On The Verge Of A Real Correction. What’s Next?
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The benchmark S&P 500 (SPX) finished Friday’s session at 4538, down 56 points or 1.2% for the week and 4.3% off the 4744 Nov 22nd all-time high. However, despite the index’s recent pullback, it is still up 20.8% for the year and up an incredible 107.1% from the March 2020 Covid 19 low.
2021 has been a very unique one for the US stock market as the broad market’s steady strength throughout the year has been deceiving. The S&P 500 has been up by as much as 26.3% for the year at its November 22nd highs — and has risen by as much as 116.4% from the March 2020 Covid 19 lows. Below the surface, however, 92% of the S&P 500’s constituent stocks have had at least a 10% decline and the average individual decline has been 19%. This means, like a duck on the water, the part that we can easily see looks calm and sedate while there is frantic churning going on below the surface.
Chart 1 shows that SPX finished last week right on top of primary Tactical support at 4545, which represents the Sep 3rd benchmark high and the 50-day moving average (minor trend proxy). A significant and sustained decline below this support next week would confirm that a real corrective decline has begun, rather than just another one of the numerous 5%-ish minor pullbacks that have occurred since the beginning of the year.
Although this critical Tactical support level is still being negotiated, key market internals have already turned Negative or bearish according to our Asbury 6 risk management model. The Asbury 6 helps us to identify real, sustainable market advances or declines from computer-driven traps for investors — the latter which are often generated by algorithmic (computerized) trading.
Table 1 below shows that, through the close on Friday, the “A6” is on a Negative status. It has actually been Negative since November 30th, from Positive (bullish) on October 14th.
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.
As long as the Asbury 6 remains on a Negative status, Tactical support at S&P 500 4545 is likely to be broken. And, if this occurs, it would clear the way for a much deeper and potentially violent decline as the US broad market works off this year’s severely over-extended condition.
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
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Here is our December 3rd 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.