ENERGY: LOW LEVEL BASING PATTERNS

 

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: Stockcharts.com.

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

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed or implied. Day Hagan Asset Management (DHAM), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHAM accounts that DHAM or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. DHAM uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DHAM recommendations or DHAM performance rankings, one should also consider that DHAM may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DHAM’s past recommendations and model results are not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.

Investment advisory services offered through Day Hagan Asset Management, an SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC). None of the entities listed here in this disclosure are affiliated.