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A Key Red Line For The Stock Market

CAMS Weekly Views from the Corner – Week Ending 9/8/2017

September 11, 2017

In recent Weekly View’s we have been offering caution for the stock market in light of a plethora of issues the market itself has been providing.  There are several approaches to market analytics and the numerous issues we have identified fit under various system labels.

Under the banner of Technical Analysis (analysis of statistics and charting from actual trading activity) we have shared some of those concerns and continue to do so with today’s installment.

There is a notable “line in the sand” if you will for the New York Stock Exchange Composite Index.  This composite index includes all the stocks listed on the NYSE so it offers a broad view of the stock market landscape in light of the large number companies held within it.

Our noted line represents the percentage of stocks within the NYSE Composite that are above their 200 Day Moving Average.

This is a technical term that is very easy to understand.  We simply add up the prices of the previous 200 days and divide by 200 to get our average and then do this with each passing day to create its rolling, i.e. moving average.

The importance of the 200 day average is it is often viewed as a general indicator pointing to whether a stock is constructive or if it is offering caution in light of its trading behavior.  Simply speaking, if a stock is not able to trade above the level of its average prices of the previous 200 days (that’s 40 weeks of trading!) logic would suggest something may be amiss.

Click for Larger View:

The above chart dates back 10 years for a broad perspective.  The blue line represents the percent of all the stocks listed on the NYSE Composite that are currently trading above their 200 day moving average.  Per the red arrow line pointing down we can see this has been deteriorating since the spring season.

The red horizontal line is our aforementioned line in the sand.  In the previous 10 years when we’ve seen deterioration (such as we have been seeing) which leads to a momentum drop below the level of this line we have seen near 10% corrections or far greater.  Said deterioration does not assure we will see a momentum drop below the red line.  If it does this decade long chart offers downside potential greater than most would expect.

This is another measure offering caution.  If we decline back toward this line – as we did a couple weeks ago – our concerns will elevate.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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