The Asbury 6 (A6) Model

What Is The Asbury 6?

The Asbury 6 is a daily data-driven gauge of the US stock market’s real internal health according to six diverse metrics, which we selected via quantitative backtesting.  It quantitatively answers the question, “Should I be increasing or decreasing my exposure to equities?”  The Asbury 6 helps investors identify real, sustainable market advances or declines from the meaningless day-to-day market noise that often becomes computer-driven traps for investors by either prematurely scaring them out of good trends that aren’t over yet, or luring them back into the market too soon.  The Asbury 6 is a fact-based daily examination of the market’s actual health and is analogous to how a doctor initially checks a patient’s vital signs (blood pressure, pulse, and reflexes) during an office visit.

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.

This chart 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.

This chart displays these data annually from 2018 through 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.

Similar Performance with Minimized Risk

Finally, and most importantly, the next table 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: Risk/Reward Data 2017-2023

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

Editor’s Note: 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.

Price & Trend: S&P 500 (SPX)

NEAR TERM, INTERMEDIATE TERM BULLISH

Chart 1 shows that SPX remains in the midst of minor and major uptrends according to its 50- and 200-day moving averages after setting new all-time highs on Jan 18th. Initial underlying support is at 1.4% below the market at 4819, which is the previous January 2022 all-time high. Primary Tactical support is 4.2% below the market at 4682 to 46677. The current minor uptrend remains valid above this level. Major support is 9.6% below the market at 4418, the current location of the 200-day MA.

Asbury 6: Risk/Reward Data 2017-2023

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