DAY HAGAN TECH TALK APRIL 24, 2018

 

TACTICAL OBSERVATIONS

In early April, Don Hagan wrote the following: “our fixed income exposure… remains below our benchmark weighting… and we are monitoring our bond models closely.” Along this line and prior to our objective and unemotional models updating on 5/1/18, let’s keep it simple and look solely at the long-term trend of the 10-Year U.S. Treasury Yield.

After moving laterally since early February, the 10-year yield has broken out short term. Technically, I continue to believe the overall path of least resistance for the 10-Year Treasury Yield is higher, as a multiyear/decade cycle of rising interest rates is occurring.

 10-year US Treasury Yield

Within the context of a secular Bull market, and while I continue to believe the odds favor a multi-month/quarter period of lateral movement by the S&P 500, one area of concern has to do with the Semiconductor group. Having discussed in the past the importance of using the Semiconductor group as a guidepost for equity market risk, it is critical to point out that the group is losing relative strength versus the S&P 500—not good! From a price perspective, the Semiconductor Index has pulled back to an important area of tactical support.

I think we will know over the next few weeks whether we should move the relative and absolute price action of the Semiconductor group to the bearish side of the ledger, keep it on the neutral side, or move it back onto the bullish side. Stay tuned!

 Semiconductor Index (SOX) vs. S&P 500 - Weekly Data

For the more tactical equity investor/trader, the S&P 500 rallied into gap resistance (see Tech Talk dated 4/17/18) and the upper end of a 3 percent trading envelope (overbought) and wasn’t able to make any headway. Said differently, the equity market has a clear case of the “volatility blahs,” as it remains stuck in a broad consolidation pattern. Absent the emergence of any strong signs of accumulation, near-term rallies and sell-offs may result in a continuation of the ongoing consolidation phase.

 S&P 500: 9 Month Chart with Rising 200-DMA (support) and 3 percent OBOS Envelopes.

Algorithmic trading and “tweeting” has lent itself to an equity market environment that can best be described as “extremely fluid.” Thus, we will continue to share our insights. Please know that Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written on 04.23.2018. Chart sources: Stockcharts.com.

A printable PDF copy of the article: Day Hagan Tech Talk 04.24.2018 (pdf)

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