During last week’s Day Hagan Global Macroeconomic and Technical webinar, in which I showed a chart of the S&P 500 (SPX/2773.75), I made the following statement: “In light of resistance (2800 to 2822) and a momentum divergence, if a pullback or near-term consolidation is going to occur, this is the area for it to begin.” SPX has short-term support at 2742 followed by a layer of support between 2700 and 2676, and finally its rising 200-DMA support line, currently at 2658. Due to its composition, the 200-DMA will marginally change each day—SPX chart not included, but please let me know if you would like to see one. Until the rhetoric surrounding foreign tariff/trade clears up, it appears that the large cap S&P 500 will remain rangebound, while the price action of the small cap Russell 2000 (RUT) remains bullish, aided by cap size rotation at least partially due to the foreign tariff/trade rift.

As for the continuing, poor relative and absolute price action of Emerging Markets (EM), the technical observations below support comments by Don Hagan in the recent Global Allocation Strategy Update and the following statement from JP Morgan: we think… there will be a better entry point in the future… In order to turn more bullish on EMs, we need to see USD weakness, a repricing in Fed expectations (or a slowing in Fed tightening), and an improvement in EM/China growth/earnings.”

MSCI Emerging Markets ETF chart. While a bounce off support at $54 "needs" to occur now, the price target derived from the recent break down is ~$49, which is in line with a layer of support - green box. S&P 500 vs All-World Ex-U.S. ETF. Rising line: U.S. is leading the rest of the world. Falling Line: Rest of the world is leading the U.S.
Emerging Markets Local Currency Bond ETF with declining 200-DMA (red). Does a 12 percent plus decline in two months imply some stress in the Emerging Markets? A 12 percent plus decline by the DJIA, at the time of this writing, would imply a decline of 3000 points. Would this imply some stress in the domestic equity market? I think yes. 

Conclusion: The global rally has narrowed considerably, and it appears there is some “stress” in the Emerging Markets arena. Please position yourself accordingly and be very vigilant in managing risk in Emerging Markets.

Side Note: According to JP Morgan, the next macro events to watch include: U.S. bank stress tests (6/21 and 6/28), OPEC meeting (6/22), the EU Leaders Summit (6/28-29), Mexican elections (7/1), FOMC minutes (7/5), U.S. jobs report for June (7/6), and earnings (banks kick off the CQ2 earnings season on Fri 7/13).

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 on 06.18.2018. Chart sources:

PDF Copy of Article: Day Hagan Tech Talk June 19, 2018 (PDF)

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Day Hagan Asset Management (DHAM), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHAM accounts that DHAM or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DHAM uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DHAM recommendations or DHAM performance rankings, one should also consider that DHAM may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DHAM’s past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.

Investment advisory services offered through Day Hagan Asset Management, an SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC). None of the entities listed here in this disclosure are affiliated.