Day Hagan Tech Talk

DAY HAGAN TECH TALK

FOLLOWING THE LARGE CAP SELL OFF, OUR "WATCH LIST" HAS QUICKLY EXPANDED

SUMMARY

Within the current correction/consolidation period, my "watch list" of indicators and relationships to monitor has rapidly expanded.

WRITTEN BY

Art Huprich, CMT

POSTED

March 28, 2017

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KEY LEVELS

  • S&P 500 (SPX/2341.59) – Support (level[s] where buying interest exists): 2322 and between 2300 and 2267. Resistance (level[s] where selling pressure exists): 2359, between 2374 and 2390 and 2401.  
  • Russell 2000 (RUT/1357.32) – Critical Support: Between 1341 and 1335. Resistance: 1363, 1380, 1393 and 1415.
  • 10-Year U.S. Treasury Yield Index (TNX/23.73 [2.37%]) – Support: Between 23.14 (2.31%) and 23 (2.30%). Resistance: Between 26 (2.60%) and 26.21 (2.62%). Within the context of an overall uptrend, TNX has been range-bound (2.30%-2.60% rounded off) on a shorter-term basis. It is important to monitor this range because a violation of either end may be an indication of what the market thinks about the success, or lack thereof, of President Trump's pro-growth economic agenda.

SUMMARY

From a longer-term, non-trading perspective, many areas of the equity market remain in intermediate to long-term uptrends. Also, upside participation overseas continues to broaden out. One relationship I will continue to monitor from a non-trading perspective and the reason why I have stressed managing risk and tightening stop-loss points over the past month, is the negative non-confirmation between the NYSE Common Stock-Only Advance-Decline Line and the S&P 500/DJIA from March 1—please see Tech Talk dated 3/14/17 for details. Additionally, the trend line break, yet subsequent positive bounce, by the NYSE Traditional A-D Line needs to be monitored.

In the March 14 Tech Talk report, I classified the near-termequity market condition as "Elevated risks… leading to another consolidation period… or a pullback." Since then, certain areas of the equity market have worked off/worked down some of their previous "excesses." For the time being, I think risk for the S&P 500 is limited to the support levels listed above and shown in the chart below.

Consistent with this, I'll monitor the following: momentum divergences, sector rotation, the performance of Small Caps, the Transports, Advance-Decline Lines and new 52-week lows. Since these indicators started weakening a number of weeks ago, prior to the recent damage to large caps, they'll likely need to stabilize and turn up before I can call the correction/consolidation period complete. I will also add "investor sentiment" to my list of indicators to watch because investor pessimism is quickly picking up. Ned Davis Research Group's Daily Trading Sentiment Composite has moved into "Extreme Pessimism" mode—we now need to see it reverse up from these levels. A move above 20 by the CBOE Volatility Index (VIX/12.50) would also be indicative of investor fear and that, in turn, the correction/consolidation period has run its course.



The Russell 2000 (RUT) has established critical support between 1341 and 1335.


In terms of the relative strength trends of the S&P macro sectors—exhibiting leadership qualities based on relative strength analysis include: Technology and Health Care. Staples continue to hold their own. Utilities moved farther up the ranking scale. Speaking of such and as shown below: Is the loss of leadership by the Financials (relative strength line broke down) and the continuing improvement by the Utilities (relative strength line continues to "staircase" higher) another reflection of Wall Street's opinion relative to the success, or lack thereof, of President Trump's pro-growth economic agenda?


FOLLOW UP OBSERVATION

Consistent with my non-trading observations above, selective global markets are continuing to exert leadership qualities, defined by bullish or improving relative strength versus the U.S. market. In other words, relative strength is slowly shifting in favor of certain international markets. 



Have a wonderful start to your week. Please know that Day Hagan Asset Management appreciates your support and hard work!

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 3.27.2017. Chart sources: Stockcharts.com.

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