Day Hagan Tech Talk

DAY HAGAN TECH TALK

WALKING A TIGHTROPE

SUMMARY

Is it any wonder the S&P 500 continues to walk a tightrope as it contends with tactical support along with ongoing technical, fundamental and economic cross currents? Plus the elections!

WRITTEN BY

Art Huprich, CMT

POSTED

October 25, 2016

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KEY LEVELS

  • S&P 500 (SPX/2151.33) – Support: 2125 to 2114 followed by a band between 2100 and 2050 (volume support and 200-DMA). Resistance: 2159 (declining 50-DMA) and 2175 for starters.   
  • Russell 2000 (RUT/1226.45) – Support: between 1209 and 1198. Resistance: 1250 and 1263, for starters.
  • 10-Year Treasury Note Yield Index (TNX/17.63 [1.76%]): Support: 16.5 (1.65% – rising 50-DMA). Initial resistance: 18 (1.80%). Please continue to tighten stops across this spectrum.  

SUMMARY

Due to an ongoing number of near-term bullish and bearish technical cross currents, the S&P 500 is “walking a tightrope” relative to tactical support between 2125 and 2114, which, if broken, may open up risk to 2100 to 2050. The SPX also appears to be walking a tightrope due to a future Fed rate decision, corporate earnings and profits, a rising U.S. dollar, a change in the now bullish seasonal pattern for equities, and the U.S. election. Speaking of which, there is a general expectation by the domestic equity market that Secretary Clinton will win the Presidency. However, Wall Street participants are concerned about a full Democratic takeover of Congress. Consistent with this, it may be prudent to proactively review the technical and fundamental underpinnings of your holdings going into the election and discuss necessary steps to mitigate potential risk.

ADDITIONAL OBSERVATIONS

  • S&P 500 Absolute and Relative Trends: While the intermediate-term price breakout from early July holds,on a short-term basis the S&P 500 has been trading laterally for months. Currently, relative strength trends dictate a dominant U.S. portfolio weighting. However, I have featured a number of bullish absolute and/or relative charts of non-U.S. markets in past reports and show below a bullish chart of Japan’s Nikkei 225 Index. Within the context of a defined stop loss strategy, due to the inherent volatility of foreign markets, I suggest selective non-U.S. exposure, but for higher risk-oriented portfolios only.  
  • Sector/Group Leadership (absolute price trend analysis): When the SPX violates its declining 50-DMA (resistance), I’ll want to see broad participation. Looking at the absolute price trends of their respective ETFs, Technology (at resistance), Financials, and Energy remain in uptrends; Industrials marginally so. Health Care, Basic Materials, Utilities, Real Estate, Telecom, and Consumer Staples have broken uptrend lines. Consumer Discretionary is neutral. I will add that Real Estate, Consumer Staples and Discretionary, Basic Materials, and Utilities have all pulled back and held their rising 200-DMA.
  • Crude Oil ($50.52 – continuous contract): While the absolute price charts remain bullish, it appears the odds favor using pullbacks versus chasing strength. Why? In viewing a historical seasonal calendar (chart below), the next four to six weeks may present a challenge for the Bulls. 





Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 10.24.2016. Charts courtesy of the following websites: Stockcharts and Seasonalcharts. Picture on first page courtesy of Kimball Charting.

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