US Stock Market: On The Brink Of A Deeper Decline
In early October we alerted Asbury Research subscribers of weakening market internals, and started protecting Asbury Investment Management (AIM) portfolios against a bearish reversal in what appeared to be a weakening US stock market.
Less than a month later, the benchmark S&P 500 (SPX) had collapsed by 11% to 2604 by October 29th as shown in the chart below. The index subsequently ripped higher into the 2815 November 7th high and, as shown by the blue highlights, has been trading within those two extremes ever since.
There are 2 important takeaways here:
- The sideways trade of the past two months, as highlighted in blue, indicates investor indecision and, as such, is the probable starting point of the US broad market’s next directional move, and
- SPX has mostly been trading below its 200-day moving average, a widely-watched major trend proxy, which means the major trend is down (bearish).
Corroborating Takeaway #2 is the fact that 57 of the 60 global stock markets we track are also trading below their 200-day moving averages.
The red highlights on the chart show that, inside the past two months of of sideways trade, a smaller, triangular pattern exists, and that SPX is starting to trade below its lower boundary at 2655. This suggests the market is currently leaning downward, toward even lower prices, which would be confirmed by a sustained decline below 2604.
A move below 2604 would indicate that the current major downtrend in SPX, which was initiated by the sharp October decline, is resuming. Should this occur, we will be watching key chart levels below the market, along with our key internal market metrics, for opportunities to reestablish long positions at much lower, and better, levels.
The video below shows how we have navigated these choppy conditions for Asbury Research Management clients over the past several weeks.
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