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.

Ron’s Market Minute – Perspective Matters!

As I peruse the morning news websites to see what else you are likely to see in today’s headlines, I remember that when my kids were in high school, we often talked about perspective. What you observe is heavily impacted by the backgrounds clouding your field of view. In high school, when you went to a student dance, ‘everyone was fighting’ if you were in a group where several people were disagreeing with each other, ‘everyone was having a great time’ if you were in a group of kids dancing and enjoying themselves, and ‘everyone was drinking’ if that’s where you hung out. The actual situation of course was that there were pockets of these behaviors, and ‘everyone’ was not experiencing the same environment.

Today’s ‘Marketwatch.com’ online headline refers to awful business conditions in the US.  Yes, I know that bad news is a better magnet for eyeballs than good news, and that website is after your eyeballs, it is not attempting to educate you or anyone else.  A chunk of their analysis is based on jobs data which their proprietary index (that means they designed the data and analysis) calculates that we have a negative jobs market.  I beg to differ! Jobs data is notoriously volatile from month to month, and any one reading is not particularly relevant, be it good or bad.  The average monthly jobs numbers continue to be strong positive numbers.  The jobs problem we actually do have is that employers cannot find enough skilled laborers to fill the open positions.  As I recall the number of openings is currently at the highest level in years!

And as far as markets’ health is concerned, 9 of the 11 sectors of the US market are positive, many are showing new highs.  Also, the ‘aggressive’ sectors are all looking positive which tends to forecast growth.  It’s true that the defensive areas are still showing strength, and that means that overall, the markets are looking good. 

Another thought; it appears that the proprietary index includes significant weighting toward current headlines.  We’ve mentioned those enough over the past several months (China, trade, Mexico, the Fed, etc.). Headlines come and go, and while they do create volatility, they are not a recognized input for investing success.

I also note that productivity growth has picked up in the past couple of years due to reduced regulations and lower corporate taxes on corporate profits and investments. The result is that the economy’s potential growth has also increased. From my viewpoint the glass is definitely more than half full – and that’s my perspective!

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

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 lindaw[@]denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

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.

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*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.

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