Day Hagan Research Update

DAY HAGAN TECH TALK

EVERY-OTHER-WEEK SYNDROME

SUMMARY

Over the past ten weeks, the S&P 500 has closed the week higher five times and lower five times. Don’t be surprised if this type of tape action continues deeper into the summer months.

WRITTEN BY

Art Huprich, CMT

POSTED

May 24, 2016

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Day Hagan Tech Talk, May 24, 2016

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KEY LEVELS

  • S&P 500 (SPX/2048.04) – Tactical support: 2040 (closing level), between 2026 and 2022 (intraday range). Resistance: 2075, 2080 and various layers between 2100 and 2135.
  • Russell 2000 (RUT/1111.37) – Support: 1086. Resistance: 1129 and 1156.  
  • 10-Year Treasury Note Yield Index (TNX/18.38 [1.84 percent]) – Support: 17.00 +/- (1.70 percent). Resistance: 19.41 (1.94 percent) and 20.02 (2.00 percent). 

HIGHLIGHTS

  • The twelve-plus-month trading range for the S&P 500 continues. Meanwhile 2040 (closing basis) and 2026 to 2022 (intraday basis) remains important near-term tactical support for the SPX.
  • Downside momentum, defined by percentage of S&P 500 stocks above their 50-day moving average (53 percent through 5/23/16), has not reached an oversold level. A move below 48 percent will likely send it lower—chart below.
  • S&P Macro Sector Analysis: Year-to-date sector returns and percentage of constituents above their 50-day exponential moving average are scattered along both sides of the flat line—charts below. Said another way, “trends” are mixed across the board. Picking your spots and managing risk remain a critical tactical theme. Currently the Equal-Weight Technology ETF (RYT) has been outperforming the Technology SPDR (XLK) since the February low. This means the average technology stock is exhibiting stronger relative strength than large-cap technology stocks. While the relative strength trend of the Basic Materials SPDR (XLB) and Energy SPDR (XLE) continue to grind higher, the relative trend of the Industrials SPDR (XLI) has come to a screeching halt. While the relative strength trend of the Financial SPDR (XLF) is slowly moving up the leadership board, the relative trend of the Consumer Discretionary SPDR (XLY) remains dismal.
  • 10-Year Yield support is “in and around” 1.70 percent.

Bottom Line: the S&P 500 has spent almost five weeks in “pullback/consolidation” mode. A drop below tactical support at 2040 (closing) and/or between 2026 and 2022 (intraday) is needed to suggest a larger retracement of the February to April rally. The presidential election will likely add to the market’s confusion.


Percent S&P 500 Stocks Above 50 Day Moving Average

While the S&P 500 is basically flat on a year-to-date basis (+0.20 percent between 12/31/15 and 5/23/16), the dispersion amongst the S&P macro sectors is readily apparent. Please note that two supposed “defensive” sectors (Utilities and Health Care) are at opposite ends of the “year-to-date performance spectrum.”


Sectors performance year to date

To show the current dispersion between the various S&P macro sectors a bit differently, while 53 percent of the stocks in the S&P 500 are above their 50-day moving average, the chart below depicts the percentage of stocks within the S&P’s macro sectors that are above their 50-day exponential moving average (50-EMA), through 5/20/16.


Sectors Above 50 EMA, chart 1.
Sectors Above 50 EMA, chart 2.

My conclusion, drawn from the previous three charts, is that what you own (sector and industry group-wise) and proactive risk management are critical in terms of portfolio performance. We believe this condition will remain the case through the summer months, at a minimum.


10-Year Yield Index Weekly Data Chart

Have a great week.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 05.23.2016. Charts courtesy of Stockcharts.com. Image courtesy of Google images.

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