Day Hagan Tech Talk August 16, 2016

DAY HAGAN TECH TALK

CALENDAR MAY BE A HINDRANCE, BUT STILL NO SIGNS OF MAJOR INTERNAL DISTRIBUTION

SUMMARY

With momentum slowing, the historical seasonal rough patch between late August and October may be a hindrance. However, no signs of major internal distribution currently exist.

WRITTEN BY

Art Huprich, CMT

POSTED

August 16, 2016

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KEY LEVELS

  • S&P 500 (SPX/2190.15) – Tactical support: 2172 (very short-term) and 2148. Between 2135 and 2120—previous breakout points. Resistance: With the SPX at new highs, there are no “disappointed holders.” This means the following levels are theoretical: Approximately 2225 (channel line), 2400+ (13+ month staircase price target). 
  • Russell 2000 (RUT/1241.86) – Tactical support: 1220 (very short term), 1198 and 1132—all “prior price lows.” Resistance: 1250 (minor), 1275 and 1296.
  • 10-Year Treasury Note Yield Index (TNX/15.53 [1.55 percent]) – Support: 14.58 (1.45 percent), 14 to 13.36 (1.40 percent - 1.33 percent). Resistance: 16.16 and 16.28 (1.62 percent +/-).

TECHNICAL SUMMARY

  • Relative trends dictate a dominant U.S. weighting. However, select developed international and emerging markets offer pockets of opportunity away from the U.S. See charts below.
  • High yield spreads remain contained, despite the decline in Oil—chart below. The Small Cap-Large Cap relative performance line closed at a high. Both are supportive of equities.
  • While a pullback could occur at any point, positive short-term and intermediate-term price charts provide a different perspective while also helping identify underlying support levels. Charts below.  
  • Seasonally, between late August and October, the S&P 500 has been volatile, which has ultimately presented good opportunities—chart below. I believe the odds favor the same this year.
  • Pockets of too much “Optimism” and too much “Pessimism” can be found. Net-net, I can argue both sides of the “Sentiment coin.” My skillset, however, doesn’t give me the ability to make a major “sentiment call.” Consequently, this area should be monitored closely,especially given the seasonal environment, and a reason for maintaining a disciplined risk management strategy. 
  • Light Crude Oil ($45.74 – continuous contract): When I last discussed Light Crude Oil, I stressed the importance of support as defined by the rising 150-DMA or $39. Since then Crude has bounced approximately nine percent. Was this bounce because support held, or was it a result of the renewed hopes of a production freeze next month? Regardless, Crude has now approached the first level of a wide pocket of selling pressure (resistance) between $45.90 and $51.67. Resistance is defined by the declining 50-DMA, a downtrend line and a string of “price peaks.” I prefer to see how the commodity handles resistance before getting overly aggressive with the group.

Are pull backs of 1 percent, 2 percent, 5 percent going to occur? Absolutely! However, some times a weekly chart can bring an alternative intermediate-term perspective (positive), despite all that is going on around the world.
A short-term chart provides a different, yet still positive, perspective. It also allows you to identify support levels - previous lows highlighted by the green circle.
Falling line is U.S. outperforming. Rising Line is World Index ex U.S. outperforming. While this chart hasn't completed a "bottom", it is in the process of doing so. This means "select" opportunities exist outside of the U.S.
Tactically, don't chase. Dips are buyable with stop loss points identified.
S&P 500 Index vs. Baa Corporate Bond Yield Relative to U.S. 10-year Treasury Yield

Historically, the SPX peaks in late August.


S&P 500 Seasonal 37 Years Chart
WTIC Light Crude Oil - Continuous Contract (EOD) CME

Have a great week.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Mostly written 08.15.2016 (after 4:00 PM EDT). Charts courtesy of the following: Stockcharts.com, GriffinHagan.com and Seasonalcharts.com.

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