Day Hagan Tech Talk

DAY HAGAN TECH TALK

WITH CENTRAL BANKS OUT OF THE WAY (FOR NOW) SEASONALITY AND EARNINGS BECOME THE FOCUS

SUMMARY

Advance-Decline Lines hit new highs recently—bullish intermediate term. In the short term, however, since fund managers tend to clean house at the end of the quarter, place attention on S&P 500 support between 2125 and 2120.

WRITTEN BY

Art Huprich, CMT

POSTED

September 27, 2016

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KEY LEVELS

  • S&P 500 (SPX/2146.10) – Tacticalsupport: 2125 to 2120 followed by a wide band between 2100 and 2050. I believe this band of support “holds”—see chart.  Near-term resistance: 2188 and 2194.
  • Russell 2000 (RUT/1240.94) – Tactical support: 1228 (short-term) and between 1211 and 1198. Resistance: 1275 and 1296.  
  • 10-Year Treasury Note Yield (TNX/15.89 [1.58%]): Support: 15.50 (1.55% - confluence of trend lines—see chart) and between 15.19 (1.51%) and 14.58 (1.45%). Resistance: between 17.52 (1.75%) and 17.77 (1.77% - declining 200-DMA, which will marginally change each day). I continue to believe interest rates are in the process of establishing a new and higher base of support.

SUMMARY

Advance-Decline Lines across all capitalization classes hit new highs last week. Consequently, the odds favor that the intermediate-term technical trend is supportive of equities. However, this doesn’t imply that nail-biting pullbacks won’t occur. They will, reminiscent of the years 2010, 2011, 2012, 2014, 2015 and 2016.

From a short-term perspective, negative divergences still exist, and since fund managers tend to clean house at the end of the third quarter, selloffs near the end of September are likely. With this as a short-term backdrop, given bullish advancing volume versus declining volume readings last week along with a short-term positive reading by the MACD indicator (momentum), special attention should be placed on near-term support for the S&P 500 between 2125 and 2120. 

ADDITIONAL OBSERVATIONS

  • Relative strength trends dictate a slightly dominant U.S. portfolio weighting—I prefer domestic Small Cap. However, the relative strength line between the U.S. (SPY) and the rest of the world (VEU) has pulled back to an important area of support. Within the context of tight stop loss points, due to their inherent volatility, I suggest selective non-U.S. exposure, but for higher risk-oriented portfolios only.
  • Seasonally, between late August and mid-October, the S&P 500 has historically been volatile in both directions. Thus far, 2016 has been no different. Expect more of the same—chart below.
  • The 12-month relative strength trends are back to neutral in terms of Growth versus Value. Yet, since the February 2016 low, the trends still favor Value. Please choose your timeframe and adjust accordingly.
  • Based on relative strength analysis, the strongest sector remains Technology. The Financials are thus far holding their own. Given the recent decline in the 10-year yield over the past two weeks, I would use the Financials relative strength trend, via the iShares U.S. Financials ETF (IYF), as a critical guidepost going forward.

2125 to 2120 tactical near-term support. 2100 to 2050: a wide band of support, defined by "previous lows." "volume suport," retracement levels and long-term moving averages.
Initial selling pressure is between 17.52 and 17.77.
While some liberty was taken in drawing the "green" line, the "blue" line is drawn to point. In either case, this chart implies selective non-U.S. exposure for higher risk oriented portfolios.
S&P 500 Seasonal 37 Years Chart

WHAT I AM WATCHING (and like)

Natural Gas with rising 40-week moving averages: within the context that October is historically a strong seasonal month, followed by seasonal weakness, the weekly chart is bullish.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Mostly written 09.26.2016. Charts courtesy of the following websites: Stockcharts and Seasonalcharts.

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