Emerging Correction Or Just A Bump In The Road?
Here Are 2 Ways To Tell.
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One key common denominator between Asbury Research and sister company Asbury Investment Management (AIM) is an emphasis on tamping down market risk and volatility and aggressively protecting client assets during weakening market conditions, while otherwise letting the market’s inherent propensity to move higher over time work in our favor.
In our previous Stock Market Update & Asbury Investment Management Video, published on Sep 12th and entitled The Market Is At A Tactical Inflection Point, we pointed out that our Asbury 6 tactical model was equally balanced at 3 bullish and 3 bearish metrics. We said this indicated a sort of balance point/inflection point for the market from which either the uptrend should resume or a correction was likely to begin. Two days later, on Sep 14th, the Asbury 6 shifted to a Negative reading and the benchmark S&P 500 (SPX) subsequently declined by 3.2% into the Sep 20th low, in the process breaking down below the index’s 50-data moving average which had been supporting the rally all year long.
The big question heading into this week is whether another minor bottom is already in place at the Sep 20th lows, or is there more weakness coming? Through Friday, our Asbury 6 is still Negative as shown below, with four of the six constituent indicators still in bearish territory. At least for the time being, this favors more weakness
The Asbury 6 Model through Sep 24th
Editor’s Note: The Asbury 6 is our own quantitative risk management tool that is updated daily in our Research Center. The “A6” is a combination of six diverse market metrics that we grouped together to look beyond the day-to-day, up-and-down noise of the stock market to determine its actual health — in much the same way that a doctor first checks the patient’s vital signs during an office visit. Four or more metrics in one direction, either Positive (green) or Negative (red), indicate a Tactical market bias. The dates in each cell indicate when each individual constituent of the A6 turned either positive (green) or negative (red). When all Asbury 6 are positive, market internals are the most conducive to adding risk to portfolios. Each negative reading adds an additional element of risk to participating in current or new investment ideas.
It would take a shift back to a positive reading in the “A6” to indicate that the recent market weakness is over and that the larger 2021 US broad market advance is resuming. Until then, though, the market remains vulnerable to a deeper declne.
Another metric that we will be watching very closely next week is the movement of investor asset flows in the market-leading NASDAQ 100 (NDX). Much of the market’s strength and leadership this year has been directly attributable to large-cap Technology stocks like Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN), so we are particularly interested in the investment dollars moving in and out of that space. We do this by tracking the daily total net assets invested in the Invesco QQQ ETF, which tracks the NASDAQ 100.
The red highlights in the chart below show that these assets have been below their 21-day moving average since Sep 17th, indicating a trend of monthly contraction that is characteristic of a decline in NDX. The leftmost red highlights show that the period of monthly asset contraction in QQQ between Apr 20th and May 21st coincided with a 6.5% decline in NDX. The green highlights show that the subsequent rise back above the 21-day MA by these assets on May 24th, indicating a trend of monthly expansion, fueled the rally by NDX into the recent highs.
The NASDAQ 100 daily since April with the daily total net assets invested in QQQ
Between our Asbury 6 model and investor asset flows into the QQQ ETF, we should have a pretty good idea by the middle to end of next week as to whether the market’s recent decline is over — or is just the beginning of a larger move lower. Stay tuned.
Our latest video below shows how we have navigated these recent market conditions for client portfolios in real-time.
Asbury Investment Management (AIM): Our Latest Video
Asbury Research Ideas, Expertly Managed
Here is our September 24th Video Review, which explains how we have recently utilized Asbury Research’s market analysis and investment ideas to professionally manage client portfolios.
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