Day Hagan Tech Talk

DAY HAGAN TECH TALK

SENTIMENT & MOMENTUM DIVERGENCES ARE A CONCERN, YET THE TIME CORRECTION ENDED AND PRODUCED A LARGE CAP BREAKOUT

SUMMARY

From a non-trading perspective, a bullish pattern of "higher price troughs and higher price peaks" continues. Near term, while "trend" remains bullish, momentum divergences make me uncomfortable.

WRITTEN BY

Art Huprich, CMT

POSTED

February 14, 2017

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KEY LEVELS

  • S&P 500 (SPX/2328.25) – Initial Support (level[s] where buying interest exists): 2300, 2285 and between 2267 and 2254. New highs mean there are no disappointed holders, making resistance difficult to ascertain. A price target based on the depth of the base that was completed last July is in the area of 2400+.
  • Russell 2000 (RUT/1392.38) – Support: 1349, 1341 and 1309. Given the underperformance of small caps and proximity to next support level of 1309, 1341 is important short-term tactical support. Resistance: Approximately 1400.
  • 10-Year Treasury Note Yield Index (TNX/24.34 [2.43%]) – Initial support: Between 23.25 and 23. (2.32% to 2.30%). This is an important range of support. A close below support would imply lower interest rates and higher bond prices—stay tuned! Initial resistance: Between 25 and 25.55 (2.50% to 2.55%) and 26.21 (2.62%).

SUMMARY

From a non-trading perspective, a pattern of "higher price troughs and higher price peaks," the simple definition of an overall uptrend, continues—chart below. Thus, I would view any near-termpullback that develops as normal.

From a near-term perspective, while "price trend" remains bullish, momentum divergences always make me uncomfortable. Meaning, momentum indicators (percentage of stocks above various moving averages, MACD and new 52-week highs [NYSE new highs have confirmed but the SPX, mid-cap and small cap have not]) are not confirming equity indices price highs. While these types of divergences are not good timing indicators, in my opinion, they provide an early warning for some potential changes that may be developing—a reflection of selective buying and should be monitored in conjunction with other internal market indicators. In terms of "sentiment" and the "calendar," I maintain the same opinion as to timing and how to use them—they are not primary indicators but should be used in conjunction with "price and volume" indicators.


VARIOUS OBSERVATIONS

  • The price action of Small Caps relative to Large Caps continues to bother me, big time. New to the list: the poor action by the Small Cap Advance-Decline Line. Chart below.
  • Crude Oil ($52.93 – continuous contract): While I am of the minority opinion that the trend will ultimately move higher, Crude Oil has taken the reins from the equity market in terms of being range bound. Crude Oil has traded laterally for over two months—chart below.
  • Dow Jones Transportation Average (TRAN-9475.78): TRAN has joined Crude Oil in also being range bound over the past 2+ months—chart below.
  • Copper ($2.78 – continuous contract) broke out again last week, possibly reflecting a favorable economic backdrop, while also aiding the Basic Material sector.





WHAT I AM WATCHING

I used a lot of ink in 2016, discussing bullish or improving parts of the commodities market. Consistent with this, and as a follow up to my observations in May 2016 relative to the DB Agriculture Fund, here is a chart that is turning from "Bearish" to "Bullish." Due to the inherent volatility associated with commodities, this is a high-risk observation. Therefore risk management levels must be identified ahead of time and followed.



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 2.13.2017. Chart sources: Stockcharts.com.

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