DUE TO HUMAN EMOTIONS, STOCKS TAKE THE STAIRS UP (GREED) AND THE ELEVATOR DOWN (FEAR)

 

Please Note: The next technical analysis update will be the Technical Analysis webinar on 8/27/19.

While pointing out the S&P 500’s (SPX/2883.98) proximity to resistance and some minor divergences, one of the points of last week’s lengthy Tech Talk report was that despite the expectation of a “pause and pullback” period, the S&P 500’s primary trend remains supportive of large cap equities. Even when considering the recent seven-day intra-day decline of almost 7%, the technical outlook continues to support this view.

S&P 500 Large Cap Index Intraday Chart.

As a result of the decline and regardless of the reasons for the decline (trade/tariff related Presidential tweets, monetary policy concerns, diminishing global growth expectations, proximity to resistance, false breakout and technical divergences), the fact that equity markets are often experiencing intraday swings of several percent, lends itself to a very frustrating environment. This has caused some short-term technical chart damage. In turn, pockets of overhanging selling pressure have been formed, starting with the area in and around 2915 for the SPX – chart above. Between now and the tariff decision on 9/1/19, please don’t be surprised by additional bouts of volatility in both directions. J.P. Morgan recently stated “prepare for further frustration.” Bob Dickey went one step further by stating “we do not see the case for a major move to the downside for the indexes but there may be a period of a general correction that lasts for a couple of months which is really a normal pattern after the market gains that were in excess of 20% for the first half of the year.” I would agree, especially after the excessive gains in the large cap universe during the first half of 2019.

In reviewing the SPX’s decline, I initially find it encouraging that the rising 150-DMA held again – chart below. Consequently, I want to emphasize the necessity of holding above Monday’s low of 2822 (support). A decisive violation below 2822 increases the odds of further downside probing. The next area of significant support would then be between 2750 and 2728. A close below critical support between 2750 and 2728 would imply a reversal of the current non-trading uptrend.

S&P 500 Large Cap Index Daily Chart.

In terms of getting going on the upside, besides moving above the levels of selling pressure (resistance) pointed out on the charts, the most important sign would be a return of strong buying interest, i.e., strong demand. Strong demand is defined, in this case, by a trading session in which NYSE Advancing Volume is at least 90% of the total of NYSE Advancing Volume plus Declining volume. I’d even consider two consecutive sessions in which this reading is 80% as “strong demand.” Yet, as my long-time friend Dick Dickson would say,Absent this evidence of strong buying, near-term downside risks are likely to remain elevated.” All-in-all, recent volatility highlights why we are focused on the support levels listed and why investors should continue to manage downside risk.

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UPCOMING EVENTS

Day Hagan Market Update Webinar with Donald Hagan, CFA, August 8, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, August 27, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 08.07.2019. Chart source: StockCharts.com.

PDF Copy of Article: Day Hagan Tech Talk August 8, 2019 (PDF)

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