Day Hagan Tech Talk

DAY HAGAN TECH TALK

CHALLENGING SHORT-TERM TAPE ACTION CONTINUES

SUMMARY

While the intermediate-term trend is supportive of equities, the short-term trend has been, and remains, more challenging. Consequently, please pay special attention to S&P 500 support at 2120.

WRITTEN BY

Art Huprich, CMT

POSTED

October 19, 2016

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KEY LEVELS

  • S&P 500 (SPX/2163.66) – Tacticalsupport: 2120 followed by a wide band between 2100 and 2050 (volume support and long-term moving average). Selling pressure (resistance): 2166 (declining 50-DMA, which will marginally change each day), 2175 and between 2180 and 2194.    
  • Russell 2000 (RUT/1250.76) – Tactical support: Between 1211 and 1198. Resistance: 1263, 1275 and 1296.
  • 10-Year Treasury Note Yield Index (TNX/17.23 [1.72%]): Support: 16 (1.60% – rising 50-DMA, which will marginally change each day), 15.43 (1.54%). Initial resistance: Between 17.52 and 17.71 – chart below of the actual 10-Year U.S. Treasury Yield. The 20+ Year Treasury Bond ETF (TLT/$133.13)is exhibiting a pattern of “lower peaks and lower troughs,” the definition of a downtrend. A subsequent break (closing basis) below $131/$129 would likely put additional downward pressure on the ETF. Regardless, I would tighten up stop loss points across this spectrum.  

SUMMARY

At the recent equity market peaks, Advance-Decline Lines (A-D Line) across all capitalization classes confirmed. Consequently, the odds favor that the intermediate-termtechnical backdrop is supportive of equities. However, this doesn’t imply that nail-biting pullbacks won’t occur. They will.

Short-term technical cross-currents, some bullish and some bearish, exist—a pickup in new 52-week lows and a sloppy, short-term A-D Line are the most recent. Consistent with this, special emphasis should be placed on support for the S&P 500 at 2120 because a break of these levels could increase the probabilities of lower prices.


ADDITIONAL OBSERVATIONS

  • S&P 500 Absolute and Relative Trends: While the intermediate-term price breakout from early July holds,on a short-term basis the S&P 500 has been trading laterally since mid-July as the investing public, fund managers and institution investors try to get a grip on when Fed Chair Yellen will take action relative to U.S. interest rates. Currently, relative strength trends dictate a slightly dominant U.S. portfolio weighting. Non-U.S. relative strength trends favor Emerging Markets. In terms of absolute price trends, Germany, Sweden and Amsterdam are bullish. Switzerland, France and Spain continue to build an underlying base, as does Japan. 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.
  • Seasonality: Historically, a strong period for equities between late October/November and yearend/following April is approaching—chart below.
  • Sector/Group Leadership (relative strength analysis): The strongest sector remains Technology. Please note, however, the S&P 500 Information Technology Index is banging up against a resistance line in terms of its actual and relative trend. Consequently, at some point between yearend 2016 and the first quarter of 2017, I would expect some type of cooling off period. The Financials, Energy and Transports continue to move up the leadership scale.
  • Gold ($1260.40—Continuous contract): Despite support “in and around” $1250, the high volume penetration of a nine-month uptrend line is bearish. I suggest letting things shake out between now and the next Fed move, likely in December. In the meantime, hedge if needed, as a move “in and around” $1200 wouldn’t surprise me.

Despite all of the economic, fundamental, political and international cross currents, the SPX has held above intermediate-term breakout levels.
S&P 500: 9 month chart with 50-DMA (red line) and 200-DMA (green line)
If the 10 year yield goes to 2 percent +, which I believe can happen, the odds favor the financials continuing to outperform the SPX.
S&P 500 Seasonal 37 Years Chart
Consistent with the move up into a resistance line, I would expect a "cooling off period" at some juncture.
Gold Continuous Contract Chart

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Mostly written 10.10.2016. Charts courtesy of the following websites: Stockcharts and Seasonalcharts.

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