Which Direction is the Market Headed? That seems like a simple enough question. Yet, as we visit with both current and potential clients (mostly on Zoom these days) and they often ask whether it’s a good time to ‘get back into the market’, it becomes somewhat clear to me that people asking that question do not have an opinion on whether the market is heading up or down.

We believe that when the market is headed up, most people should be invested in the market, and when it’s headed down, they should generally not be stock investors. So then one needs to know whether the market is headed up or down.

For this exercise one needs to be able to see a graph of ‘the market’ over some period of time.  There are free charts on the website stockcharts.com that will work pretty well.  Input the ticker symbol ‘SPY’ which is an indicator that approximates the ‘market’ returns as exhibited by the S&P 500 Index*. There are other possible choices to look at of course, but this approximates pretty well the condition of the US market. The website will give you a picture of the market returns over some period of time, and along with that (it will usually) give you numbers such as EMA 50 and EMA 200. The EMA numbers are moving averages of the price of the index over 50 days and 200 days. Perhaps a picture will make this clear.

It is important to look at enough history to detect a trend. One day’s price history is not enough, and perhaps a week or two is also not enough, so we choose to look at a two-month period.

2-Month Chart – Short Term (Ending 8/13/2020)

In looking at the two-month chart it is reasonably clear that the daily price (as indicated by the red and black ‘candlesticks’) appears to be moving from lower left to upper right.  So visually the market is moving up over the past two months.  An additional help is this:  by looking to see whether the EMA 50 is above the EMA 200 we can determine indeed that price is going up, and the market is headed up in the short term.

3-Month Chart- Intermediate Term (Ending 8/13/2020)

A quick look at the three-month version of this chart shows the same thing.  In the medium (or intermediate) term we note that the EMA 50 is again above the EMA 200, and this indicates that in the intermediate term markets are going up.  If the short and intermediate charts are pointed in the same direction — that is the direction the market is going.  In our case both are heading up, and (for now) it is a time to be a stock investor.

Markets tend to move in the direction they are currently going until (unless) acted on by some outside force that causes them to change direction.  If you are not invested at this time, you may wish to rethink your investment position.

Ron’s Market Minute — Investors are Buying Losers and Selling Winners

This past week has shown some potential trend changes in markets. Whereas normally investors attempt to add to their winners and prune their losers, recently things that had been working suddenly lagged and things that had been falling behind were suddenly working. 

After the Nasdaq Index* hit a new record last week, on Thursday things changed a bit. The areas and factors that had been lagging for most of the past quarter became the hit wonders of the day. The discussion between traders has been something like this: Is this the start of a potential new trend? Or is this merely ‘noise’ as the day-in and day-out moves in markets are interesting, but do not indicate any more than potential changes. They ask ‘is it time for the Facebooks and Apples of the world to stop their upward climb and reverse themselves’?

For a couple of days there was a potential rotation away from the big tech stocks and some dollars started to flow to the (recently) weak areas such as Transports, Industrials and Financials.

But then things appeared to have re-reversed themselves as the tech stocks are once again looking strong, and the Industrials and Financials are looking weak. 

There is a lesson here. As Tony would say – ‘To be right but early is the same as being wrong’ – which means we need to give a potential trend change some time to see if it IS indeed a change. Or as Jack would say ‘Three days does not make a trend’. To repeat myself f- When we see a potential change, it’s best to give it a bit of time to see if there is indeed a change.  Markets tend to be a bit like the Titanic – they move in the direction they are going and generally do not instantly change their direction. 

Tech is still the leader… for now. 

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 for use with advisory clients only 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.

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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.

Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

Please see Denk Strategic Wealth Partners’ Client Relationship Summary here http://denkinvest.com/?page_id=7099 for succinct information about the relationships and services DSWP offers to retail investors, related fees and costs, specified conflicts of interest, standards of conduct, and disciplinary history, among other matters.

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Past performance is not a guarantee of future returns.