Current Market Trends
Monday, March 13, 2017
First – thank you for all of your kind referrals – we sincerely appreciate it. Thank you for your trust.
Trend is UP
Duh, no kidding – yes the trend is up.
As a trend follower we want to:
Ride the trend
The trend is your friend
Don’t fight the tape
Below is a 20-year monthly chart of the Dow Jones Industrial Average:
Look closely at the blue line
That’s the 10-month simple moving average of prices – that’s the long-term trend line –the most important trend
Notice how over the past 20-years that it has been wise to be invested in stocks when the slope of the blue line is UP and be out of the market or CAUTIOUS when the slope is DOWN
Look at the second window below:
That’s the slope of the 10-month linear regression line of prices
When the slope line is above zero the slope is POSITIVE and when below 0 the slope is NEGATIVE
Both the long-term trendline and the slope of the linear regression line are positive – that means we stay invested
What happens when the slope of these lines is up steeply?
Below is a 10-year chart of the Dow Jones Industrial Average (DJIA)
Notice the 4 sets of orange lines – those are channel lines of prices – the middle of the 3 lines is the 10-month linear regression line
In the 2nd window below is the slope of that linear regression line
Notice the 4 red circles – those are the 4 times in the past 10-years where the slope (of the linear regression line) is steeply up
What happened in those 3 prior cases of steeply up slopes (markets rising at a fast pace):
The DJIA had a 2 month down correction in summer-2010
The DJIA had a 5-month down correction in summer-2011
The DJIA had a 1-month down correction in January 2014
What will happen in the current fast rising market?
No one knows
But, no doubt some kind of correction is likely to occur
We have no idea when or if that correction will occur, and if a correction occurs we have no idea of the magnitude of the correction
What should we do as investors?
As trend followers, we simply want to follow the trend
We do not want to make decisions based on forecasts of what the markets will do
Our recommendation – the uptrend is clearly intact, so stay the course