- By Adam Koós, CMT, CFP®, CEPA Investopedia is partnering with CMT Association on this newsletter
- The contents of this newsletter are for informational and educational purposes only, however, and do […]
Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services
I just want to start with the elephant in the room… the U.S. government shutdown people can’t stop talking about.
First off, understand that August and September are typically the worst months, on average, for the stock market during a post-election year… and both months printed positive returns this year. I believe this is a feather in the cap for the bulls thru year-end (and potentially beyond).
Secondly, I’m borrowing a table from my good friend Ryan Detrick to illustrate how little government shutdowns matter (below).
- Government shutdowns are nothing new.
- This is the 23rd time the U.S. government has shut down since 1976.
- Looking at the past 22 times, there have only been three times when the stock market was lower 12-months later.
- The worst performance for the stock market during a 12-day shutdown was -4.4%.
- The best was +10.3% during a 34-day shutdown in winter of 2018/19.
- On average, shutdowns last 8.2 days, end positive for the market, and the average ROR for the S&P500 a year later is 12.7% (with the median being 12.3%).
Now that we have that behind us, let’s discuss the negative momentum divergences that I’ve heard some people in the chart world are worried about.
Keep in mind, we manage portfolios for our clients using an intermediate-term timeframe, which is not “long-term,” but it’s not short term (a couple of months), and it’s most certainly not swing (1-4 weeks) or day trading.
When I look for momentum divergences, I’m only seeing some that have been negated by new highs – in this case (below) RSI.
When I see RSI not only break north of the lower highs in momentum (in the lower pane), but also cross back above the bullish level of 70 again, I see this as a continuation of bullish momentum… not a new top over which to draw a new negative divergence.
Could you find a negative piece of evidence using momentum over a shorter-term timeframe?
Yes… I’m sure you could, but what good does it do you if you’re not managing your money with a short-term timeframe?
My points here are twofold:
- I’m not seeing a negative momentum divergence on a daily chart of the S&P500 today, and
- Know your timeframe… and stick to it
This is a chart we send to our clients every month, and we call it the “Inverse Traffic Light” chart of the S&P500.
Green, yellow (caution), and red (danger) zones are drawn at potential levels of support and resistance – again – using an intermediate timeframe.
Right now, I see the stock market as being solidly in the green zone, with plenty of room to either digest recent gains by moving sideways – or to correct through a price drop toward the yellow (caution) zone.
Any movement sideways or even down would be considered “healthy” after the gains we’ve seen since the summer breakout to new all-time highs. Remember, the market breathes…
…and much of the financial news would like you to believe that the sky is going to fall any day… because it keeps you glued to the news (not to mention, it’s great for their ratings).
This is just the first installment of five articles this week, so I’ll be pulling out more charts to show you more evidence on both sides of the coin (for the bulls AND the bears) as the days move along, so stay tuned. 😉
Adam Koós, CFP®, CMT, CEPA is a CERTIFIED FINANCIAL PLANNER™, one of approximately 2,500 active Chartered Market Technicians (CMT) worldwide, as well as a Certified Financial Technician (CFTe®) through the International Federation of Technical Analysts (IFTA), and a Certified Exit Planning Advisor (CEPA) via the Exit Planning Institute. Adam serves his clients as the president and portfolio manager at Libertas Wealth Management Group, Inc, a NAPFA-affiliated, Fee-Only Fiduciary and Registered Investment Advisory (RIA) firm, located in Columbus, Ohio. To reach out to Adam Koós email [email protected].
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
