income.  

Their actual blended tax rate is 12.3% because 12.3% of their income is the tax amount due.  

Your tax professional will often talk about your ‘marginal’ tax bracket, which is something different.  If our sample couple earns one more dollar of income, it will be taxed at the 15% bracket- their highest marginal bracket.  The marginal bracket is the number your tax pro uses in doing your tax planning. His object is to have you stay out of higher marginal brackets.  

So it’s important to know that (in our example) the actual bracket paid is 12.3% and the marginal bracket is 15%. Hope that helps.  

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at info@denkinvest.com.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.