Conclusion, Investment Implications, Strategy

The benchmark S&P 500 (SPX), and the positively correlated SPDR S&P Biotech ETF (XBI), tested important underlying support levels on Monday that must hold for the US stock market’s current Tactical uptrend to remain valid and intact.  If these support levels are broken, however, and confirmed by a Risk Off / Negative shift  in our Tactical models (Asbury 6, Correction Protection Model), it will indicate that a US stock market correction ie beginning.

SPX Testing Tactical Support At 3408-3394

The teal highlights in Chart 1 below point out that the benchmark S&P 500 (SPX) finished Monday’s session right on top of critical tactical support at 3408 to 3394, which represents its 50-day moving average and Feb 19th benchmark high,  The fact that SPX finished right in the middle of Monday’s wide trading range indicates indecision, and that the market “sees” this support and thinks it’s important.

Chart 1

If the current Tactical uptrend in the US broad market index is still valid and intact, it should quickly resume from this support area.

“A6” Confirms Importance Of This Level

Another key indication that the US stock market is at a critical Tactical decision point is that our Asbury 6 model (Table 1 below) finished Monday’s session dead neutral, with three positive (green) and three negative (red) constituents.

Table 2

This indicates the market is currently at a balancing point, and that this is a likely place for its next Tactical trend to begin.

Watch Biotech As A Leading Indicator

Yet another indication of the importance of the US market’s current level can be found in the SPDR S&P Biotech ETF (XBI), which is plotted since March in Chart 2 below.  XBI is particularly important to us righ now because of its statistically significant and stable 10-year positive correlation to the S&P 500 (SPX), which most recently has been 0.75 over the past 6 months.  The chart highlights XBI’s Oct 7th breakout higher from about 10 weeks of sideways investor indecision, and the current retest of that breakout which is taking place right now.

Chart 2


As long as XBI remains above 113.84, which it has been testing for the past several days, this bullish pattern will remain intact as will its 132.00 upside target — which is currently 13% higher.  And, per the correlation, a bullish bias in XBI is also indirectly positive for the S&P 500.