Conclusion, Investment Implications, Strategy
The S&P 500 is testing primary Tactical support at 4604 this morning amid “blinking” in our Asbury 6 model, indicating investor indecision. It would take a significant and sustained decline below this level, confirmed by a significant rise in the VIX, to indicate that a long-overdue corrective decline is beginning.
SPX: Primary Tactical Support Is At 4604
Chart 1 below shows that, following this morning’s weak market opening, the benchmark S&P 500 (SPX) is closing in on a test of primary Tactical support at 4604. This level represents the 50-day moving average (minor trend proxy) and also the 4607 Dec 14th minor low.
Chart 1
It would take a significant (more than just 10-20 index points) and sustained (more than just intraday or one day) decline below this level to indicate a bearish minor trend change — and an emerging corrective decline and would clear the way for a potential test of the next significant support level at 4546, which is an additional 1.3% below the market.
Note that this is the 10th test of the 50-day moving average this year, and 9 of them have held. The only exception was the mid-September to mid-October decline.
Volatility: Look For Confirmation From The VIX
Chart 2 below plots the CBOE Volatility Index (VIX) daily since May in the lower panel with a corresponding chart of the S&P 500 (SPX) plotted in the upper panel. The VIX is a popular measure of market fear or complacency, The chart shows that, despite today’s sharp stock market decline, the VIX has been relatively benign thus far.
Chart 2
It would take a rise in the VIX back above its 21-day moving average, currently at 22.60, to indicate that investor fear is confirming yesterday’s/this morning’s sharp decline in the S&P 500, and it would take a rise above 24.00 to indicate that this decline is sustainable.