There seem to be enough engineer-types that read our eletters to once again give some detail on Mr. Market. (If you’re not one of them you are very welcome to follow along anyway!)

Have a look please at this chart — which we (and the rest of the technically-oriented investors) have been watching like a hawk.  It shows a current value and some recent history of the S&P Index with some annotations to help you see the resistance levels.

Note the red-shaded horizontal bars in the graph. Historically, these indicate the most likely places for a reversal – which would take us back down to testing the December Lows in the S&P 500* market.  Each resistance level has been carefully observed, and at each level, despite the fact that they were ‘obvious’ levels of resistance, the index* powered on through to a higher level.  IF the market backs off from this third ‘obvious’ resistance level, we will be able to look back and see that it was ‘obvious’ that it was time for a pullback.  Note carefully the resistance in the areas of 2600-2650, the 2725 area, and now the 2800 area.  Will the third time be lucky?

I will admit that I was in the camp that believed the test of the 200-day moving average was going to do us in, and that would be the point at which we would see the bear rear its ugly head and turn things back.  Historically this is a very difficult level to penetrate from the downside.  However, the index carried on and powered its way through the very strong resistance at the 200-day MA.

So here we are again.  Market breadth is looking better, the shorter 20-day MA is moving up above the longer term 200-day MA, and the VIX (volatility measure) is somewhat more reassuring.  It’s a bit unnerving to see that Utilities and Real Estate are 2 of the strongest sectors of the market- as that means that investors are carefully hedging their bets- by betting on the ‘defensive’ areas.

Still it’s mid-morning and Mr. Market has bumped up against 2800, then pulled back and it’s pushing up again.  Will it cross the 2800 level and close above that level- thus giving us more evidence that most of the bad signals are (probably) behind us? Is the third time the charm to give us the confidence to move us to the bullish camp? Is the third time the charm?  Stay tuned!

Market Minute 3/1/2019 — Things That Don’t Go Bump in the Night

As everybody knows, many things can move the markets. Most of the time, the forces that lie beneath these movements are legitimate. These are things like changes in GDP growth, corporate earnings trends, employment figures, consumer confidence, Geo-political stability, etc. These sorts of things are real trends and the good thing about real trends is that they provide quality data points from which investment decisions may be well informed. On the other hand (regular readers will be familiar with our two-handed musings) Mr. Market also famously reacts to non-news and things that seem urgent but are not actually important. In those kinds of moments, he frequently reconsiders within a day or two and, as the indexes recover, he gives us the equivalent of ‘never mind’.

Another condition entirely occurs when there are things that could affect the markets but don’t. Recently a number of things have been all over the news — each of which carried at least the potential of being truly important. And yet… Mr. Market either doesn’t care or is taking a ‘wait and see’ attitude. The result is that, more than up or down, the markets have been instead moving sideways. Sideways can be a good thing in itself: the longer equity prices stay range-bound, the more buyers and sellers come to agreeing on fair value. This consolidation can (but doesn’t always) help to put a floor of legitimacy under valuations. At that point, markets may find it easier to move up than down.

Changing gears a bit: It seems a big concern among some of our clients is the amount of debt that is being accumulated by consumers, businesses and government. We agree, there IS a problem there. However, it is a much smaller issue than it is being made out to be. I think we’ll get into this a bit more in a future eLetter but for the moment let me try to assuage some of the fears that may be bothering you today.

Debt is not, in and of itself, a bad thing. It should always be considered in context. For instance, the Fed releases economic data in its FRED reports and very recently they had a report that generated a lot of eyebrow raising headlines like this one: “Household debt surges to all-time high!” That was a factual bit of data but — and this is a big but — in the actual report was buried another headline — one that was much more comfort inducing. “Household debt payments, as a percentage of disposable income, falls to an all-time low.” Context is everything.    


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

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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.