Day Hagan Research Update

DAY HAGAN TECH TALK

PROBABILITIES, NOT CERTAINTIES

SUMMARY

In terms of a final low/bottom, watch for: a) a spike in bearish sentiment, b) a spike in NYSE new 52-week lows and c) as Don Hagan discussed recently, “a reversal day with a breadth thrust.”

WRITTEN BY

Art Huprich, CMT

POSTED

September 13, 2016

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KEY LEVELS

  • S&P 500 (SPX/2159.04) – Tactical support: between 2135 and 2120 followed by 2075 to 2050. Resistance: 2169, 2177 (both related to the decline of 9/9/16), 2188 and 2194.
  • Russell 2000 (RUT/1235.87) – Tactical support: between 1200 and 1198. Resistance: 1261 and 1275.
  • 10-Year Treasury Note Yield Index (TNX/16.72 [1.67 percent]): 10-year bond yields continue to “stair-step” higher. Resistance: between 17 and 17.50 (1.70 percent - 1.75 percent). Support: 16.30 to 16.20 (1.63 percent to 1.62 percent — short term), between 15.19 (1.51 percent) and 14.58 (1.45 percent).

SUMMARY

Within the context that the stock market deals in probabilities and not 100 percent certainty.

Short Term*: I have highlighted the specific weak short-term technical backdrop for weeks. Thus, the recent increase in downside volatility hasn’t been surprising, though still difficult to contend with. The next range of meaningful support for the SPX is between 2135 and 2120 (previous breakout points), followed by 2075 to 2050 (previous low, volume support and rising 200-DMA). 

In terms of a final low/bottom, a few things to watch for include: a) a spike in bearish sentiment, b) a spike in NYSE new 52-week lows and c) as Don Hagan discussed recently, “a reversal day with a breadth thrust.” In this case, I am defining a breadth thrust in terms of the relationship between NYSE advancing and declining issues and NYSE advancing volume and declining volume. While NYSE advancing volume was strong yesterday, 9/12/16 (advancing volume was 86 percent of total advancing and declining volume), yesterday’s reversal cannot yet be classified as a breadth thrust — more evidence is needed. We need to see that type of advancing over declining volume reading again!

Intermediate Term: The percentage of stocks above their 200-day moving average (DMA) and intermediate-term Advance-Decline Lines (A-D Lines) are supportive of equities. However, similar to what occurred in 2010, 2011, 2012, 2014, 2015 and 2016, sharp pullbacks/corrections will occur. I will watch for, in order to discern a top of more significance, higher equity index levels coupled with a series of lower peaks by the A-D Lines.

Long Term: The price-based secular bull market that started in 2013 is still in place. However, similar to what occurred between 1982 and 2000, sharp and severe pullbacks/cyclical bear markets will occur.

ADDITIONAL OBSERVATIONS (SOME NEW, SOME NOT)

  • Relative performance trends dictate a dominant U.S. portfolio weighting. However, this relative strength line between the U.S. and the rest of the world has pulled back close to a line of demarcation — chart below. In addition to the non-U.S. areas discussed in past reports, and as discussed in our last “After Market Hours” client discussion, certain segments of Europe pique my interest.
  • Upside movement within the Transportation space is spreading. Watch the Airline Index — charts below.
  • From a “Leading/Lagging” perspective, as defined by relative strength trends versus the S&P 500, Technology continues to lead while the Financial and Energy sectors move up the leadership scale. Consumer Discretionary remains near the bottom end of the relative strength scale.  
  • Seasonally, between late August and mid-October, the S&P 500 has historically been volatile in both directions. Nothing yet suggests this will change in 2016.

Chart shows Small Cap Advance decline line. S&P 500 Advance decline line. NYSE Advance decline line: Common Stock Only. Percent of NYSE Stocks above 200-DMA.
Resistance highligted in Red and Support listed below. 1st range of support: 2135 - 2120. 2nd layer of support: 2075 - 2050.
Rising line equates to U.S. out performance and a dominant U.S. portfolio weighting. This relationship has pulled back to a "Line in the Sand". We continue to look for non-U.S. opportunities.
IYT relative to SPY: appears to have stabilized. A close above $145.64 wold have bullish implications and may help the "market".
Daily chart with rising 50-DMA (green) and falling 150-DMA (red). A move above the May, June, July peaks (and 150-DMA) would have bullish implications.
While an initial layer of selling pressure exists between 17 and 17.50 (1.70 percent - 1.75 percent), I think TNX "stair-steps" highter, seeking a new range in which to stabilize.

On behalf of the entire team at Day Hagan Asset Management, while I realize this is a few days past, we recognize the 15th anniversary and honor the victims of the 9/11 terrorist attacks in the U.S.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Mostly written 09.12.2016. *Thank you, Bob Dickey, for the “short term, intermediate term and long term” idea. Charts courtesy of the following: Stockcharts.com.

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