From our October 27th report, entitled US Market At Tactical Decision Point:

“The benchmark S&P 500 (SPX) tested important underlying support levels (at 3408 to 3394) on Monday that must hold for the US stock market’s current Tactical uptrend to remain valid and intact.  If these support levels are broken, however, and confirmed by a Risk Off / Negative shift  in our Tactical models (Asbury 6, Correction Protection Model), it will indicate that a US stock market correction is beginning.“

That support level in SPX was broken later that day and, as of the close on Oct 27th, the Asbury 6 shifted to Negative while the Correction Protection Model (CPM) moved to Risk Off.  This indicates the US broad market has begun a corrective decline.

Our next step is to determine where the market’s next potential stopping points are as it heads lower.  Chart 1 below plots SPX over the past year, highlighting its important levels both below and above the market,

Chart 1

  • SPX’s next underlying support level is 1%-2% below the market at 3233 to 3209 and represents the Jun 8th benchmark high and Sep 24th low.
  • Major support is 4% below the market at 3130, the current location of the 200-day moving average (major trend proxy).  The current major uptrend remains intact above this support.
  • The next level is 10% below the market at 2955 and represents the Apr 29th benchmark high and Jun 15th low.
  • Primary overhead resistance is 4% above the market at 3406, which represents the 50-day moving average (minor trend proxy) and Feb 19th benchmark high.

Managers and Investors typically get the market’s direction right but enter and exit the market at less than optimum levels.  We suggest that you consider the levels above when either adding or subtracting risk from portfolios.