DAY HAGAN TECH TALK: "WE DEAL IN PROBABILITIES, NOT CERTAINTIES" - MARTY ZWEIG

 

Since the beginning of the year and due to myriad reasons, I have often discussed that investors should not be surprised by equity market volatility, in both directions. This proved to be the case during the month of August, as shown in the red and green boxes in the chart below. According to Bespoke Investment Group, “From the start of the month to the end, we saw ten rallies of 1% or more separated by nine declines of 1% or more.”   

S&P 500 Large Cap Index. 7/26/2019 Intra Day & Closing High of 3027.98 and 3025.86. S&P 500 6 Week, 30 Minute Chart.

Following the S&P 500’s sharp decline after the peak in late July, we are focused on numerous different technical measuring tools as we seek to discern whether an equity market low and/or bottom is developing. One such measuring tool is volatility, viewed from an intra-day, day-to-day and week-to-week basis. A spike in volatility can help identify market bottoms. Volatility has clearly increased over the last month and our work shows that the odds that a tradable bottom has formed, especially in the U.S., have increased.

Another measuring tool we use to identify “probabilities” are levels of “buying interest.” In this case, strong buying interest can be defined as one trading session in which NYSE Advancing Volume is 90% of total NYSE Advancing plus Declining Volume. However, strong buying interest can also be identified as two consecutive trading sessions in which NYSE Advancing Volume is 80% of total NYSE Advancing plus Declining Volume. This second condition occurred last week.

When strong buying interest is combined with a spike in equity market volatility and new highs by the NYSE (all-issues) and SPX Advance–Decline Lines, it implies that the recent string of lows for the SPX in the vicinity of 2847 (8/23/19 close) and 2822 (8/5/19 intraday low), are credible support levels and the Large Cap uptrend is still alive.

Yet, to be consistent with the title of this report, if “Trump tweets” get out of hand (please refer to slides in my 8/27/19 webinar) and these support levels are violated, especially if the selling pressure is greater than what occurred at the 8/23/19 and 8/5/19 lows, the probabilities would then favor further downside probing. We now have our probability roadmap. 

In terms of “getting going” on the upside, the recent multi-week trading range won’t get resolved until the SPX decisively closes above a layer of selling pressure in the vicinity of 2940 to 2950 – denoted by the red horizontal and dashed lines below. Until then, we’re in a proverbial tug-of-war, with neither the bulls nor bears having a distinct advantage near-term.

S&P 500 Large Cap Index. S&P 500: 1 Year Chart with 150 - DMA Support Line (Green).

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UPCOMING EVENTS

Day Hagan Market Update Webinar with Donald Hagan, CFA, September 11, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, September 17, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 09.02.2019. Chart source: StockCharts.com.

PDF Copy of Article: Day Hagan Tech Talk September 3, 2019 (PDF)

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