DAY HAGAN TECH TALK OCTOBER 24, 2018

 

On October 23 (this Tuesday), the S&P 500 recorded an undercut price low that occurred with lower levels of selling pressure than what we saw on October 11, when the previous price low was established. In other words, the lower levels of selling pressure for the Tuesday low represented a possible short-term positive divergence. The stage is now set to test the domestic market’s mettle. Have we seen a climax in short-term selling pressure, and will buying pressure start to take over? Or is this a head-fake? For me to have confidence that a short-term low (support) is in place, I would like to see more positive breadth divergences and indicators turn positive in addition to what I summarize below. This is an important inflection point that will help define whether we are still in a cyclical bull market or not.

 S&P 500 Chart. NYSE Total Volume.
 S&P 500 Chart. NYSE Highs minus Lows.
 S&P 500 Chart. CBOE Total Put/Call Ratio: 5-day average (blue) & 10-day average (orange).

SUMMARY

Since bull markets should respond favorably to oversold conditions, especially if pessimism is high and a very short-term low-rally-retest sequence has developed, we need to see a broad (global and domestic markets stabilize and move higher in sync), strong (NYSE Up Volume to total NYSE Up and Down volume being 90% or greater, or the NYSE Advancing volume beating NYSE Declining volume by a ratio of 10 to 1) and sustainable topside reaction now, ideally accompanied by some type of breadth thrust.

With the quality of the next rally being critical, if this does not occur and the S&P 500 violates intermediate-term support (2691/2676), within the context of a secular bull market, the odds will favor the end of the cyclical domestic bull market. A 50% retracement of the rally from the 2016 low to the 2018 peak is approximately 2375. The February and April 2018 lows of 2532 and 2554, respectively, also offer support.        

NOTE

I am in the process of developing a table of technical indicators that will help to discern when a low has been established and a bottom is developing. Though the table isn’t complete yet, I wanted to share some initial observations about yesterday’s tape action in this update.

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. 

UPCOMING EVENTS

Day Hagan Technical Analysis Tuesday Webinar with Art Huprich, CMT, November 13, 2018 at 4:15 PM EST.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written after the market close on 10.23.2018. Chart sources: Stockcharts.  

PDF Copy of Article: Day Hagan Tech Talk October 24, 2018 (pdf)

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express 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. 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.