I like to draw trendlines

I believe trendlines have an important role in investing. They are simple to interpret and are effective.

My basic rule is that the important trendlines span more than two months. When the price of the asset breaks on the upside or the downside, its move will last close to the time spanned by the trendline.

An example. I was looking at the graph of the S&P 500 and I drew two trendlines (click on the graph to enlarge it). The chart shows two trendlines. The first one is the Major Trend (green line). It shows the direction of the market since March.

This is an important trendline. If the market falls below it the odds favor a pause in the bull market of several months.

The second trendline is the red one. The S&P 500 moved below this line a few days ago. If my rule is close to be right, the market should pause for at lest one month.

Why? Because the trendline was spanning about two months at the time the break on the downside took place.

Time will tell, of course. There is no doubt the market is at a critical juncture according to this simple technical tool.

To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977