Conclusion, Investment Implications, Strategy
As of the close yesterday (February 24th) all of our Asbury 6 key internal market metrics have turned Negative. Yesterday’s market collapse marks the beginning of an overdue corrective decline that will remain valid this week below the 3272 area in the benchmark S&P 500 (SPX).
Table 1 below displays the updated status of our Asbury 6, showing that all six of them have now shifted to Negative as of the close yesterday. When all Asbury 6 are Negative, market internals are the least conducive to adding risk to portfolios.
Table 1
Typically, the Asbury 6 gradually move from all Positive to all Negative, and back again. In fact, one of the purposes of the A6 is to show investors the step-by-step daily changes in market internals, so they can be ready for the subsequent changes in stock market direction as they happen. In this case, however, the quick, all-inclusive change in our model was due to a violent, over-the-weekend change in market expectations, driven by the Coronavirus pandemic, which resulted in a one-day 1032 point, 3.6% collapse in the bellwether Dow Jones Industrial Average (DJIA).
Chart 1 below plots the benchmark S&P 500 (SPX) daily since July 2018 and identifies the key levels of underlying support below the market, and overhead resistance above the market. Yesterday’s market collapse drove SPX below its 50-day moving average at 3272, which turned the tactical (minor) trend negative. This indicates the beginning of a corrective decline that will remain intact as long as the 3272 area now loosely contains as primary overhead resistance.
Chart 1
Primary underlying support exists just below the market at 3212, which represents the Jan 31st and Dec 31st lows. A breakdown below this support would clear the way for an additional 2% decline to the next support level at 3154. The strategic (major) trend will remain valid above 3041 to 3028, which is an additional 6% below the market.