Conclusion, Investment Implications, Strategy
As of mid morning today, the benchmark S&P 500 (SPX) is closing in on a test of Tactical overhead resistance at 4436 to 4465 — which is just another 0.8% above the market. This is where the current downside correction in SPX must resume IF still valid. Conversely, a sustained rise above this area accompanied by a shift back to Positive/ Risk On in our Asbury 6 and Correction Protection Model would indicate the correction is over and the larger 2021 advance has resumed.
Analysis
The colored highlights in Chart 1 below show that, as of mid-morning today, the benchmark S&P 500 (SPX) is closing in on a test of Tactical overhead resistance at 4436 to 4465. This band of resistance, which was recently tested and held on Oct 7th, is currently just 0.8% above the market.
This cluster of overhead resistance represents:
- 4436: the 50-day moving average (minor trend proxy),
- 4443: the 61.8% retracement of the Sep 2nd to Oct 1st decline, and
- 4465: the Sep 23rd high.
With the Asbury 6 currently on a Negative status as of Sep 14th and the Correction Protection Model (CPM) on a Risk Off status as of Sep 20th, this cluster of overhead resistance is where the current corrective decline in SPX should resume — if it is still valid.
We are also closely watching the daily total net assets invested in the SPDR S&P 500 ETF Trust (SPY) for an indication of whether or not the current correction is still in force. Chart 2 below plots SPX daily since April with the corresponding total net assets invested in SPY, and their 21-day moving average (our Tactical time frame), plotted in the lower panel.
The red highlights in the lower panel show that these assets have been below their 21-day moving average since Sep 20th, indicating a monthly trend of contraction that is characteristic of Tactical US broad market declines. The blue highlights show that these assets recently stopped declining at $384.7 billion, which represents the Aug 3rd and Jly 12th peaks in assets invested. Our research shows that these “support levels” in total assets invested are just as significant as support levels in price — and often lead changes in price direction.
It would take a further contraction in these assets, below $384.7 billion, to indicate a deeper US broad market decline is emerging. Conversely, a rise in these assets back above their 21-day MA, currently situated at $393.6 billion, would change the trend to one of monthly expansion and set the stage for the resumption of the S&P 500’s larger 2021 advance.