More Trend Fuel (Investor Assets) = Higher Prices

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The benchmark S&P 500 (SPX) finished Friday’s session at 4698, down just 7 points or 0.1% for the week.  The US broad market index has been drifting sideways ever since setting a new all-time high of 4719 on Nov 5th, apparently digesting recent gains.  However, SPX is now up 25.1% for the year and up an astonishing 113.9% since its March 2020 Covid 19 bottom while becoming historically over-extended by most metrics

For perspective, the S&P 500 rose by 105.1% in the 5-year period between October 2002 and October 2007 before declining by 57.7% into the March 2009 bottom.  At some point, the US stock market will again revert back to the mean — or well beyond the mean as it did in 2008 — so it’s important for investors to enjoy the party while it’s here but to also remember history and what it can do to your portfolio if you don’t pay attention to it,

For now,  though, the market is still clicking on most of its “cylinders”. Table 1 below shows that, through Friday, four of the six constituent metrics of our Asbury 6 risk management model are green or bullish.  The Asbury 6 itself turned back to a Positive status on Oct 14th and the S&P 500 has subsequently risen by an additional 278 points or 6.3%.

Table 1

Editor’s Note: The Asbury 6 is our own quantitative risk management tool which 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.

One key reason that the market has been so strong recently is the tremendous amount of investor dollars that have been chasing it. The upper panel of Chart 1 below displays the NASDAQ 100 (NDX) daily since July.  The blue line in the lower panel displays a corresponding chart of the daily relative performance of the Invesco QQQ Trust (QQQ which tracks NDX) versus SPY, along with its red 21-day moving average (one business month, which is our Tactical time period). 

Chart 1

The green highlights in the lower panel show that these assets have been in a trend of monthly expansion (above their 21-day MA) since Oct 14th.  It also shows that these assets expanded to new all-time highs — above the previous $196.7 billion threshold –later that month. 

As long as these assets continue to expand, the US broad market that NDX typically leads is likely to continue moving higher.  Once these assets dry up, however — especially if accompanied by a Negative shift in the Asbury 6 — it will signal the start of a very overdue corrective decline, one that could end up looking a lot like the collapse we had back in 2008.

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 November 19th 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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This communication is for informational purposes only. It is not intended as investment advice, or as an offer or solicitation for the purchase or sale of any financial asset.  No inferences may be made and no guarantees of profitability are being stated by Asbury Research LLC.  The risk of loss trading in financial assets can be substantial. Therefore, you should carefully consider whether such trading is suitable for you in light of your financial condition.

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