• Coming into the week, the percentage of stocks on the NYSE above their 50-day moving average (DMA) and 200-DMA stood at 43% and 58% respectively. The percentage of stocks in the S&P 500 above their 50-DMA was 51%. In other words, a divided technical backdrop exists, one that contains both favorable and unfavorable stock and sector-specific price charts. This suggests you clarify “why” you may own an underperforming stock and how to manage risk in an unemotional manner.   
  • The political (domestic and international), economic (domestic—taxes and tariffs) and global backdrops are getting a bit more unsettled. Given the huge price gains in 2017 and the outsized gains in the Technology sector in early 2018, a proactive and objective investment style, versus a passive investment style, may be prudent.
  • In the context of the primary uptrend, a drawn-out trading range scenario would not be unusual, especially during a mid-term election year. During this period, a continuation of upside and downside volatility (moves of 1% or greater in each direction) may be expected. This scenario may catch investors emotionally unprepared and suggests committing more deeply to risk management. 
Percent NYSE Stocks Above 50-DMA. Percent NYSE Stocks Above 200-DMA. S&P 500 with Rising 200-DMA, 1 Year Chart. 

Relative to mid-term election years, Ned Davis Research (NDR) states the following: “One of the nuggets from our historical analysis is that mid-term years… leaves open the possibility of a broad trading range, a second-half sell-off (median decline during a non-recession year was 15.4%), and a year-end rally.”

S&P 500 Large Cap Index. Strong "Bull Move" potentially followed by a lengthy lateral move. Strong "Bull Move" followed by a lengthy consolidation period. NDR's statement about Mid-Term Election Years would be consistent with this observation. 

Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies.   

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written on 03.19.2018. Chart sources:

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