Day Hagan Tech Talk

DAY HAGAN TECH TALK

SHORT-TERM CORRECTION / FURTHER CONSOLIDATION BUT BURDEN STILL ON THE BEARS

SUMMARY

While a correction and/or a further period of consolidation is inevitable, there has been little evidence of internal distribution.

WRITTEN BY

Art Huprich, CMT

POSTED

August 2, 2016

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KEY LEVELS

  • S&P 500 (SPX/2170.48) - Tactical support: 2159 - lower end of consolidation range. Between 2135 and 2120 - previous breakout points. 2074 is the closest “price low.” Resistance: 2176 – upper end of consolidation range. Approximately 2225 (channel line), 2400+ (13+ month stair-case price target).
  • Russell 2000 (RUT/1219.12) - Tactical support: 1200 - lower end of consolidation range. 1190 and 1172 - previous breakout points. 1132 is the closest “price low.”  Resistance: 1250, 1275 and 1296 - all “previous price peaks.”
  • 10-Year Treasury Note Yield Index (TNX/14.96 [1.49%]) - Support: 14.58 (1.45% - very minor), 14 to 13.36 (1.40% - 1.33%). Resistance: between 16.28 (1.62% - most immediate “previous high”).

I will be out of the office between 8/4/16 and 8/11/16. TECH TALK will resume shortly thereafter. In light of this, here are some observations as we enter a historically volatile seasonal period, specifically the months between August and October – please refer to the seasonal chart below:

  • Absolute and/or relative trends dictate a dominant U.S. weighting – equal weight S&P over cap weight S&P. However select developed international and emerging markets offer pockets of opportunity away from the U.S. On a year-to-date basis, the Small cap - Large cap relative strength performance line recently closed at a high.  While Value has been in the dominant position since February, Growth is exhibiting improving relative strength as this earnings season progresses, aided by the Technology sector.
  • Contrary to 2015, during which a handful of stocks lead the domestic equity market, since the February 2016 low the broad market has been participating. Trading moves aside, until breadth divergences develop, this provides a supportive back drop for domestic equities  
  • Weekly momentum readings (MACD) for the SPX have been positive since late February. The monthly figures are close to turning positive.
  • S&P Macro Sector Analysis (REIT’s will be classified a standalone sector by S&P come 8/31/16, making eleven total sectors): While “healthy” rotation continues, the 50-day moving average (DMA) of all eleven sectors is above their 200-DMA. Also, even with the recent two week consolidation, ten of eleven sectors are above their 50-DMA – a healthy guidepost! Energy is below its 50-DMA and Staples are right on it. On a relative basis, Technology and Health Care are exhibiting leadership qualities.  
  • Pockets of “Optimism” and “Pessimism” can both be found. This dichotomy, in terms of Sentiment, is at least part of the reason for the recent consolidation period. This should be monitored closely and one reason for maintaining a disciplined risk management strategy. Net-net, the sentiment data is not extreme enough in either direction, to make a big “sentiment call.

SUMMARY

Following the S&P 500’s breakout to new highs a few weeks ago, I discussed that while the intermediate-term implications were bullish, we were likely to see a near term pullback because of how extended things had gotten. I was wrong. Instead of a pullback, the SPX underwent a multi-week consolidation period – a period of sideways price action. In the midst of this consolidation period there has been little evidence of internal distribution, as defined by various Advance - Decline Lines, and percentage of S&P 500 stocks above the 50-DMA and 200-DMA.


S&P 500 Large Cap Index Chart: Support levels listed on page one. Retesting breakout levels is normal. However, the intermediate-term trend remains bullish.

Historically, August starts with a small dip, followed by a peak late in the month. Than, the dreaded month of September…


S&P 500 Seasonal 37 Years Chart

When we last discussed Light Crude Oil, we discussed the importance of support ($46.53 to $45.83) followed by the rising 150- day moving average support line – please refer to Tech Talk dated 7/5/16. In light of the groups breakdown in relative performance (lower frame), I want to stress the importance of respecting a violation of support, either defined by the rising 150-DMA, or $39.


Light Crude Oil - Continuous Contract with 50-DMA and 150-DMA (green line)

WHAT I AM WATCHING

Gold: with seasonality turning more supportive into August and September, Gold (and Silver) seems to be consolidating within the context of a bullish price back drop.  


Gold and Silver appear to be consolidating within the context of a bullish price back drop. Support around $125 and $120.
Gold Seasonal 30 Years Chart

Have a great week.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

- Written 08.02.2016 (before and after 4:00pm). Charts courtesy of the following: Stockcharts.com and Seasonalcharts.com.   

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