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US Stocks At A Major Crossroads, Watch The Asbury 6.
John Kosar, Asbury’s Chief Market Strategist, discussed this crossroads in the market on Wednesday August 17th on the TD Ameritrade Network. You can view the video by clicking here.
In our previous August 8th Stock Market Update & Asbury Investment Management Video, we pointed out that our Asbury 6 risk management model shifted back to a Positive (bullish) status on July 19th. This meant that our own measure of the internal health of the stock market had become strong enough to support at least a Tactical (monthly) advance. Since then, the benchmark S&P 500 has risen by an additional 10%.
The latest update of the Asbury 6, through Friday August 19th, appears below. We update the Asbury 6 daily in our Research Center (access requires subscription).
The Asbury 6 looks at market internals — the stock market’s real under-the-hood condition — rather than focusing on the day-to-day up and down market noise that is primarily driven by algorithmic (computerized) trading. This “noise” can really get investors into trouble because it pushes their “fear and greed buttons” to act on every erratic move, rather than just focusing on the actual condition of the market.
How To Interpret The Asbury 6: The Asbury 6 is our own quantitative risk management model 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 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.
The chart below plots the benchmark S&P 500 (SPX) daily since 2021 along with its 200- and 50-day moving average, widely-watched major and minor trend proxies. SPX finished Friday’s session at 4228, down 52 points or 1.2% for the week. The US broad market has now retraced between 50.0% and 61.8% of its January decline which, according to retracement theory, is where the January decline should resume from IF the mid-June rally was corrective (a bear market rally) rather than directional (a new major uptrend).
Moreover, although the recent internal strength of the market is still intact according to the “A6”, the benchmark S&P 500 is testing and starting to back away from some very formidable overhead resistance. We need to pay special attention to this.
The colored highlights show that SPX rallied into and reversed lower last week from major overhead resistance at 4279 to 4321, which we have been highlighting as a major decision point for the market. This area represents the 2002 major downtrend line, the 200-day moving average (major trend proxy), and the October 2021 benchmark low.
So, despite the market’s recent internal strength, according to the Asbury 6, how the market responds to the 4279 to 4321 area is likely to indicate whether the current market rebound from the June lows is just a correction in an uncompleted bear market or the start of a new major uptrend. How the Asbury 6 reacts to this pullback from major resistance is likely to be a key indicator of what happens next. Stay tuned.
Click Here for The Asbury Approach To Investing video for July 2022
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Disclaimer: This is provided for information purposes only and is not intended to be a solicitation to buy or sell securities. The performance indicated from back-testing or historical track record may not be typical of future performance. No inferences may be made and no guarantees of profitability are being stated by Asbury Research LLC. The risk of loss trading in financial assets can be substantial. Therefore, you should carefully consider whether such trading is suitable for you in light of your financial condition.