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Don’t Confuse A Bounce With A Bottom

The Asbury 6: Remains Negative As Of April 12th

The Asbury 6 is our in-house Tactical model that indicates whether the US stock market is in a Risk On (staying invested or adding additional risk) or Risk Off (tightening protective stops on existing positions or reducing risk) environment.

Table 1 shows that, despite Friday’s huge rally, all constituent metrics remain negative (red).  The “A6” model itself shifted to a Negative status on Apr 12th, from Positive on Mar 17th, and the S&P 500 has declined by as much as 12.3% since then.

Table 1

Moreover, as long as the “A6” remains Negative the US stock market will remain vulnerable to more weakness and a deeper decline.

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

The S&P 500: Bottom Fishing In A Major Downtrend

The benchmark S&P 500 (SPX) finished Friday’s session at 4024, up 93 points or 2.4% for the day, but was still down 99 points or 2.4% for the week.  The US broad market index is now down 742 points or 15.6% for the year and is down 613 points or 13.2% just since Mar 29th.

The green arrow on Chart 1 below shows that SPX tested and rebounded from primary Tactical support at 3854 on Thursday, May 12th, which we initially highlighted in our May 9th Keys To This Week report (access requires subscription).  This was the springboard for Friday’s eye-popping rally.

Chart 1

However, the current Tactical downtrend will remain intact next week below 4279 to 4331, which is 6.3% to 7.6% above the market.  Major overhead resistance is 11.3% to 12.2% above the market at 4478 to 4513.  A sustained rise above this level would be necessary to indicate a major bullish trend change. 

Unless the S&P 500 can rise and remain above the 4300, amid a shift to Positive in our Asbury 6, we will continue to classify the current rally as just a countertrend rebound in an uncompleted major downtrend.

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