My son had a real passion for history. If I asked him to describe the domestic equity market since the beginning of 2018, I wouldn’t be surprised if he quoted Thomas Paine, who wrote, “These are the times that try men’s souls.” Interestingly, however, while 1) Large Cap indices are likely to remain range-bound on a short-term basis (S&P 500 chart below), 2) the primary trend remains supportive.

Besides being in the “short-term trading range” camp since February, I addressed the first point in our recent Global Macroeconomic and Technical webinar: “between the November 2016 Election Low and the January 2018 high, the S&P 500 gained over 38%. Within that context, a lengthy consolidation period isn’t too bad.” If you would like to see a copy of the chart of the S&P 500 (SPX) depicting this, please let me know.

In terms of point number two, while the SPX has successfully tested its rising 200-DMA support line three separate times since February on less selling volume during each test (generally this is bullish and part of the bottoming process) and remains range-bound, the following Advance-Decline Lines all recently reached new highs: NYSE (traditional and common stock only), S&P Large Cap, Mid-Cap and Small Cap. This usually depicts an equity market backdrop that is growing more inclusive (more stocks are participating in the advance), not one on the precipice of a major decline.

Small Cap Advance - Decline Line with Rising 150-DMA

Additionally, while the U.S. market is showing an improving relative strength trend versus many international markets (a concern of mine is the poor absolute and relative price trend of Emerging Markets—details discussed during the Global Macroeconomic and Technical webinar, please reach out for details), the Pring Global Advance-Decline Line is holding its own—stay tuned!

Pring Global Advance - Decline Line with Rising 50-DMA

So, Art, what about Breadth Thrusts, or some type of sign of strong accumulation? We discussed this in our recent Global Macroeconomic and Technical webinar, and an article by Ned Davis Research addresses the same: “Can the market rally without them? Short answer = Yes. But (historically), those rallies have been shallower and briefer than ones with breadth thrusts.”

S&P 500 with rising 200-DMA. Since February, I have been consistent in belief that the SPX will be range bound for months and possibly quarters, with resistance between 2800 & 2822 and support between 2588 and 2532 - shown below. On a short-term basis, the SPX rallied into resistance and is overbought. Near term support is highlighted by the green dashed lines and rising 200-DMA (solid green line). 

What other areas, which in this case may be related, am I watching closely?

iPath Bloomberg Commodity Index. "Commodities" have been basing for a while. A decisive close above 25.50 will go a long way is completing a bottoming pattern!

Finally, relative to discerning some upside momentum, keep a close eye on NYSE New Highs.

NYSE New Highs Index. A decisive close about 150-152 would aid in discerning some new upside momentum! Daily figure can be found in Wall Street Journal - hard copy or on-line. 

Day Hagan Asset Management appreciates being part of your business. 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 05.14.2018. Chart sources:

PDF Copy of Article: Day Hagan Tech Talk May 15, 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.