We are sending you this brief market update much sooner than our normal 2-week interval because we thought it might be timely and helpful considering this week’s violent collapse in the benchmark S&P 500 (SPX). It includes a link to a video from Asbury Investment Management (AIM) which explains how we are utilizing Asbury Research investment ideas and strategies to professionally manage client portfolios during these volatile times.
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US Broad Market Testing 2016 Major Support
Asbury Research: US Stock Market Update, October 12th, 2018
In our previous October 7th Stock Market Update, we said:
“The chart below shows that last week’s pullback from the September 21st all-time highs has positioned SPX right on top of minor underlying support at 2873 to 2863. If this support holds, it is likely to become the springboard for a rise to 3000 — our upside target for SPX since May. If broken, however, it would clear the way for a deeper decline to the next key level at 2802 to 2763, which is major support.”
The 2873 to 2863 support area in the S&P 500 was broken early in the trading session on Wednesday, October 10th, and by the end of the session the broad market index had traded as low as 2772 to test the major support area we had identified. Although we believed that a breakdown below SPX 2873-2963 would lead to a test of 2802-2763, I don’t think anyone expected it to happen in one day. We certainly didn’t.
The question now is, what next?
SPX 2802-2763 is major support, which means this is where the broad market index’s larger 2016 advance should resume — if still valid. Or, put another way, if the market can’t hold major support, it will slip into a major downtrend, which means an even deeper decline.
How can we tell if the major uptrend is still valid?
By studying market internals, which let us check the market’s health “under the hood”. For that, we turn to what we call the Asbury 6, which are our six favorite market internals. A chart of one of of the Asbury 6, ETF asset flows, appears below. The pink highlights in the lower panel show that the total net assets invested in the SPDR S&P 500 ETF (SPY) collapsed by $13.9 billion or 4.9% just since October 3rd. This is a big exodus from the SPYder in a very short period of time, and means all of the assets added since September 5th — — during the S&P 500’s most recent advance to new all-time highs — have liquidated, most of them at a loss. Until these assets begin to stabilize and then expand, this week’s sharp market decline is likely to continue.