Advance-Decline Lines: The NYSE Advance-Decline Line (Traditional and Common-Stock Only) failed to confirm the S&P 500's new high last Monday (August 7), and subsequently violated a support line—chart below. While not every "A-D non-confirmation" has produced a major market top, series of "A-D non-confirmations" have preceded most of them (2007, 1999-2000, 1998 and 1987). In the case of 2015, a single non-confirmation occurred, not a series. Consequently, to aid in discerning if we have simply seen a break in upside momentum or the early stages of a trend change, we need to follow this indicator. If a series of non-confirmations occur, I would say the odds are increasing of some type of trend change. If the non-confirmation is a one-time event, I would say the odds favor a loss of momentum and the development of a potentially lengthy trading range, i.e. 2015. Until we get an answer, please continue to identify and implement risk management strategies.

Near-Term Overbought/Oversold Condition: While certain measuring tools have pushed down close to oversold levels, they haven't come close to those levels reached in 2015-2016. Ideally, we see a bit more of a "flush-out" and these measuring tools reach oversold levels—chart below.

S&P 500 (SPX/2465.84): The non-trading price trend remains supportive of equities. Short term, my recent discussion that "stocks (appear) vulnerable to an increase in near-term volatility, evident by either a pullback or lateral trading" was evident last week as the SPX lost 1.43%, yet rallied 1% yesterday. Within this context, critical near-term tactical support exists at 2437, plus gap support at 2429. A violation of these support levels would likely signal a deeper selloff—chart below.

Dow Jones Transportation Average (TRAN/9347.55): The rising 200-DMA support line did its job once again, as it stemmed the recent decline. Going forward, please use the rising 200-DMA support line and the recent price low of 9111.45 (support) as important tactical inflection points.

U.S. 10-Year Treasury Yield Index (TNX/22.19 [2.21%]): While minor support exists at 21.82 (2.18%) and 21.50 (2.15%), more significant downside support exists at 21, or 2.10%. I'd identify 23.96 to 24.23 (2.39% to 2.42%) as important near-term tactical resistance.

S&P Macro Sectors: While the Technology sector, and more specifically the semiconductor complex and the NASDAQ, hasn't recorded a new relative high in over two months, it still exhibits the strongest relative strength amongst the 11 total S&P macro sectors. While Utilities and Financials would seemingly move in the opposite direction of each other given rising interest rates (Utilities, in theory, move lower as interest rates rise due to an increase in their cost of capital, while Financials, in theory, rally as net interest margins expand during a slow rising interest rate environment), both areas are showing leadership qualities as defined by a consistent/improving relative strength trend. Away from demand-supply analysis, it may be that investors are viewing Utilities as a safe haven due to the domestic and geopolitical issues. Financials may be benefitting from a relative, consistent economic backdrop.

NYSE McClellan Oscillator (traditional)
SP 500 with 200-DMA support and additional support levels, all highlighted in green. 

Please know that Day Hagan Asset Management appreciates your support and hard work!

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 8.14.2017. Chart sources:

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