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Trending Off The Red Line?

Week Ending February 12, 2017

“Important to the central point here of identifying the near-term trend, the Dow needs to remain above the red line at a minimum to reflect it has inherent strength.  In addition, in the name of posting a higher high and in so doing leaving in its wake a sound up trend, the Dow needs to exceed the high point of several days ago and will do so by achieving a 20,175 level.  If it does this and holds, it would be giving an additional signal of wanting to continue its post-election up trend.” – CAMS Weekly View, Keep it Simple – Watch the Red Line 2/5/2017

It’s rare here in the Weekly View to place so much consistent emphasis on one isolated theme for multiple weeks but we continue on with our “Watch the Red Line” theme in light of its importance as a barometer and guide for the stock market in general.  The header quoted excerpted from our previous View takes us right to the heart of our focus recently here in early 2017.

With the trading activity of this past week our “red line watch” and follow-on trend question has been answered to the upside.  The Dow exceeded its previous high point and in so doing has carved out a small, but important view of an uptrend denoted by the upward moving arrow in the picture below.  In addition, the small box with arrow attached identifies the previous high point which had been exceeded this past week.  This leaves us with a simple but necessary ingredient of an uptrend and that is a series of higher highs and higher lows.

Click for a larger view and on-going updated chart: 

The above takeaway elicits an old market adage which simply states:  “The Trend is your Friend.”  It’s profoundly simple and yet profoundly effective which explains its longevity in market lingo among traders and general market participants.  The back story on employing this old adage is simply to identify it as early as possible and ride with it accordingly.

With this offered, the upside trend continuation opinion may be a bit early in that we have had marginal time and movement on the trend continuation thus far.  Importantly though, by employing the basic characteristics of trends we see they do apply here.  Additionally, in the name of identifying a trend (or a continuation in this case) as early as possible, the above trading action simply fits.

There are no sure fire measures in market analytics that guarantees a particular outcome.  Sometimes reducing complex systems such as markets down to basics and simplicity offers an edge in managing through the complexity.  There are times when markets offer the backdrop to employ simplicity.

Strangely, and counter-intuitive, we are at a time when the market backdrop is overloaded with complexity in the sense of numerous positives and negatives both current and forward looking.  It’s precisely these types of scenarios where it can be best to keep it simple and merely rely on the message of the market as the proverbial light house in a stormy sea if you will.   Trend identification offers a market corollary to this lighthouse analogy.  As we stand currently, Mr. Market is offering trend continuation to the upside and we are heeding its message with a continued vigilant watch of signs to the contrary.

I wish you well…

Sincerely,

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

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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