Asbury 6 Flashes Positive as AI Holds Up the Market

SPEAKER_1 (0:00)

Joining us now to discuss the EKG chart for the markets, John Kosar, Chief Market Strategist and Portfolio Manager over at Asprey Research. Good morning, John. Just walk us through your latest update, what you're seeing on the screens there.

John Kosar (0:13)

Sure, it's been an interesting few months, hasn't it? The market's really effectively gone sideways since we peaked in June. True, we did have a new high that was made on August 4th, but really, we've been largely stuck in neutral. The Esbury 6 right now is 4 of 6 of the constituents are green. It means it's positive. It takes 4 or more of the 6 to turn it positive or negative. We'd have to go back to 4 red in order to turn it negative. It went positive on October the 5th, so just a little bit over a week, it's been positive. The market's up. The S&P is up about 1%.

Since then, last time I was with you, we had been on a negative since August 31st. The market declined only by about 2.5%. Then again, we flipped back to positive, but look what's missing. The trading volume has been poor. When volume is poor, it means the urgency to buy is poor. That's what we're seeing down at the bottom. We're also seeing a lack of market growth. Which everybody talks about. The market's been very narrow. It's been largely driven by the AI stocks, the mega caps that everybody talks about every day. That's where we are. We're still positive, but I'm not.

Positive is positive. Am I crazy about the fact that the volume is lousy and so is breath? No, I'm not. I think you look at this within that context. Four of six are green, but two pretty important ingredients are missing and have been for a while.

SPEAKER_1 (2:02)

Yeah. I noticed that obviously we had some thin holiday trading on Monday. Obviously, given the Columbus Day, we had some low volumes yesterday and Friday, in fact, as well. Now, I know that predates those last three trading sessions, but with market breath in the negative as well, how informative is that as to what is carrying this market right now, particularly given we saw those record highs last week?

John Kosar (2:31)

I metaphorically look at it as a Jenga game, the blocks where you've got a lot of skinny blocks that are going up a foot off of the desk, and then you have some really large blocks up on top. This doesn't mean we're going to have a crash, it isn't anything that's going to be dramatic like that, but if we lose AI, what's going to hold the market up? So that, again, it's nothing to stay up wringing your hands about at night, but it is understanding what's going on under the hood of the market is really important, and that's where we are right now.

One of the metrics we're going to look at in just a minute, we'll look a little closer at market breath, and I could talk a little bit more about it then. For right now, this is our sector rotation model. It's called SEAF, S-E-A-F. It's an acronym. So right now, the sectors that are having the most aggressive money flows in are XLC, Communication Services. We have Utilities, XLU, and Energy is XLE.

Utilities has outperformed since it's been an overweight here, which has only been a couple of weeks. It's outperformed the S&P by about 4.5 percent. We're seeing some outperformance by Energy over the past week or so. We're seeing some this morning. So that's where the money is going. The money is coming from, if you look to the bottom of the table, the money is basically coming out of financials hot and heavy. Second to last in the trading category, which is one week, and dead last in the tactical month and in the strategic quarter. So that's just a back of the envelope look at how the money is moving around the sector space and work very close to all-time highs here, and yet we're having a lot of inflows over the past month, going into utilities. You can see we're number two in the trading category and number three in the tactical. So an interesting set up. You're not seeing all of the race horses in one, two, three. We've got a pretty defensive sector there as well.

SPEAKER_1 (4:45)

Yeah, the market has certainly been narrow and quite concentrated, but as you say, some of the sector rotation beneath the surface has been quite interesting over the last couple of weeks. Certainly the more unloved sectors this year, but financials, geez, just can't catch a break right now, and particularly off the back of earnings as well. What levels are you looking at on the S&P 500 right now?