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The Red Line Needs to Hold

CAMS Weekly View from the Corner – Week ending 4/10/2020

April 13, 2020

In recent Weekly Views we have been focused on historical behaviors of panic fear and market bottoms in the midst of said fear.  Historically, regardless of the underlying cause, market participants display behaviors and signs that suggest a panic fear bottom.

We were offering historical behaviors such as fear giving way to reasoning via differentiation of various investments as the initial sign of a market bottom.

The phrase “market bottom” elicits various mental views when it is shared with various investors and observers.  For one it can elicit the belief that the worst is over and we are not going to those levels again.  For my part, I view it as though we have found the low point – perhaps for now – while in the meat of the fear based panic.

The fact is to call a true market bottom takes time.  With time, the market in question can be charted with its history displayed and can be shown that the market in fact never went any lower.

The problem is this is analogous to playing Monday morning quarterback analytics style.  In real time we do not have the luxury of waiting for time to tell her story.  With this we have seen some of the market chaos reduced of late and now the real work and grind begins.

Below we enter a key and simplistic chart that will speak volumes to us as the weeks if not months ahead unfold to help as an additional tool to determine if we have seen our lows.

Click For Larger View:  

The above chart represents the pricing action (black line) of the S&P 500 Index over the last decade-plus.  Importantly, the above chart is a weekly chart which acts to smooth out the pricing behavior of the chart because each price point represents one full week of trading rather than a typical daily chart where each price point represents only one day of trading.

Weekly charts enter the scene when perspective is needed which can lead to a clearer view in times when individual trading days are quite volatile.

The red line is a rolling 200 week moving average line.  This simply means the average prices of the previous 200 weeks which changes as time rolls on – hence a “moving average line.”   The significance is longer-term moving average lines such as 200 week historically offers the line in the sand between a healthy or unhealthy market.

If a market can hold above its 200 moving average as viewed through the above weekly chart then we can offer it is holding itself together.  If it cannot trade above its 200 moving average line then said market is offering longer-term issues.

Simply stated, if the above S&P 500 line (black line) can hold above the red line then obviously we are far from the previous low point and hence seemingly have but in a true bottom.  This will take some time to unfold but it represents a near-term line in the sand that should be upheld if this market is righting itself.

Via the circle we can see the interaction back in 2008/09 and how the S&P 500 remained below its red line for quite some time.

Current day, via the small blue arrow, we now need to see over ensuing weeks the S&P 500 index remain above the 200 week moving average line.  If it can do that consistently that will be a positive pricing statement from broad market participants.

Conversely, if the S&P 500 were to go below the red line and remain so then said participants will be offering this market has forward issues that will take quite some time to get resolved.

We will share this chart consistently in upcoming weeks if not months.

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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