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Back to the Red Line Watch

CAMS Weekly View from the Corner – Week ending 3/22/2019

March 25, 2019

This past week the Federal Reserve announced they have no expectation of additional interest rate hikes for the remainder of this year.  There is a developing caution on the strength of the global economy and its potential impact on the U.S. if rates were to be increased further from here.

While the U.S. economy remains healthy an on-going concern is if global economic weakness continues to deteriorate further it may lead to a total global slowdown to include our domestic economy.

This takes us back to the last few months of 2018 whereby the consensus stirred itself into a belief that a recession in the U.S. was imminent and with this markets reacted violently in various directions.  The stock market moved consistently lower over a 12 week period with the fear that a U.S. recession would lead to much lower earnings from companies generally.

As we offered in that timeframe there is an adage in the analytical community that the stock market has predicted 8 of the previous 3 recessions.  What?  Yes, market participants begin to see out there in the future negative economic realities that do not materialize and with this the punishment they gave stock prices turn out to be for naught.

With this, using history as our guide, we see said stock prices retreat to the upside quickly – sometimes very quickly.  This is what happened as 2018 turned into the front part of 2019.  Stock prices thus far in 2019 have had a very quick reversal whereby they have erased a large part of the downside that occurred in late 2018.

Okay, that’s the rearview mirror recap but what about looking forward?  Back to our on-going “red line” watch via the S&P 500 Weekly chart.

S&P 500 Weekly - 3.25.19

Click for Larger View:

In late 2018 we had shared the above chart a few times in our Weekly Views.  It reflects the S&P 500 on a weekly basis dating back to early 2015 for perspective.  The red 50 week moving average line had been identified as an important line that we needed to see the S&P 500 stay above if the stock market were to remain healthy and constructive.

This red line failed miserably in late 2018 and stock prices moved considerably lower from there.  We can see prior to late 2018 the red line had acted as an area of support whereby the market would find its footing and move higher when it approached it in the previous couple of years.

The black arrow points to the most recent testing of this red line whereby it went down to it and launched higher off of it.  This is the type of behavior we need to see from the S&P 500 which offers to us that it is “acting right” (if you will) and is trading constructively.

With global economic concerns developing the question is will market participants take these concerns to a level they did in latter 2018 and push stock prices notably lower in the coming weeks/months?  This red line observation will help as a guide from the most important opinion of all:  The market itself.

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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