Long-term Trend Remains Intact

2/9/2018 7:34 AM

Dear Friends,

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

  • That kind of action is super positive, and tells us that the bull market is strong and intact

  • Note how high the markets were above the trendline in January 2018; much too high

  • We are hopeful that the markets bounce off that long-term trendline, or decline shortly below it -- which happened in June 2016

  • Currently, as of the close last night, the S&P 500 index is +1.65% above the 200-day SMA, the long-term trendline

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:

  • Many on Wall Street are blaming the XIV Velocity Shares Inverse VIX short-term Exchange Traded Note, created by Credit Suisse, with causing a plunge in the market

  • On Monday the Dow Jones Industrial Average plunged 1,600 points, as massive losses in the XIV, forced traders to dump stocks at any price.

  • Note the chart below – the red line is the VIX, a measure of market volatility – when the VIX shot up – the XIV plummeted (black line). On Friday the XIV had $1.6 billion invested, on Tuesday the value had dropped -90+%, yes a 90% decline in 1 day.

  • Read more about it here: https://www.cnbc.com/2018/02/07/credit-suisse-defends-controversial-xiv-etn-amid-market-turmoil.html​​

  • And here: https://www.marketwatch.com/story/xiv-trader-ive-lost-4-million-3-years-of-work-and-other-peoples-money-2018-02-06

Founded in 1992, Jackson Wealth Management is an independent, fee-only investment advisor. Founder George P. Jackson has been the CEO/CIO of the firm since its inception with the goal of delivering value to his clients and his associates. 

Securities Offered through Triad Advisors, LLC. Member FINRA/SIPC
Advisory services offered through Jackson Wealth Management, LLC. 
Jackson Wealth Management, LLC is an affiliate of Jackson Retirement Planning, Inc.
Jackson Wealth Management, LLC is not affiliated with Triad Advisors, LLC.

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