Looks Like a Drift

CAMS Weekly View from the Corner – Week ending 12/18/2020

December 21, 2020

A couple of editions previous we asked the question as to whether this stock market breakout was an actual breakout or just a mere drift higher.  To this point it is a drift.

Historically speaking, this can be a significant behavior.  When a market has been trendless and then decides to put some trend on, in this case, upward, but does so tepidly, it offers a questionable forward view for the trend that has started.

Importantly, this does not offer an assurance that the feeble trend will imminently fail but being on the look-out for such a result is certainly warranted.

Breaking out of a trendless environment does offer information relative to the behavior of the trend attempt under observation. 

A robust breakout offers tremendous enthusiasm from collective market participants for the expectation of things to come.  Said enthusiasm has them falling over themselves to employ capital into the market landscape.

Conversely, a tepid, meandering about type of trend attempt offers anything but raging enthusiasm from collective participants.

Click For Larger View:  https://schrts.co/xikXSDQp

To underline our observation we share the chart above of the S&P 500.  If you are a consistent reader of these posts you will recognize this chart as we have used it a few times of late.

In-house we call it our blue line observation speaking to the blue line noting the high points of the digestion period during the fall season which are denoted with the red arrow lines. 

The ensuing price action has certainly escaped the blue line which offers new trend.  At the same time, the drifting speaks to our noted lack of real buying pressure in this trend attempt.

In the few weeks whereby this has trended it has amounted to just over a couple of percent.  That is not much performance for a new high breakout that has been doing so for several weeks.

To round out the year of 2020 and into 2021 we will be watching this process closely.  Up only a couple of percent in a few weeks can be erased in a couple of days so we watch with focus.

Speaking of rounding out 2020 this will be our last Weekly View for the year.  We thank you for your interest in reading and we hope you find these Weekly Views helpful in adding some insight into the market and economic landscapes.

We wish you a celebratory holiday season if for no other reason than being able to place 2020 in the rear-view mirror.  Enjoy, be safe and certainly try to enjoy the ones you love!

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.