The question early yesterday morning, before the domestic equity markets opened and our politicians voted, was “how will Wall Street participants react to the government shutdown?” According to Jeffrey Saut, Chief Investment Strategist for Raymond James Financial:

“How the stock market reacts to it should be determined by how long the shutdown lasts. If it is short, there should be a de minimis impact on stocks. If it is drawn-out, however, investor confidence could be impacted with a concurrent headwind for equities. As for us, our sense is the shutdown will be short because of the negative feedback for ALL politicians as they face the upcoming midterm elections.”

In the equity market’s historical reactions to “past domestic political and geopolitical risk and events,” the current trend usually reasserts itself, which, in this case, is upward. While short-term support for the S&P 500 (SPX/2832.97) exists “in and around” 2800, I think, consistent with history and Saut’s statement, more important near-term tactical support exists at 2768 and between 2738 and 2736.

S&P 500: 1 month - 30 minute Chart

Switching to another topic, when an index (or stock) breaks out of a long base, it usually implies a period of renewed underlying buying interest (demand). Consistent with this, and despite the early 2018 gains recorded by the major equity market indices, the charts below indicate the odds favor that the Energy sector is experiencing a period of renewed demand.   

6 Year Chart. Over the past 5 to 6 years, "trends" in this complex have lasted between one and two years. This implies that the current up trend has more room to run. 
While the next big test of resistance is just over 500, over the past 5 years it has been prudent to respect violations of support (red lines) or resistance (green lines). 
Trend line breaks, both to the up side (green lines) and down side (red line), have done a good job  in allowing us to discern the next meaningful move, which in this case is "higher". 

Have a wonderful rest of your week. Please know that Day Hagan Asset Management appreciates being part of your business through our research and investment strategies.   

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 01.22.2018. Chart sources:

Download PDF copy of article: Day Hagan Tech Talk January 23, 2018 (PDF)

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