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We Have Never Done This Before – The Black Line Narrative

CAMS Weekly View from the Corner – Week ending 6/7/2019

June 10, 2019

Three successive charts of the same observation over the previous two months.  No we have not offered a Weekly View in this manner before but today we break new ground.  Why?

The stock market is at a crucial juncture when looked at through the lens of its own behavior in the last two years.

The very smart bond market is simultaneously offering solid and consistent economic growth going forward is anything but a certainty and is beginning to get louder in its message that the Federal Reserve needs to lower interest rates on their end of the spectrum.

As an aside, don’t count on that coming imminently which brings the central observation back to the stock market and whether it will be able to hold itself together while seeing said bond market is offering a weaker economy is coming.

All markets are forward looking meaning they are constantly looking out in the near future to ascertain what the landscape will look like.  With this, they can and do move in directions that are unexpected relative to what is being displayed economically in the here and now.

Sometimes their forward view and coinciding direction hits it dead on and the direction they moved in, in advance, makes them look genius in their ability to “see the future” if you will.  Other times they realize they went too far in whichever direction and move in the opposite direction.

This describes the U.S. stock market of the last two years in that it has been trading in a very large range with volatility.  This means directionally, just when it appears it is trending with certainty, it heads in the opposite direction just as quickly.

All told, market participants are clearly nervous with any hint of questionable economic backdrops as they are fully aware of valuation levels.  This collective nervousness manifests itself in volatile stock market behavior, in particular when they believe their forward economic view may be incorrect.  Hence, strong down trends turn into strong up trends and vice versa.

Below are three charts of the S&P 500 reflecting nearly two years worth of trading.  Since mid-April we have been chronicling the black line resistance in previous Weekly Views.  There have been two attempts since last fall season to trend higher off of the black line and both have failed – not good.

The black line represents the high water mark of early 2018 and has proven to be a level the stock market simply cannot trend away from to the upside.  In particular notice how stocks have acted relative to the black line in recent weeks in the third chart below.

$SPX - 6.10.19

Chart from Mid-April Weekly View Above

Chart from Mid-May Weekly View Above

Chart from Mid-June – Click for Larger View:

It is imperative that the stock market is able to get above the black line in the near-term as it has failed and is currently making a run toward it.  If it cannot get above this level it will be offering a message of additional concern and may then be pointing to more downside behavior.

Adding to this concern is inside the stock market it continues to get more defensive whereby historically defensive type areas have held up well while historically offensively oriented areas have struggled.  If this inside behavior continues, coupled with an inability to get above the black line and trend higher from there then market issues may be coming.

Market wise – we live in interesting times to be certain.

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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