A Look at the Trend of the Stock Market
If the S&P 500 trend is any guide, we'll soon see if the oversold condition was enough to shake out those who wanted to sell and bring prices to a low enough point to attract buying.
In the chart below, I show that the low so far was four days ago, which pushed the trend down to an oversold state based on the index's own relative strength. I use a candle chart to illustrate the wide daily range of the price action. The taller each candle, the wider prices spread out that day (a volatility expansion).
In the next chart, I overlay a linear regression of the trend to show the stock index trended down below its lower range, so as expected, it is attempting to revert to the mean.
But if this is the early stage of a deeper downtrend, it will eventually stop and reverse back down again.
The price action this morning looks similar to yesterday: an uptrend early, but then faded to close down.
We'll see if it happens again.
Sector momentum looks like an oversold bounce, so we'll see if it follows through in the days ahead.
Analyzing price trends the way I've been doing it every day for more than 25 years is probabilistic, never a sure thing.
When it comes to the economy and the Fed, I agree with the firm's broker, Goldman Sachs:
"Although the risk of a US recession and aggressive Fed rate cuts has risen modestly, our baseline forecast remains decent growth, ongoing disinflation, and a string of 25bp cuts starting in September. "
We got defensive before the uptrend broke, so we have heavy positions in U.S. government bonds, which have trended up during this stock market drop.
We stalk the market to see how it unfolds from here and let the trends be our guide.
Mike Shell is the founder, president, and chief investment officer of Shell Capital Management, LLC, and the portfolio manager of Asymmetry® Managed Portfolios. Shell Capital Management, LLC, is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies. Shell Capital provides investment advice and portfolio management to clients with separate accounts at Goldman Sachs Advisor Solutions with an investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not individualized advice and is subject to change without notice. Investing involves risk, including the potential loss of principal, which an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise the implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. If this website contains information regarding options trading, please read the Characteristics & Risks of Standardized Options, also known as the Options Disclosure Document (ODD). Options involve risk and are not suitable for all investors. The views and opinions expressed in Asymmetry® Observations and Asymmetric Investment Returns are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.