Keys To This Week: The US Stock Market

The following is last week’s Keys To This Week report for the US stock market, which was sent to Asbury Research subscribers before the US stock market opening on Monday November 30th. 

Keys To This Week, our most widely-read report, is a Monday morning rundown of key market factors with accompanying charts that are most likely to influence US stock market direction during the upcoming week.  It includes our strategic 1-2 quarter market outlook plus our Correction Protection Model‘s current signal. 

Separate Keys To This Week reports are also produced on Mondays for US Stock Market Sectors, US Interest Rates, and the US Dollar and Commodities.

Asbury Research subscribers just received the current copy of this report.  Contact us for subscription and pricing information by visiting our Contact Us Page or calling 888-960-0005.

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Correction Protection Model (CPM): Positive as of October 5th

(Note: The Correction Protection Model is our own proprietary model for the S&P 500 that is quantitative, objective, and independent of our subjective research and analysis that appears below.  The model is binary: it is either in the market or in cash.  More information is available by clicking the link above.)

Click Here for Asbury’s Intermediate Term Outlook for Global Asset Prices.

 

Analysis & Commentary:

This week our table retains the previous 2 months’ Positive distribution of key Near Term factors for the US stock market, and the previous week’s balanced alignment of Intermediate Term key factors.  This continues to be an important intermediate term decision point from which the next multi-month trend in the US stock market, either up or down, is likely to begin.  The market clearly “sees this” as the S&P 500 begins this week from exactly the same level that it closed at on October 28th. 

The most important market factor to watch this week is major overhead resistance levels in the NASDAQ Composite Index (COMP) at 5133, in the PHLX Semiconductor Index (SOX) at 672, in the NASDAQ 100 (NDX) at 4694 and in the Russell 2000 (RUT) at 1215.  A sustained move above them is necessary to confirm that this year’s sideways activity is yielding to a new intermediate term positive trend.  However, for this to happen corporate bond spreads, which have been widening since October 11th, must begin to narrow.  Without this, the market is vulnerable to another similar sell off to the one which occurred in late August.  Amid these conditions, managers may consider waiting to put new money to work until these two conditions (breaking major resistance levels amid narrowing corporate bond spreads) are met.

Listed in the order of their importance and expected impact on market direction.

1. Support/Resistance: NASDAQ Composite Index (COMP), PHLX Semiconductor Index (SOX), NASDAQ 100 (NDX) and Russell 2000 (RUT). NEAR TO INTERMEDIATE TERM BEARISH, MAJOR DECISION POINT.  Chart 3 of last week’s report showed that the COMP was — and still is heading into this week — situated just below 5133, its March 2000 top-of-the-tech-bubble high, following 4 failed attempts to rise and remain above it earlier this year.  A sustained rise above 5133 remains necessary to clear the way for a new intermediate term US broad market advance into 2016.  Similarly important levels are also being tested in the PHLX Semiconductor Index (SOX) at 672, in the NASDAQ 100 (NDX) at 4694, and in the Russell 2000 (RUT) at 1215.
   
2. Near Term Price Momentum: Monthly Rate of Change (MROC), S&P 500 (SPX). NEAR TERM BULLISH,  MINOR DECISION POINT.  Chart 1 below shows that SPX’s 1-month rate-of-change (MROC) begins this week right on top of its zero line, still in positive territory since October 5th but vulnerable to turning negative (bearish) on any US broad market weakness.  This represents a near term inflection point for the US broad market, from which it’s October rebound must immediately resume if still intact.
3. Asset Flows: PowerShares QQQ. NEAR TERM BULLISH,  MINOR DECISION POINT.  The red highlighted area of Chart 2 below shows that the total net assets invested in QQQ have spent the past 2 weeks hovering just above their 21-day moving average, and must begin to expand this week in order to maintain the current trend of monthly expansion that has fueled the late October rebound.  Put another way, a decline in assets below the moving average would warn of an emerging US market pullback.
4. Credit Spreads: High Yield Corporate Bond Spread. NEAR TERM BEARISH.  Chart 3 below shows that the BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread widened back above its 21-day moving average as of November 11th,  indicating that the previous trend of monthly narrowing that that coincided with and helped to fuel 3 previous declines this year in the S&P 500 is resuming.  As long as this spreads remains in a monthly widening trend, last week’s stock market rebound is unlikely to significant extend its gains.
5. Volatility: CBOE Volatility Index (VIX).  NEAR TERM BULLISH, MINOR DECISION POINT.  Chart 5 in last week’s report showed that the VIX managed to remain below its 50-day moving average during November, indicating a level of investor complacency that has historically been characteristic of US broad market advances.  It would take a sustained rise above the moving average this week, currently situated at 17.81, to indicate that the US stock market pullback widening corporate bond spreads (per Key #4) warn of is beginning.
6. Chart Patterns: S&P 500 (SPX). NEAR TERM BULLISH.  Chart 4 of the November 8th Keys To This Week showed that a bullish chart pattern, a double bottom confirmed on October 19th, continues to target an additional 2.2% rise to 2135 that will remain valid as long as underlying support at 2021 loosely holds as underlying support.
7. Chart Patterns: Russell 2000 (RUT). MAJOR DECISION POINT, TURNING NEAR TO INTERMEDIATE TERM BULLISH?  The green highlights in Chart 4 below show that a bullish chart pattern (inverse head and shoulders) appears to be emerging in RUT, which would be confirmed this week by a close above an important band of overhead resistance at 1202 to 1215.  If and when confirmed, the pattern would target an 8% rise to 1300.  Conversely, a failure to get and stay above 1215 over the next week or two would suggest that RUT’s August major downtrend (as defined by the 200-day moving average) is resuming.
8. Chart Patterns: SPDR S&P 500 Retail Sector ETF (XRT). MAJOR DECISION POINT, TURNING NEAR TO INTERMEDIATE TERM BEARISH?  Chart 5 below plots XRT daily since April and points out its November 12th breakdown from almost 3 months of sideways investor indecision.  That breakdown targets an additional 6% decline to 40.00 that will remain valid below the lower boundary of that indecision area near 45.67, which is currently being tested.  A sustained rise back above 45.67, however, would negate the bearish implications of the breakdown and indicate that the ETF’s larger 2008 uptrend (green highlights) is resuming.  XRT is positively correlated to the S&P 500.
9. Market Breadth: NYSE Composite Index. INTERMEDIATE TERM BULLISH.  Chart 6 of last week’s report showed that the percentage of NYSE Composite constituent stocks trading above their 200-day moving average is currently rising from an August dip below 20%, and that the 3 previous instances of this coincided with the 3 most important bottoms in the S&P 500 since 2002.
10. Seasonality: S&P 500. NEAR TERM BULLISH.  Chart 6 below shows that December is the seasonally strongest month of the year in the S&P 500 based on data since 1957, on average closing 1.51% higher for the month and posting a positive December close 74% of the time.  Our December Global Seasonal Analysis report will be published this week.