Conclusion, Investment Implications, Strategy

The benchmark S&P 500 has been testing minor underlying support at 3233 for the past 4 sessions.  This level is the probably springboard for the US broad market’s next Tactical move.  Recent weakness in high yield bond prices, amid the current Risk Off / Negative status of our Tactical models (Asbury 6, Correction Protection Model), warn that this support will be broken, clearing the way for an additional 4% decline to test major support near 3100.

Know Your Levels In SPX

The green highlights in Chart 1 below show that the benchmark S&P 500 (SPX) has been testing underlying support at 3233, its Jun 8th benchmark high, for the past 4 sessions.  This is the next Tactical decision point for the US broad market, and investors clearly see it.

Chart 1

A sustained (more than a day or two) and significant (more than 10 index points) move below this support would clear the way for a deeper decline to potentially test major support at 3106, the current location of the 200-day moving average an additional 4% below the market.  The 200-day MA defines the current Strategic uptrend.  The 50-day moving average, currently 4% above the market, is primary overhead resistance and defines the current Tactical downtrend.

High Yield Bonds Warn Of A Deeper Stock Market Decline

The rightmost red highlights in the upper panel of Chart 2 below show that the daily total net assets invested in the SPDR Bloomberg Barclays High Yield Bond ETF (JNK) have edged below their 200-day moving average this morning.  This warns of an emerging major bearish trend change. 

Meanwhile, the lower panel shows that the daily total net assets invested in JNK collapsed lower yesterday, this after hovering just below their 21-day moving average since August 20th to indicate a trend of monthly contraction. Monthly asset contraction is characteristic of sustainable Tactical price declines.  The big collapse in these assets indicates this trend of monthly contraction is accelerating and is the likely catalyst for JNK declining below its 200-day MA today.

Chart 2

This chart is particularly important to us because of JNK’s significant and stable positive linear correlation to the S&P 500 throughout the past 10 years, most recently an essentially lockstep 0.92 over the past 3 months.  Per the correlation, as goes JNK from here so is likely to go the US broad market.

Our Tactical Models Remain Risk Off / Negative

Another indication that warns underlying support at SPX 3233 will be broken is that both of our tactical models, the Asbury 6 and the Correction Protection Model (CPM), remain on a Sep 17th Risk Off / Negative status

Through this morning, CPM is +17.8% year-to-date (YTD).  The benchmark S&P 500 (SPX) is -0.6% for the same period, resulting in YTD relative outperformance of +18.4% for CPM.