The report below, The Weekly Wrap-Up from Thursday, March 29th, is one of a number of premium reports we provide for our subscribers. It is a good example of how we help investors navigate the markets. and manage their investments, during pivotal — and potentially dangerous — periods in the market.
Keys To This Week / Weekly Wrap Up
The Weekly Wrap-Up: March 29th, 2018
Posted on: Thursday, March 29th, 2018
Correction Protection Model (CPM): Neutral as of March 22nd (from Positive on February 26th)
Our quantitative model for the US stock market, which uses the S&P 500 (SPX) as a proxy, shifted to Neutral (“risk off”) as of the open on March 22nd from Positive (“risk on”) on February 26th.
Click Here for Asbury’s current stock and ETF ideas.
Conclusion, Investment Implications, Strategy
Despite today’s impressive rally going into a long holiday weekend, virtually all of our key secondary indicators that measure the stock market’s internal strength are still negative. It would take a sustained rise next week above S&P 500 (SPX) 2730 to 2770, which is currently 3% to 5% above the market, and/or vastly improved market internals, to confirm that the US stock market is “out of the woods” and has resumed its larger 2016 advance.
From Last Week’s Research
“The market has rallied aggressively so far this morning, which is not surprising as investors rush in to “buy the dip” off of the 200-day MA in both SPX and the Dow Industrials (DJIA). However, most of our key near term market metrics are negative heading into this week. As long as ETF asset flows continue to decline, the SPDR S&P 500 ETF (SPY) continues to underperform the SPDR Barclays Capital High Yield Bond ETF (JNK), corporate bond spreads continue to widen, and SPX remains below 2678 to 2780 to keep the 1 month rate of change negative per Key 2, we will view this morning’s rally as a minor bounce within an uncompleted decline.”
Keys To This Week
March 19th, 2018
Weekly Summary / Overview
With less than an hour left in this holiday shortened week, the benchmark S&P 500 (SPX) is up more than 50 points for the session following a week-long test of its 200-day moving average, a widely-watched major trend proxy. If this rally holds through the close, it will indicate some impressive bullish investor conviction, especially going into a long weekend while geopolitical risks abound. However, despite today’s rally, virtually all of our near term secondary indicators — which measure the internal strength of the market — are still negative and would need to also strengthen next week to confirm the sustainability of today’s advance.
Know Your Levels Next Week
Chart 1 below plots the benchmark S&P 500 daily since August 2017 and highlights the key price levels both above and below the market. First and foremost, the chart shows that SPX has been testing its (orange) 200-day moving average, a widely-watched major trend proxy currently situated at 2589, since March 23rd, This is major decision point for the US broad market from which its next significant directional move, either higher or lower, is likely to begin.
Should the 200-day MA hold as support, minor overhead resistance exists 4% above it at 2691, which represents the March 13th low. Above that, major overhead resistance exists 5% to 7% above the 200-day MA at 2730 to 2770, which represents the 50-day moving average (blue, minor trend proxy) and January 26th downtrend line (red). A sustained rise above 2770 would be necessary to confirm that the larger bullish trend has resumed and would target an additional 10% rise to 2050.
Should support at the 200-day moving average be broken, however, it would suggest that a deeper decline is coming. The next two underlying support levels exist 2% below the 200-day MA at 2544 to 2533, and 4% below it at 2491 to 2488 (green).
Near Term Market Momentum Remains Negative
The red highlights in Chart 2 below show that the S&P 500’s 1-month (our tactical time frame) rate-of-change (MROC) turned negative (bearish) on March 19th and will remain so next week below 2678 to 2728, which is 1% to 3% above the market — and closely corresponds to overhead resistance levels at 2691 and 2730 as shown in Chart 1 above.
According to this metric, a sustained rise above 2728 would be necessary next week to turn near term momentum positive and thus confirm that the larger broad market advance has resumed.
While Charts 1 and 2 above lay out the parameters for a positive and negative resolution to the US broad market’s current decision point at the 200-day MA, Charts 3-5 below indicate how the market looks right now, under the hood, going into the long holiday weekend.
Investor Assets Are Still Contracting
The blue line in the lower panel of Chart 3 below plots the daily total net assets invested in the SPDR S&P 500 ETF (SPY) since December. The red line plots these assets’ 21-day moving average, which we use to identify a monthly trend of expansion or contraction.
Investor asset flows measure day-to-day investor conviction in a price move.
The red highlights show that these assets shifted to a trend of monthly contraction as of March 16th, and that the previous similar trend triggered and fueled the early February to early March weakness in SPX (upper panel). As long as this trend of monthly contraction remains intact, more near term market weakness is likely.
Corporate Bond Spreads Are Widening
The red highlights in the upper panel of Chart 4 below show that the BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread has been in the midst of a monthly widening trend, as indicated by its position above its 21-day moving average, since February 2nd.
Monthly widening in the spread indicates that the bond market is pricing in a near term increase in credit or repayment risk for these bonds, one that has historically coincided with a weak/declining stock market.
As long as the spread remains in a trend of monthly widening, history suggests the stock market is going to have a tough time making and holding gains from the 200-day MA. Put another way, it would take a sustained narrowing in the spread next week, below its 21-day moving average at 362 basis points, to indicate these bond market fears have abated enough to support the beginning of a new leg higher in the US stock market.
Market Breadth Is Weakening
The blue bars in the upper panel of Chart 5 below plot the Advance/Decline Line based on NYSE common stocks, which is calculated from the percentage of advancing stocks minus the percentage of declining stocks (rather than using the raw numbers).
The red highlights show the A/D line has been below its 21-day moving average since March 22nd, indicating a trend of monthly weakening, and that the previous two instances of this coincided with declines in the S&P 500 (lower panel) in early November 2017 and in early February.
It would take a sustained rise in the A/D next week, back above its 21-day moving average, to indicate that market breadth is once again strong enough to fuel and sustain a broad market rally.
All Contents © Copyright 2005-2018 Asbury Research LLC. The contents of all material available on this Internet site are copyrighted by Asbury Research LLC. unless otherwise indicated. All rights are reserved by Asbury Research LLC., and content may not be reproduced, downloaded, disseminated, published, or transferred in any form or by any means, except with the prior written permission of Asbury Research LLC., or as indicated below. Members of Asbury Research LLC. may download or print web pages for personal or academic use, consistent with their user agreement. However, no part of such content may be otherwise or subsequently reproduced, downloaded, disseminated, published, or transferred, in any form or by any means, except with the prior written permission of and with express attribution to Asbury Research LLC. Copyright infringement is a violation of federal law subject to criminal and civil penalties.
Asbury Research subscribers can view our latest research on the US stock market, market sectors, US interest rates, ETFs and commodities, as well as a table with our current picks in US stocks, ETFs, and global indexes, by logging into the Research Center via the big gold button in the upper right corner of the screen.