Day Hagan Tech Talk

DAY HAGAN TECH TALK

THANK YOU FOR VOTING, I (WE) NEED THE RELIEF AND 200-DAY MOVING AVERAGE HOLDS

SUMMARY

I am relieved the voting period is finally coming to an end, and I am also relieved the S&P 500’s rising 200-day moving average contained the recent decline. However, all bets are off if the election results are disputed.

WRITTEN BY

Art Huprich, CMT

POSTED

November 8, 2016

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KEY LEVELS

  • S&P 500 (SPX/2131.52) – Support: 2084, 2042 to 2036 (gap support coming up off the “Brexit low” from June). Resistance: 2150 +/- and a wide band between 2175 and 2194.
  • Russell 2000 (RUT/1192.25) – Support: 1156. Resistance (for starters): Between 1206 and 1210, between 1225 and 1232 and 1250.
  • 10-Year Treasury Note Yield Index (TNX/18.26 [1.82%]): Support: initially between 17.50 and 17.00 (1.75% to 1.70%). Resistance: Various levels between 18.80 and 20.00 (1.88% to 2.00%).

SUMMARY

I will spare you the pain and drudgery of rehashing the recent political and interest rate backdrop, as well as the negative technical divergences that led to the pullback to long-term moving average support (200-day), which was also accompanied by a spike in anxiety (Put-Call readings) and a short-term oversold condition (McClellan Oscillator, etc.). I am sure you are familiar with it by now.

With that said, despite a historically positive post-election period for equities and yesterday’s strong internal readings (on NYSE: advancing issues was 82% of total advancing and declining issues, advancing volume was 92% of total advancing and declining volume—another day with these readings is necessary), the onus is still on the back of the bulls on a near-term basis. Consequently, please don’t get emotional over the results and market action over the next few days/week(s). Time and patience are precious commodities on Wall Street. I suggest both.

ADDITIONAL OBSERVATIONS

  • S&P 500 Absolute and Relative Trends Currently,relative strength trends dictate a dominant U.S. portfolio weighting. However, select non-U.S. equity markets and select commodities continue to exhibit bullish or improving trend charts. While relative strength trends had favored small cap over large cap since February, we have seen a shift back to favoring large cap. The Russell 3000 Value Index relative to the Russell 3000 Growth Index is neutral.
  • A short-term positive technical divergence has developed between the bullish absolute and relative price action of the Transportation group (you can follow the DJ Transportation Average or the iShares Transportation Average ETF – IYT) and both the SPX and DJIA.
  • I would consider this positive divergence, and another day of strong internal readings if it occurs, as part of an underlying base from which a year-end rally may develop.
  • While everyone seems focused on Gold (and Silver), why is the continuing improving/bullish chart developments in Copper and select Base Metals flying under the radar? Could it have to do with something good developing with the economies overseas?
Elections from 2008 and 2012 are shown by the green circle. In both cases, a good low occured shorly after the past two elections - in '08 the internal market low was in October, while the price low was in March '09.
Near-term pattern of lower peaks and lower troughs put te onus on the bulls!

We have been discussing various aspects of the Transportation group in these reports since September.

DJ Transportation Seasonal 37 Years Chart
Clearly more work needs to be done from a longer-term perspective. However, 1-the intermediate-term trend is bullish. 2-the long-term down trend line is a long way from current level.

Side Note: We realize it is a bit early, but in light of Veterans Day being later this week (11/11/16), the team at Day Hagan Asset Management wishes to thank those who have served, and who continue to serve, our great nation!

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 11.07.2016. Charts courtesy of the following websites: Stockcharts and Seasonalcharts.

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