Risk Off Status As Of August 2nd, Watching Market Reaction To Major Support
In our previous July 24th update, we pointed out that the tech bellwether NASDAQ Composite Index (COMP) had spent the previous 11 sessions trading completely above its 8133 August 2018 high — after failing a previous attempt to do so back in late October. We identified this as an emerging major bullish breakout by this market-leading index.
However, we also warned investors that the US stock market was in the 10th year of a major bull market in US stocks that typically only lasts 4 1/2 years, and that August and September were two of the three seasonally weakest months of the year based on data since 1957. Amid these conditions, we said we were:
“…monitoring the market very closely, with a focus on protecting subscribers and investor assets against an overdue — and potentially nasty — decline.”
Table 1 below shows that — just 8 sessions later –– our Asbury 6 key market internals turned Negative as of the market close on Thursday, August 1st. This indicated the “under the hood” condition of the market had turned bearish, and that market internals were the least conducive to adding risk to portfolios. Previously, at least 4 of the 6 had been positive since June 7th.
In addition, our Correction Protection Model (CPM) shifted to a corroborating “Risk Off” status as of the open on Friday, August 2nd, warning of further market weakness. The benchmark S&P 500 (SPX) subsequently collapsed by 124 points or 4.2% over the next 2 sessions, and is now trying stabilize from major underlying support near 2800.
How the US broad market reacts to this support level, which we will gauge by the day-to-day condition of our Asbury 6, will determine whether this week’s sharp market decline is a new buying opportunity or just the beginning of a much deeper correction.
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