DAY HAGAN TECH TALK JULY 9, 2018

 

According to the local weekend paper and after I considered the Advance-Decline Lines (A/D Line) I follow—which closed in new, high territory last Friday—it seems the bulls weren’t just running in Pamplona, Spain. For the first week of July and the start of the second half of 2018, the S&P 600 Small Cap Index gained 3.2% (red bar), NASDAQ +2.3% (blue bar), Value Line Arithmetic Index (~1500 stocks) +2% (green), S&P 400 Mid-Cap +1.9% (pink), Wilshire 5000 +1.6% (turquoise), S&P 500 +1.5% (black) and the DJIA +0.7% (aqua).

 NYSE Common Stock Only A/D Line. S&P 500 Advance - Decline Line: comprises the readings of the Large, Mid and Small Cap A/D Lines. 
weekly performance.JPG

There are dozens of ways to measure “domestic equity market breadth” (I predominately use A/D Line analysis, which remains supportive of domestic equities longer-term while the A/D Line backdrop for emerging markets and certain international markets is less supportive and deteriorating). I found the following statement from Bespoke Investment Group of interest: “breadth measures that we track have been strengthening [as measured by] the percentage of stocks in each sector trading above their 50-day moving averages. For the entire S&P 500, 57% of stocks are above their 50-DMAs [at the close Friday, the figure was 59%]—a healthy reading given where the index’s price is trading relative to its 50-DMA. And eight of eleven sectors have stronger readings than 57% [energy, technology, consumer discretionary & staples, utilities, health care, telecommunication and real estate—the last seven of these were all over 62%], while just three have weaker readings (financial, basic materials and industrials).” Chart not included.

I wouldn’t be surprised to see the now multi-quarter Large Cap (S&P 500, DJIA) trading range continue towards the start of the fourth quarter and maybe mid-term elections, or as long or short as the current trade/tariff disputes continue. Based on the chart below, however, and the SPX getting above resistance between 2746 and 2755 (it needs to stay above the support levels shown in green below over the next few sessions), I wouldn’t be surprised to see some further stairstep upside probing on a short-term basis.

 S&P 500: 30 Minute Bars, 1+ month Chart. Short-term pattern of accumulation (Inverse Head & Shoulders) implies "on again-off again" upside probing. 

Silver: A countertrend short-term Observation

While history rarely repeats itself exactly, at times it rhymes, and consequently Silver may offer a countertrend rally. This observation is based on previous Island Reversal patterns—the three red circles are bearish patterns, the most recent green circle is a bullish pattern. The website Stockcharts.com defines an Island as “a reversal pattern that forms with two gaps (in price) and price action in between the two gaps. These gaps tell us that the island reversal marks a sudden, and sharp, shift in direction… a bullish island reversal forms with a gap down (in price) and then a gap up (in price). These gaps overlap to create an island of price action, hence the term ‘island reversal.’” Chart below.

 SLV iShares Silver Trust NYSE. Bearish Island Reversals in red. Bullish Island reversal in green. 

2018 has been a period in which a disciplined, unemotional investment strategy coupled with a plan to manage risk has been prudent. 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 07.08.2018. Chart sources: Stockcharts.com. 

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