Going back to 1950, February has historically been a volatile month. Here are a few observations I deem currently relevant, listed in no particular order:

  • 10-Year Yield Continues to Rise: U.S. Treasury prices remain vulnerable as the relative strength trend of iShares TIPS Bond ETF (TIP/$113.10) versus the iShares 7-10 Year Treasury Bond ETF (IEF/$103.50) continues to strengthen.
  • While broad participation, which is currently the case, within the equity market is rarely a negative occurrence on a non-trading basis, the angle of ascent by the S&P 500 (SPX/2853.53), combined with an overbought condition and extreme “optimistic” sentiment readings, suggests a near-term pullback shouldn’t be unexpected. Key off short-term support levels for the SPX shown on the chart below.
  • While the Semiconductor Index (SOX/1378.42) recently closed in record territory, its relative strength trend versus the S&P 500 should be followed closely because it has been a good guidepost as to when the odds would favor something more than just a short-term pullback.
  • U.S. equity markets are exhibiting improving relative strength versus international markets. A rally by the U.S. Dollar (see below) may add to this period of U.S. outperformance.
  • If the U.S. Dollar Index (88.89) is going to bounce, it “needs” to do so, from these levels.
When the line is rising, the inflation protected security (TIP) is outperforming the U.S. government security (IEF). 10-year Yield Index: next point of resistance is 30.26 or 3.02 percent. It was pointed out to me that in this environment, Banks usually outperform Utilities. 
Given the angle of ascent over the past month, in order to discern areas of support, it was necessary to use a 60-minute chart. As of this writing, "tentative suport" exists at todays intraday low of 2818. Better support exists between 2807 and 2792 9green rectangle), 2768 and 2736 (green circles). Following the trend line break, initial resistance exists between 2851 and 2870 - red circle. 
Semiconductor Index (SOX) relative to S&P 500: Weekly Data. This relationship hasn't yet broken down. However, the solid green support line must be monitored because the last time this relationship broke down, was in the summer of 2015 -red arrow above.
U.S. vs "EFA" (Europe, Australia, Asia and Far East) Chart. U.S. vs Japan Chart. U.S. vs All World ex-U.S. Chart. U.S. vs Canada Chart. The Rising line: U.S. is outperforming.
U.S. Dollar Index - Weekly Chart. If there was a point where the odds favor a bounce/rally period by the U.S. Dollar, it is "in and around" these levels. 

Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies.   

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written 01.29.2018. Chart sources: Stockcharts.com.

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