The Correction Continues. Here’s The Key Level To Watch.
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In our previous September 26th market update, entitled Emerging Correction Or Just A Bump In The Road? Here Are 2 Ways To Tell., we said that our Asbury 6 risk management model had been on a Negative status since September 14th — and that this indicated the US stock market was in a corrective (bearish) phase. Through Friday, Table 1 below shows that the “A6” is still Negative as five of its six constituent metrics are bearish (red).
Editor’s Note: The Asbury 6 is our own wealth perservation model and is updated daily. The “A6” is a combination of six diverse market metrics that look beyond the day-to-day, up-and-down noise of the stock market to determine its actual health — in much the same way that a doctor first checks the patient’s vital signs during an office visit. Four or more metrics in one direction, either Positive (green) or Negative (red), indicate a Tactical market bias. The dates in each cell indicate when each individual constituent of the A6 turned either positive (green) or negative (red). When all Asbury 6 are positive, market internals are the most conducive to adding risk to portfolios. Each negative reading adds an additional element of risk to participating in current or new investment ideas.
Meanwhile, as Ken Tomko displays and discusses in this week’s video, market breadth continues to weaken. This means that market rallies are being driven by less and less positively trending stocks, which is similar to an eight-cylinder car that’s running on five or six cylinders. You may get away with that for a while but, eventually, the engine will freeze up and the car will grind to a halt. This is the risk in today’s stock market.
Chart 1 below, taken from this weekend’s The Weekly Wrap-Up report (access requires subscription), shows that the most important area to watch next week in the benchmark S&P 500 (SPX) is primary Tactical resistance at 4438 to 4465, which is 1.1% to 1.7% above Friday’s close.
A significant and sustained rise above this area next week, confirmed by a shift back to Risk On / Positive by our Tactical models (Correction Protection Model, Asbury 6) would be necessary to indicate the current corrective decline is over and the larger 2021 advance has resumed.
Until then, however, the market remains vulnerable to a deeper corrective decline. And, considering that SPX is still up by 100% from its March 2020 bottom, this correction has the potential to become very nasty.
Our latest video below shows how we have navigated these recent market conditions for client portfolios in real-time.
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