DAY HAGAN TECH TALK JUNE 25, 2018
To a large degree, the price action of the Large Cap S&P 500 (SPX) during 2018 reminds me of the 1993 movie Groundhog Day. Specifically, Bill Murray played a TV weatherman who, during an assignment covering the annual Groundhog Day event, is caught in a time loop, repeating the same day repeatedly. Consistent with this and since the index’s sharp decline in February, which stopped right at its rising 200-DMA support line, I have been of the opinion that the index would be confined to a trading range for a period of months, and possibly quarters. So far so good, as the SPX’s tape action since then can be described as “sloppy” and “choppy.”
- Upside participation has gotten more selective, especially when it comes to international and emerging markets. But I disagree with Wall Street labeling the current domestic equity market backdrop as “narrow.”
- “Defensive” sectors are showing improving Advance-Decline Lines (A/D Lines) the past two to six weeks, including Health Care, Consumer Staples and Utilities. Consequently, please follow an unemotional and objective risk management strategy.
- Given an almost “straight up” move by the relative strength trend of the Russell 2000 versus the S&P 500, and in turn a move up to a resistance point, the odds favor a pullback in the current period of outperformance by the Russell 2000.
- Within the context of a supportive, intermediate-term domestic equity market backdrop, until the rhetoric surrounding foreign tariffs/trade clears up, I think the odds favor a continuation of the “sloppy and choppy” short-term tape action by the large cap universe, as defined by the SPX and the “globally weighted” Dow Jones Industrial Average (DJIA).
Support and Resistance Levels
- S&P 500 – Support (S): Between 2700 and 2676, and rising 200-DMA currently at 2664. Resistance (R): 2775, 2792 and between 2800 and 2822.
- Dow Jones Industrial Average – S: Between 23,750 and 23,344. R: 25,000, 25,322 and 25,403.
- Russell 2000 (RUT) – S: 1640 and between 1620 and 1600. R: 1706.99 (closing high), 1708.10 (intraday high).
- NASDAQ (COMPQ) – S: Between 7458 and 7320 and 7200. R: 7700 and 7807.
- Ten-Year U.S. Treasury Yield Index (TNX) – S: 27.59 (2.75%) and 27.17 (2.71%). R: 30.09 (3.00%) and 31.15 (3.11%).
- Ten-Year German Treasury Yield (0.32% – can find on line) – S: 0.26%; R: 0.50%.
The year-to-date price action of the domestic equity market, when viewed through the window of the Russell 2000 ETF (+10.33% year to date—red bar), Russell 2000 Equal Weight ETF (+8.55% year to date—blue bar), S&P 500 (+3.04% year to date—green bar) and S&P 500 Equal Weight Index (+2.33% year to date—pink bar), depicts a backdrop that is not being totally driven by a handful of Large Cap stocks.
It is yet to be determined if the recent improvement in the A/D Lines of “defensive” sectors is a function of rotation, wider participation or an increase in a more “rick off” (protect profits, lower portfolio beta) mindset. Stay tuned!
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Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management
—Written 06.23.2018, and intraday 06.25.2018. Chart sources: Stockcharts.com. Reference to the movie titled “Groundhog Day” was initially made by Stan Weinstein.
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