EARLY 2019 OBSERVATIONS

 
  • S&P 500 (SPX/2549.69): Following a brutal sell-off in December, which produced the deepest oversold readings since 2011, longer-term support levels held. This kept the almost 10-year uptrend intact—chart below.  

    • For almost 12 months, Don Hagan and I have been discussing the need for signs of “strong (and broad) demand.” Finally, it occurred. On December 26 and January 4, NYSE advancing to declining volume was well over the 10-to-1 ratio we wanted to see. My interpretation of this, following an almost 20% decline by the SPX and still a lot of investor pessimism, is that the odds favor downside momentum has been broken and a necessary bottoming sequence has started. Tactical resistance (selling pressure) for the SPX exists between 2600 and approximately 2650—multiple levels of additional resistance exist above 2650. Going forward I would agree with Bruce Bittles, who recently stated how far this can carry will likely be dictated by (future) breadth and sentiment readings.” I would label the 1/3/19 intraday low of 2443 as tactical support for the SPX – chart below.   

  • Long-Term Oversold Readings: While the domestic market tested and held long-term support levels, the Emerging Markets proxy came down to a long-term oversold level, defined by a flattening-to-rising monthly lower Bollinger Band—an area that, for the majority of cases since 2011, has produced a top-side move.

  • Risk-On Relationships (relative strength analysis): On a short-term basis, Wall Street has taken a desire to own stocks—take on risk. 

  • Crude Oil: Long-term oversold level holds, as does lateral support. A lengthy trading range period may now be developing, defined by $42.50/$39 support and $77/$78 resistance. Currently, Crude Oil is closer to the lower end of this potential trading range, favoring the upside. Chart below.

  • Themes Over the Next Decade (this writer’s opinion only, listed in no particular order, and risk must be managed): While there are always obstacles and risks, these themes intrigue me and they have recently come down to some type of significant support level, as highlighted on the respective chart: Cyber Security (HACK) / Social Media (SOCL) / Artificial Intelligence & Robotics (BOTZ) / Cloud Computing (SKYY) / Marijuana (MJ).

S&P 500 Large Cap Index January 7, 2019. S&P 500 Rising 200-Week Moving Average (blue). Following a trend line break (red line), a number of critical support levels (moving average, horizontal price low and trend line) made a successful stand in the area between 2350 and 2300.

Besides the NYSE volume figures discussed on page one, “strong demand” was also evident on an “issue” (stock) level.

NYSE Daily Advance Decline Ratio. Ratio of NYSE advancing issues over declining issues. We haven’t seen this type of demand for stocks since previous lows in ‘12 and ‘11.
S&P 500 Large Cap Index. S&P 500 with falling 50-DMA and 200-DMA (red) and tactical support (2443 - green dashed line)
Following a 28 percent decline, this Emerging Markets proxy (monthly chart with Bollinger Band) reached a long-term oversold level.

Risk seeking proxies are gaining strength, on a near-term basis versus risk averse proxies. As long as this continues, it implies upside probing.

High Yield Proxy vs. U.S. Treasury proxy. A rising line means High Yield (top frame), Small Cap (middle frame) and High Beta (lower frame) are outperforming.
WTIC Light Crude Oil - Continuous Contract (EOD) CME chart
PureFunds ISE Cyber Security ETF AMEX. Support (long-term weekly moving average, previous lows): $31.56 - $29.47.
SOCL Global X Social Media Index ETF Nasdaq GM. Longer-term oversold support (lower Bollinger Band): $26.28
BOTZ Global X Robotics & Artificial Intelligence Thematic ETF. Support (recent low and top end of previous consolidation range): $15.78 - $15.00.
SKYY First Trust Cloud Computing ETF Nasdaq. Retracement levels & support (previous lows): $45.10 & $40.40.
MJ ETFMG Alternative Harvest ETF. Support (recent low & previous low): $23.01 - $22.12.

Day Hagan Asset Management thanks you for allowing us to be part of your success!  

UPCOMING EVENTS

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written during and after the market close on 01.07.2019. Chart sources: Stockcharts.       

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

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