Day Hagan Tech Talk

DAY HAGAN TECH TALK

DAY HAGAN TECH TALK: DECEMBER 20, 2016

SUMMARY

Within the context of a long-term bull market, a near-term pause or consolidation period would be welcomed. However, capital gains selling is not likely to occur until 2017.

WRITTEN BY

Art Huprich, CMT

POSTED

December 20, 2016

SHARE

KEY LEVELS

  • S&P 500 (SPX/2262.53) – Support (level[s] where theoretical buying interest exists): 2248 (very short-term), approximately 2225 (see chart) and 2187. Resistance (level[s] where theoretical selling pressure exists): 2278 and approximately 2300.
  • Russell 2000 (RUT/1371.68) – Support: 1354 (very minor), 1308 and 1296. Resistance: 1393.
  • 10-Year Treasury Note Yield Index (TNX/25.42 [2.54%]) – Support: 23.46 (2.34% - minor) and 22 (2.20%), for starters.Resistance: 26.42 to 27 (2.64% to 2.70%) and 28 (2.80%). While interest rates have moved up quickly and are near resistance, meaning a pullback in the 10-year yield could occur at any time (the 10-year note could rally), I think the 10-year yield could hit 3% and even 3.50% going forward.

SUMMARY

From a non-trading perspective, the onus remains on the Bears. From a short-term perspective, given that seven of the eleven S&P macro sectors are overbought and are defined by distance above their 50-DMA, coupled with signs of near-term sentiment extremes, a pause or consolidation period versus a significant decline would be welcomed going into year-end!

Of more importance to me is the following, written by Bespoke Investment Group: "For the big winners this year, investors have even more reason to hang onto them since there's now an expectation of tax cuts next year. If you want to sell a big winner, it's better to do it on the first trading day of 2017 (this writer's emphasis) instead of anytime between now and year end if the tax implication is going to be lower in 2017 versus 2016."


OBSERVATIONS

  • Long-term Price Trend (S&P 500): Don't confuse the forest (long-term secular bull market continues) for the trees (near-term overbought condition) – chart below.
  • Short-term Price Trend (S&P 500): In light of the equity market becoming a little more selective in terms of sector relative strength, until some further relative strength trends develop, a pause or consolidation period would be welcomed going into year-end.   
  • U.S. Dollar Index (103.06): Within the context of a secular bull market for the U.S. Dollar Index, "data dependency" allows the Fed the freedom to respond how it sees best, especially during a year with uncertainty due to the changing political environment. However, it is possible that the strengthin theU.S. DollarIndex may itselfact as a tightening mechanism, especially in the area of emerging markets, certain commodities and multinational corporate earnings.  
  • Value versus Growth (relative strength analysis): The ratio of Value versus Growth continues to favor Value, but it has gone to an extreme level on a short-term basis. In terms of portfolio allocation, wait for this extreme move to get worked off either through a pullback or a period of consolidation before taking further action. 
  • Sentiment: Don Hagan and Neil Lesson wrote excellent research updates on 12/15/16 and 12/16/16, respectively, relative to sentiment. Please refer to their reports, or let me know if you would like to see them again. 
S&P 500 Index (log Scale)
I would really welcome a pause and/or consolidation period
Following this multi-year break out, the Dollar Index had a lot further to go...higher.
This chart favors "Value over Growth".

On behalf of the team at Day Hagan Asset Management, I wish you a wonderful Christmas and holiday season. 

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 12.19.2016. Charts courtesy of Stockcharts.com, LPL Research and Fact Set.

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Day Hagan Asset Management (DHAM), any of its affiliates or employees, or any third party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHAM accounts that DHAM or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DHAM uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DHAM recommendations or DHAM performance rankings, one should also consider that DHAM may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DHAM's past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.

Investment advisory services offered through Day Hagan Asset Management, an SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC). None of the entities listed here in this disclosure are affiliated.

 

Day Hagan Asset Management and Mutual Funds ©   |  Disclosures  |  Site Design by Lee Towle Designs