Day Hagan Tech Talk: Still Highly Emotional
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Summary
S&P 500, NDX, and DJIA Advance-Decline Lines hit new highs (bullish) before Monday’s moonshot. The NYSE A/D Line (all issues only) fractionally did so yesterday. Equities remain emotionally driven and highly subject to news. Sentiment isn’t 100% complacent but is getting close.
The Art of the Deal
We noted in our April 30 report that “Price momentum suggests resistance… will get worked over.” And so it was. The macro/economic catalysts for this reaction were, partially or wholly, the temporary suspension/reduction of tariffs between the U.S. and China and developments between Russia-Ukraine, India-Pakistan, Iran, etc.—the “Art of the Deal.” How equities trade this week and maybe next will be a good short-term guidepost. Will equities record a similar but opposite reaction—a topside blow-off move—to the high-volume indiscriminate selling in early April following “Liberation Day,” which produced an equity market low/bottom? Is a short-term price peak developing? Interestingly, Helene Meisler recently wrote, “There is an old expression in the market: buy at the sound of cannons, sell at the sound of trumpets.”
Short-term aside, Day Hagan will continue to follow our models and indicators. This rally will 1) show us how much overhanging selling pressure (resistance) remains and 2) how much, and at what levels, underlying buying interest (support) exists. How quickly Monday’s upside gap, which is now support, gets filled—if at all––will give us an idea of underlying buying interest/demand/support (Figure 1).
Figure 1: S&P 500. | Price momentum (top frame) implies an impending overbought condition (not a reason alone to sell) and resistance.
While interest rates, as defined by TNX (44.99), remain range-bound (reach out for the chart), J.P. Morgan recently wrote, “Elevated bond yields will likely put investors back into large-cap, quality names rather than chasing SMID-caps.” While Technology (XLK) is rapidly exhibiting improving relative strength (vs. SPX—reach out for the chart), only time will tell, especially as selling pressure looms. Thus far, the S&P 600 Small Cap Index rally has stalled at resistance, as we would hope—Figure 2.
Figure 2: S&P 600 Small Cap Index. | Much work still needs to be done in this complex, hence all the lines. Resistance is depicted in red, support in green.
While Gold (continuous contract) satisfied a $3420 price target, we noted in our April 23 Chart Jamboree that “Straight-up moves don’t usually end by going sideways. Downside follow-through would lock in some sort of high.” Note: The registration link for the May 20 Chart Jamboree is below.
Figure 3: SPDR Gold Shares ETF (GLD-gold proxy). | While it has been sideways, a violation of support ($295+/-, $290+/-) would likely set the downside in motion. Support is depicted in green.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 5.12-13.25. Chart source: Stockcharts.com unless otherwise noted.
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