2/9/2018 7:34 AM
Let’s talk about long-term trends. Below is a 20-year monthly chart of the S&P 500 index.
The blue line is the long-term trend line, the 10-month simple moving average (SMA)
Note that in the past 20 years there has been only four (4) times when the slope of the long-term trend line on the monthly chart has turned negative or downward.
The red circles indicate great sell signals – you would have saved a lot of money being out of the market and avoiding the tech crash 2000-2002 and the real estate crash of 2007-2009 by simply exiting the markets when the trend line turned down.
All of you who have been with us through the 2007-2009 crash know how well you did during that downturn – you did not experience the huge decline in your portfolios that your friends and colleagues experienced. In fact, we did a study during that period of all of the money we managed during the 2007-2009 crash. Our clients total money decline -8.56% when the S&P 500 index declined -50.17%. See the attached report which documents that study.
The green circles indicate false signals – the trend line turned down in 2011 and in 2015-2016, but within 6 months or so, the trend line turned back upwards
Note that today, the trend line remains in an uptrend – the long-term trend remains up, the uptrend is intact.
Let’s look at the daily chart (below) for the past 2 years.
The blue line is the long-term trend line (the 200-day SMA)
The red circles indicate when the markets have risen too high above the trendline
This happens in bull markets as investors become enthusiastic
In a bull market these period when the markets get to high above the trend line – they correct down to the trendline.
I call this a trampoline effect – the markets correct down to the trendline and bounce off
Note how high the markets were above the trendline in January 2018; much too high
A word about risk management
We manage +$500,000,000 for our clients.
The important thing about money management – is risk management
That’s why we try our absolute best to stick with high quality investments
We are not going to speculate with risky or complex investments
Case in point: