Conclusion, Investment Implications, Strategy
As of mid-morning today, yet another successful test of primary Tactical support in the S&P 500, the recent quick shift back to Positive in our Asbury 6 risk management model, a move back below 24.00 in the VIX, and a shift back to monthly expansion in the assets invested in SPY all indicate that the recent decline from the Nov 22nd highs was indeed just another minor pullback — not the beginning of a real correction — and that the larger 2021 advance is resuming.
Introduction
In our Dec 2nd Special Report entitled Minor Pullback Or Real Correction? Watch These 3 Things., we said:
“With about 90 minutes left in today’s trading, the benchmark S&P 500 (SPX) is testing primary Tactical support near 4545 for the second consecutive session. This is where the current 2021 advance should resume if still valid. And, as expected, this has triggered the Pavlovian “buy the dip” response that has characterized the US broad market index this year. We are closely watching this support level, in conjunction with market volatility and investor asset flows, to try to determine — as quickly and accurately as possible — whether the current market decine is just another minor pullback within a major uptrend or the beginning of a real, and long overdue, corrective decline.“
Based on the latest data, it appears that the benchmark S&P 500’s recent 5.2% decline from the Nov 22nd all-time high was just another minor pullback within a year that has been dominated by a “buy the dip” mentality, for the following reasons:
#1) The Asbury 6 Has Turned Back To Positive
As of the close yesterday, Table 1 below shows that four of the Asbury 6 constituent metrics have moved to back to a positive (green) reading. This turns the “A6” Model itself to a Positive status as four or more metrics in one direction, either positive or negative, indicate a Tactical bias.
#2) The CBOE Volatility Index (The VIX) Has Declined Below 24.00
In our Dec 2nd report we pointed out that the VIX had been above 24.00 for the previous 5 sessions and said that as long as it remained above that level, Tactical support in the S&P 500 was likely to be broken to the downside to signal te start of a real broad market correction. However, Chart 2 below shows that the VIX has since collapsed back below 24.00 over the past two sessions.
As long as the VIX remains below 24.00, the danger of a decline below Tactical support in the S&P 500 is very small. Moreover, a move back below the VIX’s 21-day moving average at 21.54, which is currently being tested from above, would indicate that the market has become complacent enough for the current market rebound to continue.
#3) Asset Flows In SPY Are Expanding Again
In our Dec 2nd Special Report we also pointed out that the total net assets invested in the SPDR S&P 500 ETF Trust (SPY) were in a trend of monthly contraction since Nov 22nd and said that as long as this trend remained intact, Tactical support in the S&P 500 was likely to be broken to signal the start of a corrective decline.
The rightmost green highlights in Chart 3 below show that these assets actually jumped back above their 21-day MA yesterday to suggest the previous October-November trend of monthly asset expansion is resuming.
As long as this new trend of monthly asset expansion in SPY remains intact, the S&P 500 that it represents will have the necessary investor conviction to rise to new all-time highs.