DAY HAGAN TECH TALK MAY 1, 2018

 

“Noise” as defined by the website Dictionary.com: sound, especially of a loud… or confused kind… non-harmonious.

I mention this because the domestic equity market has been dealing with a lot of noise ever since corporate earnings started coming out a few weeks ago. In our Tech Talk report dated 4/17/18, I stated, “I think the odds favor an increase in stock-specific volatility… Within the context of preparing for ‘earnings roulette season,’ I believe the odds favor that the S&P 500 is carving out a wide trading range pattern… This suggests an objective and unemotional investment process would be prudent.”

To the point about stock-specific volatility, please take a moment and look at the charts of CAT, AMZN, FB, LMT, BA, NOC, GOOGL, INTC, MMM, MCD and MSFT as examples of stock-specific volatility—wow. Along this line, Bespoke Investment Group recently pointed out that “The average Industrial stock has actually gapped up 0.90% in reaction to its earnings report, but then it has fallen by an average of 1.6% from the open to the close. For Tech, the average stock has gapped up 0.4% at the open of trading only to fall an average of 1.2% from the open to the close.” Bruce Bittles recently mentioned that “Nearly 80% of the S&P 500 companies have reported better-than-expected bottom-line results. This is considerably above the historic average of 65%... stocks fell after the strong earnings announcements given that much of the good news was already built into current prices.” Again, I say, “Wow.”

SUMMARY

  • Within the context of a primary uptrend, until some type of strong accumulation or breadth thrusts occur, the odds favor the domestic equity market indices remain range bound.  
  • Tactically, 2612 is near-term support for the SPX with resistance at 2718 (previous price peak) and 2725 (downtrend line), all important near-term guideposts—please refer to the chart for additional support and resistance levels.
  • In the meantime, it would seem prudent that Wall Street participants focus on areas showing the strongest relative strength trend, specifically Consumer Discretionary, Energy, portions only of the Financial sector, and portions only of the Technology sector. This would also include implementing an unemotional investment process that will aid in managing downside risk (minimizing losses) and upside risk (taking or hedging profits).
  • The weakness in the relative strength trend by the Semiconductor Index (for details please refer to Tech Talk report dated 4/24/18) and the equity market’s neutral-to-poor reaction to generally favorable earnings news is a risk!
 S&P 500 Large Cap Index chart

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Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written on 04.30.2018. Chart sources: Stockcharts.com.

A printable PDF copy of the article: Day Hagan Tech Talk May 1, 2018 (PDF)

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