Day Hagan Tech Talk

DAY HAGAN TECH TALK

CALENDAR REMAINS A NEAR-TERM HINDRANCE, BUT INTERMEDIATE-TERM TREND STILL POSITIVE

SUMMARY

While the S&P 500’s intermediate-term price trend is positive, the calendar, sentiment and short-term divergences are a problem.

WRITTEN BY

Art Day, CMT

POSTED

August 30, 2016

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KEY LEVELS

  • S&P 500 (SPX/2180.38) – Tactical support: 2160 (very short term) followed by 2148. Intermediate-term support is between 2135 and 2100. Resistance: 2194. Approximately 2225 (channel line).
  • Russell 2000 (RUT/1244.94) – Tactical support: 1231 and 1220 (both very short term) followed by 1198. Resistance: 1251 (minor), 1275 and 1296.
  • 10-Year Treasury Note Yield Index (TNX/15.66 [1.56%]) – Near-term trend is up. Resistance: 16.35 (1.63%), 16.66 (1.66% – downtrend line) and 17.48 (1.75% rounded). Support: Various levels between 15.31 (1.53%) and 14.58 (1.45%). 14 to 13.36 (1.40% - 1.33%).

SUMMARY

Barring the S&P 500’s move below 2135 to 2100, the intermediate-term price trend remains bullish. However, with a rough seasonal backdrop in place and now several short-term negative divergences, the S&P 500 lacks near-term support, and the odds favor an orderly consolidation/pullback, not a lasting decline. Consistent with this, the first meaningful level of support for the S&P 500 looks to be 2148. A violation of 2148 would increase the odds of further downside testing – 2135 to 2100, possibly 2075.

WHAT I AM SEEING

  • Seasonally, between late August and mid-October, the S&P 500 has historically been choppy/weak. I believe the odds favor the same for 2016.
  • In terms of Sentiment, the weight of evidence has shifted to the side of “Excessive Optimism,” making for a potential volatile (flat-to-down) period.
  • Near-term momentum started to slow midmonth and hasn’t improved; several short-term negative divergences have developed. New 52-week highs for SPX and percentage of S&P 500 components above their 50- & 20-DMA have not been confirming the price movement of the SPX. While these indicators are difficult “timing” tools, they do help discern the near-term backdrop. Longer-term Advance-Decline readings remain bullish. 
  • Relative performance trends dictate a dominant U.S. portfolio weighting.
  • 2016 relative performance lines support small cap over large cap and value over growth.
  • From a “Leadership” perspective, as defined by strong or improving relative performance trends of the S&P macro sectors since early 2016, Technology continues to lead the race, while Industrials (Railroad index looks good) and REITs hold their own—follow closely. Most notably however, the Financial sector is moving up the leadership scale and being led by the Insurance index.

Historically, the SPX hits a rough patch between late August and late September/late October.


S&P 500 Seasonal 37 Years Chart


S&P 500: Various support levels. Near term divergence between "price" and a few "internal" measuring tools, is a short-term problem.


18 Month Relative Performance Chart. While "select" opprtunities exist outside the U.S., a predominant equity weighting should still be domestic in nature.


Russell 2000 Small Cap Index/S&P 500 Large Cap Index. Small Cap ($RUT) versus Large Cap ($SPX). These two charts suggest having some "Small Cap" & "Value" components in your portfolios!


On behalf of the entire team at Day Hagan Asset Management, I wish you a great Labor Day holiday!

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Mostly written 08.29.2016. Charts courtesy of the following: Stockcharts.com, Seasonalcharts.com.

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