Special Report: How To Interpret & Use CPM & The Asbury 6, Together & Individually

Two of the more frequent questions that we get from clients are:

What’s the difference between the Asbury 6 (A6) and the Correction Protection Model (CPM)? 

How do you use them individually, and together?

Let’s begin by defining what they are. 

The Asbury 6 is a daily measure of the market’s internal condition according to six diverse but relatively common market metrics.  We have combined them to create a comprehensive model that looks beyond the day-to-day, up-and-down choppy nature (“noise”) of the stock market to determine its actual health — in much the same way that a doctor routinely checks a shortlist of vital signs during a patient’s office visit.  The A6 helps us to monitor strengthening and weakening market conditions on a daily basis, identifies tactical market inflection points, and helps differentiate between real, sustainable market advances or declines from short-lived computer-driven traps for investors.

CPM is a quantitative model that is comprised of several custom, proprietary indicators that John Kosar has developed throughout his career.  These constituent indicators are all based on market internals rather than the price of an index (like the S&P 500) to help avoid being “faked out” by the recent herky-jerky nature of the stock market — which now appears to be the “new normal”.

Let’s look at today’s market conditions as an example of how to use A6 and CPM together.  The A6 turned negative as of the close yesterday (Jan 27th) but CPM is still retaining its Nov 5th Risk On status.  What does this mean? Can we turn this into something more actionable?

The currently conflicting signals in A6 and CPM are an indication that the market is at a decision/inflection point, from which the next tactical trend — up or down — is likely to begin. 

When this conflict between our models occurs, the next step is to attach an underlying support level to it.  We do this by referring to the latest support and resistance levels for the S&P 500 (SPX), which are included in every Weekly Wrap Up (Saturdays) and Keys To This Week (Mondays) report.  An updated version of that chart appears below.

S&P 500 (SPX) since August 2020

 

That “attached” support level is currently at SPX 3700 — which we have defined as primary support. 

From here one of two things can happen:

  1. the market can either can rally from that support (which it is doing thus far today) and re-engage the existing uptrend, which will eventually turn the A6 back to a Positive status, or
  2. the market can continue to weaken, eventually turning CPM to a Risk Off status while SPX breaks down through that key support level to confirm the beginning of a correction.

The beauty of CPM is in its simplicity: it is basically an on/off switch (either Risk On or Risk Off) with relatively infrequent signals — and designed to be that way.  The Asbury 6 provides us with a means to measure the day-to-day health of the market in between CPM signals, and is a more sensitive, early indication of when market conditions are changing so we can start paying closer attention before significant changes in market direction occur.