This may be a lighter-than-average trading week, as Wall Street extends its Independence Day holiday. As it may lend itself to a pickup in volatility, here are a few “charts of interest.”

  • Advance-Decline Lines (A/D Lines): A/D Lines across all capitalization sizes recorded new all-time highs at some point during the second quarter of 2019. Additionally, all A/D lines recorded new all-time highs as recently as last week (green circle on charts below), with the exception of the Small Cap A/D Line. The Small Cap A/D Line needs to be monitored as a potential sign of an “aged uptrend.” For now, however, A/D Lines support the current uptrend and higher prices, although at a more measured pace than the first half of the year.

NYSE Tradtional (all issues) A/D Line Chart. NYSE Common Stock Only A/D Line Chart.
Pring Global A/D Line Chart. S&P 500 (Large Cap) A/D Line Chart.
Mid-Cap A/D Line Chart. Small Cap A/D Line Chart. NASDAQ 100 A/D Line Chart.
  • M2 Money Supply: Am I venturing outside my discipline of technical analysis by showing the chart below? Maybe. However, meshing two schools of analysis can provide a new perspective. In other words, sometimes charting (technical analysis) an economic (M2 money supply—13-week Rate of Change chart below) or fundamental variable (last month’s Technical webinar when I charted the S&P 500’s earnings trend) is beneficial. An additional thought here: maybe this is playing a role in the equity market’s positive reaction to a worldwide decline in interest rates—global interest rate chart, and comments, included further down in this report.

S&P 500 Chart. Has an improving liquidity situation been slowly working it’s way into the stock market? M2 Money Supply Index: 13 Week Rate of Change.
  • Global Yields: One of the bigger surprises to me has been, following a break of support by domestic and global yields, the positive reaction by worldwide equity markets. I guess more emphasis is being placed on a “Central Bank(s) Put,” instead of the global economic slowdown spilling over to the U.S., even with last Friday’s U.S. jobs report. To this point, I think the equity market’s reaction to upcoming quarterly corporate earnings reports will be an excellent guidepost of whether this “emphasis” is misguided or not.

10-Year Japan Treasury Yield Chart. Negative 10-year yields (red circle): Strange times indeed. 10-Year German Treasury Yield.
10-Year U.S. Treasury Yield Chart. Talking about “strange times” (previous chart), in 1987 before the “‘87 Crash” and at the urging of a colleague and friend, I bought a 30-year bond yielding over 10% - thank you JDS. Boy, do I wish I had held it and not traded it! 10-Year U.K. Treasury Yield.
  • Copper: While I have never subscribed to the label “Dr. Copper,” meaning the price action of Copper is a good reflection of the condition of the economy, I do find it interesting that Copper has held its own (Copper hasn’t broken support) despite the direction of global interest rates. Which is a better reflection of the future direction of the economy: global interest rates or Copper? We will know in the fullness of time. In the meantime, a violation of support may increase the odds of further domestic economic weakness.

Copper - Continuous Contract CME Chart.
  • Gasoline (and summer vacations): I want to follow up on a comment I made during my Technical analysis webinar in April, where I stated, “According to Bespoke Investment Group, since 2005, once we get to June, gas prices have typically peaked for the year….” In looking at the chart of Gasoline (unleaded continuous contract) below, the commodity has rallied sharply and clearly didn’t peak at the beginning of June. However, as a result of its recent spike higher, Gasoline is approaching an area of resistance and may be peaking at the end of June/early July. Regardless, if the resistance levels shown in “red” on the chart are violated, expect higher prices at the pump.

Gasoline Unleaded - Continuous Contract (EOD) CME Chart.
  • S&P 500 (SPX/2990.41): The domestic equity market has adopted a “bad is good” and “good is bad” bias of late. Thus, the strong U.S. jobs report (good) last Friday prompted a marginal dip (bad) in equities, Small Caps aside. Within this context, and considering that when indices are at new record highs there are no “natural sellers,” the SPX has quickly approached resistance in the vicinity between approximately 3010 and 3030. A close below the first range of support between 2918 and 2874 would reverse the near-term uptrend and lead to deeper downside probing. A close below support between 2750 and 2728 would forge a lower trough and reverse the current, non-trading uptrend. Please use the support levels/areas highlighted in green that are consistent with your tolerance for risk.

S&P 500 Large Cap Index Weekly Chart.
  • Mid-Cap and Small Cap Relative Strength Trend (near-term): While the positive action by the Russell 2000 Index (RUT) on Friday, 6/28/19, may have been due to rebalancing, following what may be a false breakdown by their relative strength charts, a renewed interest in Mid-Cap stocks and possibly Small Caps may be occurring.

Would the proverb, “the journey of a thousand miles begins with one step” apply here?

Mid-Cap Index vs. Large Cap (S&P 500) Chart. Falling line: S&P 500 is outperforming and vice-versa. Small Cap Index (Russell 2000) vs. Large Cap (S&P 500) chart.

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Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 07.06.2019. Chart sources: StockCharts.   

PDF Copy of Article: Day Hagan Tech Talk July 8, 2019 (PDF)

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