What Is The Asbury 6?

The Asbury 6 is an indicator that quantitatively answers the question: “Should I be increasing or decreasing my exposure to equities right now, and by how much?”

The Asbury 6 is a data-driven risk management model that uses six diverse market metrics to quantitatively determine the daily health of the US stock market.  The “A6” assigns a positive or negative rating to each of its six constituent metrics based on their current condition and trend. The model then aggregates the ratings to produce a composite score that ranges from zero (all negative) to six (all positive). The higher the score, the healthier the market is and the lower the risk of a major correction. The lower the score, the weaker the market is,and the higher the risk of a significant decline.

Here are the Asbury 6’s constituent metrics with a brief explanation of each.

  • Market Breadth: This measures the number of stocks that are participating in the market’s movement. A healthy market should have broad participation, meaning that most stocks are moving in the same direction as the market index. A narrow market, on the other hand, indicates that only a few stocks are driving the market’s performance which could signal weakness or vulnerability.
  • Volume: This measures the amount of trading activity in the market. Volume indicates urgency to buy or sell.  High volume means that many investors are buying or selling, which suggests strong demand or supply. Low volume means that few investors are trading, which implies weak interest or indecision.
  • Relative Performance: This measures how different segments of the market are performing relative to each other. Relative performance can reveal which areas of the market are leading or lagging, and which ones are likely to outperform or underperform in the future. For example, if small cap stocks are outperforming large cap stocks, it may indicate that investors are more willing to take risks and favor growth-oriented companies.
  • Asset Flows: This measures the flow of money into and out of different types of investments.   Asset flows indicate investor conviction and can show where investors are allocating their capital and what their expectations are for various asset classes. For example, if money is flowing into bonds and out of stocks, it may signal that investors are seeking safety and lower volatility.
  • Volatility: The CBOE Volatility Index (VIX) measures the expected future volatility of the S&P 500 stock market over the next 30 days. It is calculated by the CBOE Options Exchange using the prices of S&P 500 index options with near-term expiration dates. The VIX is also known as the fear index because it tends to rise when investors are uncertain or fearful about the market conditions.  The VIX is widely used by investors, traders, and portfolio managers as a way to measure market risk and sentiment.
  • Price Rate Of Change: The rate of change (ROC) is the speed at which a variable changes over a specific period of time. ROC is often used when speaking about momentum and can generally be expressed as a ratio between a change in one variable relative to a corresponding change in another.  Graphically, the rate of change is represented by the slope of a line.

The primary purpose of the Asbury 6 is to provide an objective, data-driven methodology to determine how much capital investors should be deploying into the stock market.  

To accomplish this, we back-tested it as an incremental style model by assigning each metric in the Asbury 6 an equal weighting of 16.7%.  For example, if one indicator was positive for a particular day, we would invest 16.7% percent of our hypothetical portfolio into the SPDR S&P 500 ETF (SPY).  Two positive indicators would put us at 33.3% percent invested in SPY and so on so that the daily rebalancing of our hypothetical portfolio reflected what the “A6” determined the market’s internal health to be on that particular day.

We back-tested the Asbury 6 over the past six-plus years, a period that included 1) a Federal Reserve-engineered zero interest rate policy and a rising rate environment, 2) a 100-year pandemic shock, and 3) a stock market with both bullish and bearish major trends.  The chart below shows that the Asbury 6 has been robust enough to stay relatively close to the S&P 500 throughout this period while avoiding major downturns.

Asbury 6 vs. S&P 500 Daily: 2017-2023

Click charts above and table below to enlarge

The next chart below displays these data annually from 2018 through 2023.

Asbury 6 Increementally vs. S&P 500 Annually: 2018-2023

The corresponding table below displays the year-by-year comparison of the Asbury 6 versus the S&P 500 including total and average outright and relative performance for the period shown.

Asbury 6 incrementally vs. S&P 500 Annual Comparison: 2017-2023

Finally, and most importantly, the next table below shows that the Asbury 6 trailed the S&P 500 slightly on an annualized basis — but with almost half the risk according to maximum drawdown, beta, and standard deviation.

Asbury 6 Incrementally: Risk/Reward Data 2017-2023

These charts and tables define the purpose of the Asbury 6.  That is, to measure the real day-to-day health of the US stock market in a way that helps investors participate in most of the stock market’s upside when it’s healthy, and to avoid significant drawdowns when it’s not healthy.

Information about the various quantitative metrics referred to above can be found on Investopedia.com.

Disclosure/Disclaimer: The information in this website is provided solely for informational purposes and is not intended to be an offer to sell securities or a solicitation of an offer to buy securities. The strategies employed in managing this and other model portfolios may involve algorithmic techniques such as trend analysis, relative strength, moving averages, various momentum, and related strategies. There is no assurance that these strategies and techniques will yield positive outcomes or prevent losses. Past performance as indicated from historical back-testing is hypothetical in nature and does not involve actual client portfolios, does not consider cash flows, market events and is not predictive of future performance. The model is managed by contemporaneously recording hypothetical trades. Such trades are not live trades and are not influenced by emotional or subjective reactions to extraneous market, economic, political and related factors. The performance for such model(s) is derived from utilizing a variety of technical trading strategies and techniques. Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models utilize mathematical algorithms to attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, new data is accurately incorporated, or the software can accurately predict future market, industry and sector performance.  Asbury Research LLC doers not and cannot provide any assurance that an investment in the model portfolios will yield profitable outcomes. The risk of loss trading in financial assets can be substantial, and different types of investment vehicles, including ETFs, involve varying degrees of risk.  Therefore, you should carefully consider whether such trading is suitable for you, in light of your financial condition. An investor’s personal goals, risk tolerance, income needs, portfolio size, asset allocation and securities preferences, income tax and estate planning strategy should be reviewed and taken into consideration before committing to a specific investment program. Please consult with your financial advisor to discuss the appropriateness of any strategy prior to investing. All investments involve risk. Principal is subject to loss and actual returns may be negative. Returns are not guaranteed in any way and may vary widely from year to year.