US Stock Market: The 5-Month Indecision Area Continues, But Watch The Upside
Chart 1 below shows that, after a successful October 3rd test of major underlying support at the 200-day moving average (widely-watched major trend proxy), the benchmark S&P 500 (SPX) has jumped back above minor overhead resistance at 2941 to 2954. This indicates the 2019 major uptrend is still intact and suggests it may be resuming.
In this case, though, understanding the bigger picture is much more important. SPX initially jumped 18% higher from January 2nd through May 1st, indicating frantic buying pressure following a 20% collapse in Q4 2018. However, the index has since drifted sideways, indicating investor concern that the market had come to far, too fast — and in the process chopping many investors to pieces.
The bad news is these sideways, choppy markets are extremely difficult to navigate. Just as market internals start to improve, prices peak near the top of the recent range and collapse back down to the bottom of the range. This happens because investors are indecisive and unwilling to make market bets that move outside of the sideways “safety zone”.
The good news is that these sideways indecision areas typically become the springboard for the next “investable” and lucrative market move. Moreover, the longer these indecision periods last, the bigger the trend that comes out of them tends to be.
Table 1 below displays the October 15th update of our Asbury 6 key market internals. We update the Asbury 6 every day to determine the tactical risk profile of the market. The table shows that 4 of the Asbury 6 turned back to positive as of of October 15th, after being mostly negative as of October 1st — the latter which was right before the most recent market decline began.
This suggests a cautiously positive near term bias for the stock market. Bigger picture, however, the market is still in a sideways price trend. It would take a sustained positive bias in the Asbury 6, along with a move outside of the current 5-month trading range, to suggest a clear resumption of the 2019 advance. Be careful.
Editor’s Note: On Thursday October 17th, Chief Market Strategist John Kosar will be presenting Asbury Research’s latest market forecast and investment strategy to the Twin Cities Minnesota Chapter of the American Association of Individual Investors (AAII). Contact us or visit the AAII’s website for details.
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