Bespoke Investment Group (BIG) wrote the following over the holiday weekend:

 “Everything is relative in the stock market, so after a year like we’ve had in 2019, the declines we have seen since the start of May (bolded by the author of this report) have been a kick in the face. Through Friday afternoon (5/24/19), the S&P 500 (SPX/2826.06) was down 4% MTD (month-to-date), the NASDAQ (COMP/7637.01) was down 5.5%, and the Dow Jones Industrial Average (DJIA/25585.69) was down 3.7%. In the shorter term, the key level of focus for investors is the 2,800 level which is the level we had trouble with three times last year (2018) before collapsing into year-end…”

 Personally, I believe that a big factor in the MTD figures stated above by BIG can be tracked back to President Trumps tweets about the trade tariffs with China at the beginning of the month. His tweets turned complacency into concern. Investor “angst” and his “tweets” provide the President with arguably “the most powerful thumbs on the planet.”

 Consistent with these tweet-induced surprises, I have highlighted multiple times the various risk-on/risk-off and oversold/overbought indicators I follow. These indicators correctly implied that a retest of 2800 could occur. Currently, the “risk-off” indicators continue to increase in number, and thus imply a short-term risk-off mindset (defensive, willingness to sell) on the part of Wall Street participants. I have also highlighted the importance of buying intensity showing up following the recent selling squall – which hasn’t occurred yet.

 Buying intensity (a strong desire to own/buy stocks) is defined as two consecutive trading sessions when NYSE Advancing volume is 80% of total NYSE Advancing and Declining volume or one trading session when NYSE Advancing volume is 90% of total NYSE Advancing and Declining volume. So far strong demand has not shown up. Since I have discussed the just mentioned variables a number of times in my recent reports and webinar, I want to turn in another direction, but one that is also important when it comes to discerning the direction of the domestic equity market going forward.

 Specifically, it is vital to judge the character of the recent weakness in the iShares Core MSCI Emerging Markets ETF (IEMG/$48.19) and the iShares MSCI EAFE ETF (EFA/$64.78). Why is this important? In 2018, going into the fall prior to the U.S. equity market meltdown, there was a big performance divergence between the U.S. and these markets (and most of the rest of the world for that matter).     

 Equity market takeaway: Following a very strong start to 2019, domestic equities are experiencing their sharpest setback of the year. In addition to watching support between 2800 and 2785 for the S&P 500, and the need for buying intensity to pick up, if the current performance divergencecontinues and/or gets larger between the S&P 500, IEMG and EFA, it may have negative consequence as we move closer to the second half of 2019. In the meantime, we will continue to invest as our models dictate.

2018: Global markets were a leading indicator of what was to come. 2019: I don’t want to see a replay of 2018!

Shifting to the interest rate environment, after the U.S. 10-Year Treasury yield stabilized around support, many global 10-Year sovereign yields “headed south like a migrating goose” last week. The culprit was reportedly the latest release of the global Purchasing Manager Indices (PMI - estimates for global manufacturing activity). While Japan’s PMI figure rose, the figures out of the U.S., Germany and the Eurozone were not pretty. Could these readings have been a “one-off” event and related to the reasons behind “angst and tweet,” or something more ominous?” The support levels shown below need to be monitored closely!

10-Year Japan Yield and 10-Year U.S. Yield chart.
10-Year German Yield and 10-Year UK Yield - getting close to an important level of 0.97 percent to 0.93 percent.


Day Hagan Market Update Webinar with Donald Hagan, CFA, June 12, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, June 18, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 05.27.2019. Chart sources: StockCharts.  

PDF Copy of Article: Day Hagan Tech Talk May 28, 2019 (PDF)

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