We’re Keeping A Close Eye On Technology This Month

In our previous June 18th update we pointed out that our Correction Protection Model (CPM) had moved back to a Risk On (bullish) status as of June 11th.  Two business days earlier, on June 7th, the majority of our Asbury 6 key market internals turned back to Positive (bullish) after being mostly Negative since May 7th.
These models indicated favorable conditions to put risk assets back to work following the sharp May market decline, and the benchmark S&P 500 (SPX) subsequently rose by 123 points or 4.3% into last week’s highs.  We still have a few concerns, however, despite this nice recent performance.  One of them is market leadership.
In most cases, a broad stock market advance is led by Small Cap and/or Technology stocks.  Small Cap, as represented by the Russell 2000 (RUT), has been drifting sideways since the end of February and has been underperforming SPX since then.  That leaves Technology to carry the baton.
Chart 1 below shows that the tech bellwether NASDAQ Composite Index (COMP) is currently struggling to rise and remain above its 8133 August 2018 high, after failing to do so back in late October 2018.  That late October failure by the COMP, by the way, was at least partially responsible for the US broad market’s horrible 4th Quarter collapse.

COMP daily since July 2018

Accordingly, if the COMP cannot clear 8113 and start establishing some new highs, and/or Small Cap cannot pick up the slack, the broader market will start to weaken.  If this happens, we will see early indications of it in our CPM and Asbury 6 models and will then shift to a more defensive position — just as we did in early May.  In short, the market appears to be healthy right now — but keep your ear to the tracks.
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