Navigating This Current Market
Friday, February 14, 2025
One of my favorite stock market analysts is Ryan Detrick. Detrick is a Chartered Market Technician (CMT), and he serves as Chief Market Strategist at Carson Group. On February 11, Detrick published a blog post that I found to be quite interesting. After the stock market’s recent run and the election of Donald Trump, many investors have donned their rose-colored glasses. While we believe optimism is an essential trait for long-term success as an investor, we prefer the balance implied by the “cautious optimism” mindset. In this recent post, Detrick pointed to three reasons to keep our cautious eye peeled as we navigate this stock market.
Among Detrick’s concerns is the historical record of the previous bull (upward trending) markets that have a lifespan of three years or more. By Detrick’s count, since 1950, there have been eight bull markets (in the S&P 500 Index) that ran for three years or more. The record shows that the average return in the third year of these bull markets is just 2.1%. One could say that after two strong years, back-to-back, the market usually pauses to “catch its breath.” The sample size of these long-lived bull markets is limited to only eight observations, but this study does give us a “heads up” that the 20% gains we enjoyed in 2023 and 2024 may not be repeated in 2025. Since President Trump’s inauguration, we’ve noted that the stock market has been volatile and choppy without making much headway. It is certainly plausible that the stock market may be stuck in neutral as the folks in Washington work out all the details of tariffs, taxes and budgets.
After the stock market’s recent run and the election of Donald Trump, many investors have donned their rose-colored glasses.
Detrick goes on to point out that one of his “go to” technical indicators is also flashing a caution signal. Let me explain without getting too far into the weeds of stock market charting. Technical analysts (aka chart-readers) like to see the chart which depicts the difference between advancing and declining stocks (known as the advance/decline or A/D line) making new highs as a “confirmation signal” that the bull market is “healthy”. In his blog post, Detrick writes, “We saw the A/D lines break down well ahead of the tech bubble bursting 25 years ago and again before the Great Financial Crisis, suggesting there indeed was deterioration under the surface.” The current charts show the A/D lines stalled out in early December as the stock market marched to new all-time highs. Detrick says he sees a “yellow flag” on the charts, but he believes that there is still time for the A/D lines to regain momentum and confirm the bullish pattern of stock prices.
To complete his trilogy of “things that make you go hmmm”, Detrick turns to another technical tool known as the December Low Indicator (DLI). Here’s how it works: When the S&P 500 Index doesn’t close beneath the December low close in the first quarter of the following year, a positive signal is registered, and the rest of the year tends to go well for stock market investors. A negative signal occurs when the market’s December low point is breached in the first quarter. Looking back to 1950, there have been 38 years when the DLI predicted smooth sailing. In those years, the market’s average gain was 19%, which is quite good. On the other hand, there have been 37 years when the DLI predicted stormy weather. In those years, the average return was slightly negative, but more interestingly, the DLI signal was negative before many of the market’s most distressing years, such as 1973, 1974, 2008 and 2022. More recently, the DLI did its job well in 2022, 2023 and 2024. In 2023 and 2024, the DLI sent positive signals, and the stock market followed suit and surged ahead. In 2022, the DLI flashed a negative signal. Again, the stock market followed suit; this time with a subpar performance. The downdraft in mid-January triggered a negative DLI impulse for 2025…adding another yellow light to our grid.
Detrick’s stock market calls have been among the best we’ve observed in recent years. He turned positive on the market in late 2022, and he has been steadfastly bullish since then. Despite pointing out his foregoing concerns, he is still upbeat on the market for the rest of 2025. His mindset aligns with ours. We strive to be informed, keep our eyes wide open, be risk aware, and optimistic as we manage our clients’ portfolios. Thanks for reading. We always welcome your comments and questions. Feedback is the breakfast of champions.
Bruce Robinson, CFP
Source: https://www.carsongroup.com/insights/blog by Ryan Detrick on February 12, 2025
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Ryan Detrick with Carson Group is not affiliated with, or endorsed by LPL Financial or Riverfront Capital Strategies.