The underlying technical indicators for the domestic equity market continue to gauge the success—or not—of an S&P 500 (SPX/2690.73) retest of its late October low. Please recall a “retest” can be a partial retest, a full retest or an undercut low retest, as discussed in our technical webinar on 11/13/18. With the 50-DMA and 200-DMA for most of the major domestic market indices declining (one way to define a downtrend), the success or failure of the retest may have ramifications into year-end and, possibly, 2019. 

 We also discussed during the webinar that “the performances of… Small Caps may be an important guidepost,” helpful in discerning a market bottom. Consistent with this, I would like to see the Russell 2000 (RUT/1492.95) start outperforming into year-end. Small cap outperformance, coupled with solid demand (low Arms Index readings, upside volume overwhelming downside volume, advancing issues swamping declining issues, expansion in new highs or some type of breadth thrust) and investor pessimism, would lead me to conclude that the decline has run its course and a sustainable rally may be forthcoming. Until then, a cautious approach remains warrantedidentify and manage risk tolerance levels, and don’t hesitate to reach out.

Russell 2000 (Small Cap) vs. S&P 500 (Large Cap) Chart.

Meanwhile, traditional “risk-off” sectors (Health Care, Staples, Utilities, select Real Estate) continue to exhibit the strongest relative strength. Financials are moving up the relative strength scale, possibly aided by lower interest rates (near-term support for the 10-year is 3.05%) and a continuing search for Value.  

S&P 500 Large Cap Index

The team at Day Hagan Asset Management wants to wish everyone a wonderful Thanksgiving. We are thankful for being part of your business, either through our investment strategies or research efforts!  


—Written after the market close on 11.19.2018. Chart sources: Stockcharts.    

PDF Copy of Article: Day Hagan Tech Talk November 20, 2018 (PDF)

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