A Look At The Long-Term Trend In Stocks

Here is a simple indicator I use to help quantify what the long-term trend is in US stocks. Simply put, if stock prices are above the blue line (moving average) it is an up-trending bull market. If stock prices are below the blue line it is a down-trending bear market.

As you can see, in bear markets (like in 2008) the blue line was "respected" and stock prices remained below the line until the bear market concluded in 2009. On the contrary, in bull markets the blue line is also respected and prices stay above the blue line, often for many years.

One thing to note, this is not a fool proof system. False signals do occur in shorter term corrections like in 2011 and 2019. To reduce falling for the false signals, I wait to see if the blue line starts to decline alongside stock price. If this occurs simultaneously it increases the odds the signal will prevail.

The takeaway is we currently have stock price below the blue line and the blue has recently started declining. This is a warning sign that a prolonged downtrend in stock prices could be more probable. If price were to regain its footing and trade back above the blue line that would suggest better times could lie ahead. But until this happens, I remain a bit more cautious.

This is one of many tools I use to determine the market cycles and to manage risk. It can be applied to help meet your longer-term planning objectives. As always, please contact me via email or phone with any questions on how this can be used in your specific situation. Have a great day!

Disclaimer:

Stock investing involves risk including loss of principal.

No strategy assures success or protects against loss.