Last week we wrote about the simplest indicator of market direction — the 200-day moving average. We talked a bit about what it is, how it is used and why it is one of the most reliable ways to estimate the direction of the market. It’s still not a crystal ball, but it is a very good tool.

Today we will continue that discussion and delve a little deeper into what can (and cannot) be learned with this device. As a reminder, when we talk about the market we are using the S&P 500 Index* because it represents the bulk of the invested dollars in the USA. We will again print the picture of the S&P Index that we showed you last week. This picture shows the past two years’ activity of the S&P Index with a dark – and quite volatile — line. That line shows the daily activity, including all of its associated drama. On the other hand, the red line shows the 200-day moving average. Both lines ultimately reveal what is essentially the same information but the dark line does it in a frenzied way and the red line shows a more studied interpretation. It’s relatively easy to note when the market is above the red line and that is the important thing — because this is when stocks tend to be stronger.

But several of you mentioned that sometimes the market moved back and forth above and below the red line, and wondered if those are not indicators of when to move in or out of the markets. Good question for sure, so let’s look at its implications.

Market technicians take our graph a step further by using a shorter moving average (typically the 50 day) and showing that along with the 200-day moving average.  Here’s what that looks like:

On this chart, we can easily find a technical suggestion that says we want to (generally) be in the market when the green dotted line is above the red line. Note that it’s easier to track than in the earlier graph from last week. In this graph, there are only two moves out and back into the market over the past two years, whereas in last week’s chart some time periods are not as clear.

Looking at where the trend lines are sitting as I write this, it is pretty clear that the green line is above the red line at the moment. The most significant thing it is saying is that there is no indication of a warning that markets have reversed. The big picture is what’s important here, and the big picture looks pretty good — at this time. We do not generally recommend that you try to time the market. When the market is stronger we tend to hold more stocks.

And again, in summary, this is just a tool that tells whether the market is currently moving up or down. It doesn’t tell us about the future, but it tells us where we are at the present. We hope this helps answer your question of whether the markets are moving up or down.

PS: There are a number of free websites online which will give you this info, the 50 and 200 day moving averages of an index. Among them are stockcharts.com, finance.yahoo.com, CNBC.com, and google.com/finance.

Market Minute 3/17/2017 – FED Meeting

And once again with a lot of fanfare and hoop-lah the FED met and gave us their views on how the economy is doing. Most everyone expected a quarter point rise in the FED rate and that’s exactly what we got. Given that it was so expected it was (mostly) already baked into the markets. Some of us (that’s us, we’re including ourselves) were surprised to see the market’s positive response. Personally, I was also surprised to see the yield on the ten-year treasury drop! It would be normal to see the rates rise along with a FED rate hike, but this time the ten-year turned down. So again – we’re seeing the short-term effect, but we’ll wait a week or so to see what the follow-thru is. Frequently the markets immediate reaction is not the same as the intermediate term action. I will hazard a guess that the markets are suspecting that the FED will continue to take a conservative course, probably moving too slowly – or at least more slowly than we think would be prudent. And perhaps the markets current enthusiasm will wane next week. Perhaps this will be one of those times. We’ll have to wait and see.    

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com
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.

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