Chart of the Day: For S&P 500, the ‘trend is your friend’ but only until it ends
Link copied to
As they say, markets climb the wall of worry.
And despite the host of commentary that might suggest otherwise, one can only ever trade in price.
The ‘price’ of the S&P 500 index in the States, the index most frequently cited by industry folk within the world’s largest economy, has been doing something notable for the best part of a year now.
Every time it comes back to test the 50-day simple moving average, which is visible in the below chart in green, it has been bouncing.
Sure, there have been one-off closes below.
But we are yet to observe consecutive sessions closing below since October of last year.
Why do we care?
Well, another adage you might hear around the traps is that ‘the trend is your friend’, and friend it has been for those with the fortitude to hold for the last year.
Whatever rationale you might ascribe to what we have observed, it may also prove worthwhile to watch for the point in time where the market does something different – as simply different as two consecutive session closes below this simple moving average – as a heads-up to the idea that the market may be changing tack.
We say ‘may’ because there are no certainties, just probabilities.
This is the beauty of price action. Of guarantees it is not made.
Rather, it is a conduit to observe the aggregate of the activity of buyers and sellers, in part to discern whether the status quo, and the dogma that frequently goes along with it, might be about to be disrupted.
Steve Collette of Collette Capital Pty Ltd (ABN 56645766507) is a Corporate Authorised Representative (No. 1284431) of Sanlam Private Wealth (AFS License No. 337927), which only provides general advice.
Collette Capital only makes services available to professional and sophisticated investors as defined by the Corporations Act, Section (s)708(8)C and 761G(7)C.
The Collette Capital Wholesale IMA Strategy has returned +25.79% p.a. net of all fees as at the end of June 2021 since inception in January 2015 ( using the Time Weighted Return method of calculating returns ).
Learn more at www.collette.capital