Identifying Fear From Opportunity
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When we published our previous February 28th Stock Market Update, the benchmark S&P 500 (SPX) had just set a new all-time high on Feb 19th before collapsing by 538 points or 16% into formidable underlying support at 2856 to 2822. This support level is highlighted in green in Chart 1 below.
Meanwhile, our tactical models — the Correction Protection Model (CPM) and Asbury 6 (A6, see Table 1 below) shifted to a Risk Off/Negative status as of February 24 and have remained there since.
Chart 1 above also shows that support at SPX 2856 to 2822 initially held, which helped to trigger a quick rally back to the 3149 area by Mar 3rd. This 3149 area represents the underside of the December 2018 uptrend line which was initially broken on Feb 27th, turning the major trend down. This rally back to 3149 quickly failed, however, and the index subsequently declined to the next underlying support level at 2729 to 2722, which represents the June and March 2019 benchmark lows. This level continues to be tested as this is being written.
This step-by-step process as described above is a textbook example of the stock markets’ discounting mechanism at work — moving from level to level as investors collectively attempt to handicap the ultimate effects the Coronavirus will have on the US and global economies.
This new major downtrend in the S&P 500 will remain intact below the 3051 to 3149 area, which represents the 200-day moving average and the underside of the December 2018 uptrend line. Below the market, should 2729-2722 support be broken, the next key level is an additional 5% below the market at 2604.
We consider our primary job at Asbury Research and Asbury Investment Management to be helping our clients protect their assets — especially during extreme market conditions like we are seeing now. But, right after that, our next responsibility is the reallocation of those assets at lower and better levels. This task requires taking market risk again, and is where correctly identifying the key index levels below and above the market become critical.
The second part of this process is differentiating a support level that is just a speed bump in a collapsing market from one that can actually develop into an invest-able bottom — a place to reallocate those assets. We use our A6 and CPM models for this, but the average investor can use readily available tools like trading volume — which measures urgency, investor asset flows — which measure conviction, and market breadth — which measures investor participation, to help to measure the quality — and potential sustainability — of any market rally.
Our latest video below shows how we have navigated these recent market conditions in real time.
Asbury Investment Management (AIM): Our Latest Video
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Click Here for our March 10th 2020 Video Review, which explains how we have recently utilized Asbury Research’s market analysis and investment ideas to professionally manage client portfolios.
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This communication is for informational purposes only. It is not intended as investment advice, or as an offer or solicitation for the purchase or sale of any financial asset. 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.