Stock Market Trend Following and Momentum October 2022
It was a big week for the U.S. stock market with a strong countertrend cycle swing to the upside, but the primary trend remains down, or does it?
S&P 500 closed above the 50-day, now in a short-term uptrend by this simple trend following signal. In the chart, we show the price trend with the 50 and 200-day moving averages overlaid, then the percent below or above each moving average in the lower pane.
Please note these charts are for informational purposes to share a generally easy-to-understand observation of the directional price trends, but we do not necessarily use them as a signal to buy or sell any security, and we are not advising they be used as such. Our actual trend signals are driven by propriety algorithms.
The S&P 100 is the top 100 stocks by size and measured by market capitalization. This big cap index isn't trending up as well as the Dow Jones 30, but still closed above the 50-day.
S&P 400 is mid-sized companies based on market capitalization, and it is too in an uptrend as defined by its 50-day average trend following signal.
Small company stock index S&P 600 is leading the upside, closing 3 days above its 50-day average now just 2% from the 200-day trend following signal.
The best stock index for the market is the equally weighted S&P 500 since it gives equal weighting to all 500 stocks. It closed above the 50 day trend following signal by 2.7%.
Since the equally-weighted S&P 500 invests 0.2% in each of the 500 stock holdings of the index, this equal exposure also results in a materially different sector weighting. While the capitalization-weighted SPX is heavily weighted in the largest companies, it also has heavy exposure in Information Technology, 25.92% ; Health Care, 15.34% ; Financials, 11.38% ; Consumer Discretionary, 11.16%.
Below is the equally-weighted S&P 500 sector allocations.
So, the bottom line is, from a pure trend-following perspective, the U.S. equity market has reversed into a short-term uptrend.
Only time will tell if the stock market can continue its recent uptrend or if it encounters more dominant selling pressure in the days and weeks ahead.
Next week The Federal Open Market Committee (FOMC) meets to determine if it will increase interest rates and buy how much, and it'll likely cause prices to spread out in one direction or another.
Our tactical unconstrained ASYMMETRY® Managed Portfolios are participating in the uptrend for now, but we may stop and reverse at any time.
I hope this helps! If you need help or have any questions, don't hesitate to contact us!
Mike Shell is the Founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed 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 advice and is subject to change without notice. Investing involves risk, including the potential loss of principal 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 an 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. The views and opinions expressed in ASYMMETRY® Observations 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.