Regular readers of this newsletter are aware that it normally has two main sections. The first part either focuses on various personal financial portfolio management techniques or it takes a ’30,000 foot’ view of things that are, or might soon be, causing the shifting sands of our national and global economies to sustain or alter their courses. Our other main section, Ron’s Market Minute is more of a boots on the ground snapshot of market activity in the immediate moment.

Regarding Section 1, occasionally there are whole pots full of wiggly worms in various cans all vying to be the most important or at least important enough to get some attention. In the aggregate, all they add up to is a big dose of uncertainty – the most famous of all market nemeses. And, the major effect it has on what we put in Section 2 is to underscore our belief that what the market is doing is much more important than why it may be doing it.

In today’s Section 2, we look at trends and countertrends affecting the markets this week. I hope you find it useful. Meanwhile, for your general noodling, here’s a quick overview of peripheral activities that are, or will be, affecting the markets although what, and how much, are not yet clear.

  • Jerome Powell says ‘Be aware: inflation is returning’ but then adds ‘It was expected and it’s not an actual problem. Yet.’
  • The Covid stimulus bill is going to get through after all. However, it is now clear to a lot of people that there’s more pork in that bill than all the pigs at Farmer John’s processing plant. Meanwhile the economy is providing its own organic stimulus – which no one wants to talk about.
  • Florida and Mississippi governors have opened their states and dropped the mask mandate. President Biden immediately called the governors ‘Neanderthals’.
  • Governors Newsom (CA) and Cuomo (NY) may soon be looking for work, due to what some may describe as ‘poor management’.
  • The ADP advance estimate of jobs gained/lost came in at a disappointingly low number on Wednesday, but the official government Private Non-Farm Payrolls number today printed a very happy 465,000 – a big increase from January’s 90K.
  • Whitehouse spokesperson Jen Psaki tells reporters that the surge in unaccompanied children crossing the US / Mexican border is not a crisis. However, both Border Patrol and HHS say their holding facilities are at 95+% of capacity.
  • Doctor Seuss has now become as controversial as Dr. Fauci.

It is pretty clear why this is one of those weeks to just watch what the markets are doing and put off till later figuring out why they did it.

Ron’s Market Minute – Secondary Downtrends in Primary Uptrends OR Life is Like a Box of Chocolates

There was a movie named ‘Forrest Gump’ in the early 1990’s in which the line ‘Life is like a box of chocolates’ was a memorable key to the message of the film: In a box of chocolates, you never know what you are going to get. And as we’re watching a market pullback led by some of the stars of a week ago, it seems appropriate.

From a technical standpoint the primary trend of most US equity markets today is up. The ‘primary trend’ is the main direction over a longer timeframe- a primary uptrend.  However, as we know, investments do not go up (or down) in a straight line. When the market reverses from its primary trend and starts heading in the other direction, the new (and shorter trend) is called a secondary trend. So you may have a secondary uptrend contained within a primary downtrend –  or vice-versa. What we seem to have now is the reverse — a secondary downtrend contained within a primary uptrend.   

When the market has been trending up and then reverses down and the downtrend continues enough to produce a 10% drop it is said to be in a ‘correction’. And at this point you never know what you’re going to get. Some corrections are short and sweet, some last longer and some eventually result in larger trend reversals.

In our current situation, the primary trend is up, and that trend has remained intact for about a year now. Although we have seen some pauses and some secondary trends within that period, the odds favor another upside resolution at some point. Always remember that investing is all about probabilities. There are NO certainties in investing. 

To illustrate this, here’s a chart of the Nasdaq 100 showing the past six months. 

It looks pretty obvious to me that since the market bottomed last March, this graph as mostly gone up (the primary trend). Of course, along the way one can see there have been a number of corrections. Most have lasted a week or less, with the notable exception of the pullback during September and October, during which time this Nasdaq Index lost about 11% of its value before continuing back along its primary trend. As I look back over the past few years it appears that a typical secondary trend has lasted 2-3 weeks. 

What will we get this time? No one knows, and there are always headlines in play (it seems).  Only Ms. Market knows when and how this particular secondary trend will finish. At the risk of repeating ourselves, let me say again, because the primary trend is up, and has been up for about a year now, the odds strongly suggest a happy resolution to the upside. We’ll have a much clearer idea within the next couple of weeks. Always remember that investing is all about probabilities…and of course chocolates. 

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

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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.

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