Technically Speaking: Monthly S&P 500 Chart Update & Review

With June now officially in the books, we can take a look at our long-term monthly indicators to see what they are telling us now.

Does the recent breakout to “all-time highs” mean the bull market is finally back?

Or, is this breakout doomed to failure as the previous breakouts have been?

That’s the answer we all want to know.

However, as longer-term investors and portfolio managers, we are more interested in the overall trend of the market. While it is fundamental analysis derives “what” we buy, it is the long-term “price” analysis which determines the “when” we buy and sell in our portfolio management process.

For us, the best way to measure the TREND of the market is through longer-term weekly and monthly data. Importantly, when using longer-term data, the signals are only valid at the end of the period. It is not uncommon for signals to be triggered and reversed during the middle of the period which creates “false” signals and poor outcomes. Since we are more interested in discerning changes to the overall “trend” of the market, we find monthly indicators, which are slow-moving, tend to reveal this more clearly.

In April of 2018, I penned an article entitled “10-Reasons The Bull Market Ended” in which we discussed the yield curve, slowing economic growth, valuations, volatility, and sentiment. While volatility and sentiment have gone back into complacency, the fundamental and economic backdrop has deteriorated further. Had you heeded our warning then, you could have saved yourself some pain.

But, if you did hold on, and ride it out, your portfolio is now 4% higher than it was at the peak of the market in January 2018. That is an average return, so far, of 2.67% which is only slightly higher than the yield from a 10-year treasury.

However, bond holders earned a total return of nearly 7% during the same period with much lower volatility.

As I noted in this past weekend’s missive, while the mainstream media and Wall Street prognosticates “stock ownership” as the way to build wealth, you might want to ask bond holders exactly what they missed out on.

Perspective is important.

For example, in June, the market rallied 6.89% which was touted as one of the “best June months on record.” While the statement was true, it lost perspective when compared to the May decline of -6.58%,which was also one of the “largest monthly losses” on record. More importantly, the June rally failed to recoup the May losses.

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