Special Report: US Stocks At A Tactical Decision Point

Conclusion, Investment Implications, Strategy

Price, market volatility, and investor asset flows all strongly indicate that the benchmark S&P 500 (SPX) is at a Tactical decision point from which its current rally from the early March lows should resume — if still valid.  This Tactical support level, at SPX 4492 to 4417, is currently being tested.

The S&P 500: Testing Primary Tactical Support

The lime green rectangle in Chart 1 below shows that the benchmark S&P 500 (SPX) is currently testing primary Tactical support at 4492 to 4417, which represents the 200-day moving average (major trend proxy), the 50-day MA (minor trend proxy), and the Dec 3rd high.  This is where the current rally from the early March lows should resume if still valid.

Chart 1

A breakdown below this level, however, would warn that this rally is failing and would clear the way for a potential retest of those March lows near 4168.

Market Volatility: Also At A Tactical Inflection Point

The blue bars in the lower panel of Chart 2 below plot the CBOE Volatility Index (the VIX) daily since October 2021 along with its 21-day moving average, which represents one business month and is our Tactical time period.  A corresponding chart of the S&P 500 is plotted in the upper panel. The lower panel also highlights 24.00 in the VIX as a  line of demarcation between Tactical bottoms in the S&P 500 (green) and significant market declines (red). 

Chart 2

The chart shows that the VIX has spent the past two days hovering just below 24.00 and 23.51, the latter the current location of its 21-day moving average.  If primary Tactical support at  SPX 4492 to 4417 as shown in Chart 1 is going to contain the index on the downside and a new leg higher is going to begin from it, then the VIX should remain below the 23.51 to 24.00 area.  A sustained rise above 24.00, however, would indicate that investors are becoming more fearful and that Tactical support in SPX is likely to be broken.

ETF Asset Flows: Also At A Tactical Decision Point

The blue line in the lower panel of Chart 1 below plots the daily net assets invested in the SPDR S&P 500 ETF (SPY) since September along with its green 21-day moving average.  A corresponding chart of SPY is plotted in the upper panel.

Chart 3

The colored highlights show that these assets are currently in the midst of a Mar 16th trend of Tactical expansion (green), after previously being in a trend of Tactical contraction since Jan 13th (red).  The chart also shows that these assets are currently at $408.3 billion, and that their 21-day MA is at $404.8 billion.  These investor assets indicate bullish conviction and are the fuel that drives a sustainable price trend.  If the current Mar 16th trend of Tactical expansion is to remain valid, these assets should begin expanding again from at or near $404.8 billion.  If they don’t, it will indicate that investors have lost the day-to-day conviction that the US broad market is headed higher and will warn that Tactical support at SPX 4492 to 4417is likely to be broken.