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The Stock Market Gives Additional Confirmation

CAMS Weekly View from the Corner – Week ending 9/9/2022

September 12, 2022

In recent editions we have shared a couple of different time perspectives for the stock market relative to its established down trend. The fact that we have offered this as a topic in multiple editions underlines its importance. This down trend began at the start of 2022 and remains in-play to current day.

For our part we have inserted our in-house phrase of a true bear market countless times over the previous year. That phrase arose before the start of 2022 in light of the building issues the stock market (as well as other markets) were showing months previous to the launch of the New Year.

We continue with this phrase because it is crucial to keep in mind. A phrase which simply describes a stock market that is troubled not for a few months (which the masses have become accustomed to over the previous decade-plus) but for many months to even years. Hence a true bear market not a mere blip down and then right back up.

This is important to keep in mind relative to the degree you participate in markets as it is always vital to know what type of market you are participating in. The guidelines or playbook is different according to the type of overall backdrop that is playing out for X market.

For our part the playbook for true bear markets is simple in description and yet is loaded with complication in execution.

This by-the-way is what true bear markets make a participant do. That is, extreme focus is not only necessary but is an absolute must lest said participant wants to be taken to the proverbial woodshed by the market at large. Bear markets are relentless like that – they are unforgiving.

With this the playbook is to get exposure to the stock market when it wants to try at a trend (these are known as counter trend or also relief rallies) and then get back to safe harbor when the primary bear market trend (down trend) begins to reestablish itself.

In detail; true bear market’s overall trend is down and then within that overall trend there will be minor up trend attempts, i.e. counter trend or relief rallies as time unfolds.

To describe this we often use the adage “nothing goes up or down in a straight line” to succinctly describe the process. Both in Bull or Bear markets the trend is never a smooth straight line but rather tends to be choppy or carves out a stair step type of overall look.

Confirmations Are Stock Market Gold

When a market has established whatever type of trend it is in the important measure to never lose sight of is whether the trend remains in play.  This is where we go to collective market participants for an answer as they offer us this “gold” in the wake of their collective market trading operations.  We do so through the chart below.

Click On Chart For Larger View:  https://schrts.co/SjtnkZSC

While the above chart appears to be loaded with complication rest assured it is all very simple.  Our focus is simply asking are collective market participants still adamant about keeping the stock market in its established down trend.  The non-detailed answer is yes.

The detailed answer is the above chart is a one year chart for the well recognized S&P 500 Index. We have annotated the chart and by clicking on it an enlarged version will show our short narrations more clearly.

We used this same chart just over a month ago within an edition.

We have updated it and extended it into the future in order to clearly show the forward path of the established down trend line which is denoted with the blue line which then turns to green. The green section is the add-on for this edition in order to highlight what has transpired in the previous month-plus as well as to show the downward path of this established down trend.

Outside of this established down trending line the most important part of the above chart is the blue circle.

This is where collective market participants were making a push (think relief rally) off previous lows up to the down trend line. If the market backdrop was improving we would have seen the S&P 500 price push well above this down trend line with no questions asked.

Rather, we see weakness within the attempt. The rally is considered weak in that it was unable to go up and even touch both the down trend line as well as the red line which represents the average price for the S&P 500 over the previous 200 days. That is a double negative relative to its messaging from participants.

Our Bear Market Playbook Remains in Play

As stated above as well as in previous editions our playbook for true bear markets is to attempt to participate in relief rallies and then to take safe harbor with assets under our care when the market gets problematic.

For our part, as a general description, this playbook has allowed us to provide returns that our much better than the stock market overall and in some cases positive returns for this year thus far depending on the portfolio.

Per the above chart, clearly at this stage, collective market participants have underlined the fact that we remain in an established down trend and with this our described bear market playbook remains in play.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

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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