DAY HAGAN TECH TALK JULY 3, 2018

 

With the end of the quarter and first half of 2018 last Friday, “The S&P 500 (SPX/2726.71) has flopped around like a fish out of water this year,” as described by Tushar Chande. From my perspective with recent all-time highs by small and mid-cap indices, Value Line Arithmetic Index, many Advance-Decline Lines, and the NASDAQ, I feel Mr. Chande’s description is more reflective of the domestic Large Cap universe and many International and Emerging markets. Consistent with this and following a move up towards the lower end of a layer of resistance, the SPX has been pulling back, looking for a support level to hold.  

For the bulls to regain control on a short-term basis, the SPX needs to get above and stay above resistance, first between 2746 and 2755—last chart below.    

The first half of 2018 was far different than 2017, as shown below (NASDAQ- red bar, Russell 2000- blue, Value Line- green, Mid-Cap- pink, S&P 500- light blue, DJIA- black, Japan- aqua, EAFE- purple, All World ex US- orange, Emerging Markets- brown), when basically “everything” went up ex Energy. 2018 has been a period in which a disciplined, unemotional investment strategy coupled with a plan to manage risk has been prudent. I believe this will continue, at least into the fourth quarter and mid-term elections.

 NASDAQ- red bar, Russell 2000- blue, Value Line- green, Mid-Cap- pink, S&P 500- light blue, DJIA- black, Japan- aqua, EAFE- purple, All World ex US- orange, Emerging Markets- brown

Lending credence to the suggestion of using an unemotional strategy to manage risk, the performance amongst the S&P macro sectors (Consumer Cyclicals- red bar, Technology- blue, Energy- green, Health Care- pink, Real Estate- light blue, Utilities- black, Basic Materials- aqua, Financials- purple, Industrials- orange, Consumer Staples- brown) for the first half of 2018 implies the same, in my opinion.

 Consumer Cyclicals- red bar, Technology- blue, Energy- green, Health Care- pink, Real Estate- light blue, Utilities- black, Basic Materials- aqua, Financials- purple, Industrials- orange, Consumer Staples- brown

Jeffrey Saut, Chief Investment Strategist for Raymond James Financial, recently quoted Frederick “Shad” Rowe (Greenleaf Partners), who said “…a great many investors have pronounced that we are now, at last, in a bear market…” To this point, and since sentiment indicators are contrarian by nature (i.e., when they indicate an overly pessimistic backdrop, it is usually bullish short-term), recent 5-day average (blue line) and 10-day average (orange line) Put-Call readings are getting close to “pessimistic” extremes. This is a positive development and implies that, on a short-term basis, the odds favor any further downside probing by the S&P 500 will be contained.

 To this point, and since  sentiment indicators  are contrarian by nature (i.e., when they indicate an overly pessimistic backdrop, it is usually bullish short-term), recent  5-day average  (blue line) and  10-day average  (orange line)  Put-Call  readings are  getting close to “pessimistic” extremes .

To repeat: For the bulls to regain control on a short-term basis, the SPX needs to get above and stay above resistance, first between 2746 and 2755.

 For the bulls to regain control on a  short-term  basis, the  SPX  needs to  get above  and  stay above  resistance, first between 2746 and 2755.

Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies. Please let us know if we can do any additional work for you.      

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 07.02.2018. Chart sources: Stockcharts.com. 

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