Be Prepared For When The Music Stops

Tactical indicators tell you what’s happening today. Strategic indicators tell you what might be coming your way tomorrow.

In our January 8th Stock Market Update, we pointed out that, even though our tactical models (Correction Protection Model, Asbury 6) were in a Risk On/Positive status, more strategic seasonality data warned of an upcoming February seasonal decline.

Table 1 below shows that, though the present, our strategic Asbury 6 model still retains its mid-October Positive bias. When all Asbury 6 constituents 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.

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Table 1

Meanwhile, though, in addition to the upcoming February seasonality, the red highlights in Chart 1 below show that the S&P 500 (SPX) is currently 11% above its 200-day moving average. The 200-day moving average is a widely-watched major trend proxy.

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Chart 1

This puts the US broad market index at an over-extended extreme that has previously only been reached about a half-dozen or so times during this period. We do not view this as a tactical sell signal, but rather a strategic warning that the current 2019 advance is historically over-extended and vulnerable to a decline. 

In baseball terms, this chart basically suggests that the current 2019 US stock market advance is in the 8th or 9th inning and warns that everyone may soon be heading for the exits at the same time.

So, bottom line, make sure you have an exit plan — just in case.

Disclosure: None.

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