The S&P 500: Hanging On For Dear Life
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The benchmark S&P 500 (SPX) finished Friday’s session at 4663, down 14 points or -0.3% for the week. It is currently 3.2% off of its 4819 Jan 4th all-time high but has also been as much as an incredible 119.8% above its March 2020 Covid low as recently as Jan 4th.
Chart 1 below shows that SPX is currently testing its 50-day moving average for the 4th time since December 3rd. This is particularly important because the US broad market index tested and held the 50-day MA, a widely-watched minor trend proxy, on 10 of 11 attempts during 2021. This unusually strong buy-the-dip mentality by investors is what drove SPX higher last year without a meaningful correction, even though market breadth was weak all year long and the vast majority of index constituents individually had corrections of close to 20% at some point during the year.
One day point this buy-the-dip phenomenon will end, and when it does we believe it will catch a lot of investors offsides and potentially exacerbate the inevitable next market correction. It would take a sustained rise above 4681 next week to indicate that the 2021 US broad market advance is resuming. However, the longer the index remains below it, the more likely an overdue corrective decline will emerge.
The Asbury 6: Positive But May Be Turning
Table 1 shows that, through Thursday Dec 13th, three of the Asbury 6 constituent metrics are negative (red). The “A6” model itself has been on a Positive status on December 22nd. Three green and three red constituent metrics indicate that the market is currently at a Tactical balancing point, and underscores our contention that any more market weakness could trigger a long-overdue corrective decline.
However, we are still waiting for Friday’s data from one of A6’s constituents — investor asset flows in the SPDR S&P 500 ETF Trust (SPY) — to indicate the model’s Friday, end-of-week signal.
With the model at 3 positive and 3 negative, a negative shift in these assets would turn the model itself to Negative and warn that a corrective decline is emerging. This data should be available on Tuesday morning before the opening. We will update the A6 immediately for subscribers once the data becomes available.
Editor’s Note: The Asbury 6 is our own quantitative risk management tool which is updated daily in our Research Center. The “A6” is a combination of six diverse market metrics that we grouped together to 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.
Our latest video below shows how we have navigated these recent market conditions for client portfolios in real-time.
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