DAY HAGAN TECH TALK
DAY HAGAN TECH TALK: DECEMBER 20, 2016
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.
Art Huprich, CMT
December 20, 2016
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- 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.
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."
- 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.
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.
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