Asbury 6 Turns Negative as Macro Pressures, NDX & SOX Weigh Down Wall Street

SPEAKER_1 (0:00)

Let's talk about these markets. Joining us now is John Kosar, who's the Chief Market Strategist, Portfolio Manager over at the Asbury Research. John, thanks so much for your time. Good morning to you. Such a busy day here. What's the Asbury 6 telling you this week?

John Kosar (0:13)

Well, it's been negative since August the 31st. So when you bring up the graphic, you'll see that there are two green constituents and there are four red. There we go.

So the two green, the two that are still positive or green, are the relative performance between stocks and high-yield bonds and also volatility. Volatility has stayed pretty low throughout some bumpy times, let's call them. But you can see the four that are negative are the rate of changing the S&P, investor asset flows into the S&P 500, trading volume, and market breadth. So again, the market's down about one and a half percent since the A6 went to four or more red. So heading into an important day, at least the tactical internals of the market are leaning down.

SPEAKER_1 (1:10)

Okay, and you know, there is some September's seasonal weakness here as well. People have been talking about that. But what we have seen under the surface, John, is a great deal of rotation. I mean, that was very evident on Monday. In fact, it was quite violent, particularly when you take a look at the sub-sectors in technology. What are you seeing as far as the sector asset flows right now?

John Kosar (1:34)

The sector rotation has been as fast and furious as I can remember ever seeing it. We have a model, our CEF model is our sector rotation model. There it is on the screen. And for the past quarter, the past 13 to 15 weeks, let's say, the rotation has been gyrating week to week from big money flows, fast money flows going into technology. And then the next week, they're out of technology and they're in the healthcare. And then they're back to tech, and then they're back to healthcare. I've never seen it like this. I think the reason for this, the reason doesn't matter, right? Because we all get paid the same by being right on the market. But the market can discount bad news very well. It did so with COVID. But what it can't discount is uncertainty.

And there's been a lot of geopolitical messaging coming out of Washington. I think that's kind of throwing the market for a loop. These managers are trying to stay ahead of the next tweet.

We're talking about the war, the war is on, the war is off, tariffs are on, tariffs are off. We've got an election coming up, right? A couple of months, and now we've got a big Fed day here that could make a splash in the pool. So the rotation indicates indecision. And if you look at the S&P 500, it's been as flat as a pancake for about three or four weeks, sitting right on some really important support around 79, even 7,900, as long, I'm sorry, 7,600. It's actually 7,621 to just under 7,600.

If the market can't hold that and it's starting to break down through there cautiously, but if it can't hold that level, you see we're at 7,607 right now. We're sitting right on it and have been for three weeks. If we break down through there, we're starting to see some deterioration in volume. That's also not a good sign. The thing that we haven't seen yet is the spike in the VIX. We need some fear. If we're gonna have a correction, fear needs to be there. It's not there yet. That's what I'll be watching closely between now and the end of the week, after we get the meeting behind us, to see what volatility looks like and if there's any indications of fear.

SPEAKER_1 (3:59)

Yeah, the 7600 level, I mean, we're really just hanging in there. I mean, we lost it yesterday. We've stabilized a bit today, but it just feels like, and this was described the other day as certain sectors, like a branch sticking out the side of a cliff, you're just kind of hanging on as hard as you can. And you know, you've had Yardeni out this morning, basically revising his most bullish target here on Wall Street of 8400 down to 7900 I mean, he's delayed that now to sort of mid 2027 It's not dead in the water by any means, but basically saying that the risks of a downturn have increased over the next three to six months, which perhaps speaks to what you're saying here. I mean, we've got the Fed this afternoon. The market pretty much knows what it's going to do. They just don't know what it's going to say.