FRAGMENTED; DISORGANIZED (SHORT-TERM ONLY)

 

Due to my travel schedule, the next Tech Talk report will be either May 2 and/or May 15.

The website Dictionary.com defines fragmented as “existing or functioning as though broken into separate parts; disorganized.” I would consider the short-term condition of the domestic equity market to be fragmented. As I said during my technical analysis webinar last week, “within the context of an uptrend that supports equities, on a short-term basis only I wouldn’t be surprised to see a (further) pause/pullback…”

Listed below in no particular order are some highlights from the webinar that led me to the short-term conclusion stated above, plus some new observations pointing to the same—the probabilities suggest a short-term consolidation or pullback in the equity market should not be ruled out. Please let me know if you would like to see the slides from last week’s Day Hagan Technical Analysis webinar.

  • S&P 500 (SPX/2907.97) is at the low end of a band of resistance between 2900 and 2940 and is close to a very short-term target price of 2935, based on a previous topside breakout. Highlighted last week—no chart. Please note: An initial band of short-term support exists between 2891 and 2850, followed by the rising 50-DMA, currently at 2820. 

  • Large Cap vs. Small Cap - The S&P 500 is very close to its 2018 all-time high. Small Caps, despite a supportive A/D Line, are still below both their 2018 and February 2019 price peaks. Chart below.

  • New Highs/New Lows - The number of stocks hitting new 52-week highs is not expanding, while the number of stocks hitting new 52-week lows is picking up. New lows highlighted last week—no chart. 

  • Value Line Geometric Index (XVG/545.60 – per Seeking Alpha, this index tracks the median move of stocks within the index using equally weighted values and is calculated geometrically rather than arithmetically) has stalled a number of times between 550 and 556 (resistance, which needs to be decisively violated). Additionally, the 2018 price peaks remain well in the distance. Chart below.

  • Sentiment - Indicators are exhibiting a bit too much “optimism.” This can be seen in the NAAIM Exposure Index current reading of 93. NAAIM stands for the National Association of Active Investment Managers. The NAAIM Exposure Index represents the average exposure to U.S. Equity markets reported by the group’s members—currently 93%. The NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. In my experience, this indicator’s value is in using it from a short-term perspective. No chart.

In the midst of the observations above, I suggest focusing on the S&P macro sectors exhibiting the strongest/improving relative strength trend. This would include the following: Technology, Consumer Discretionary, Industrials, and Communications Services.

The different chart configurations, as well as the distance from various price peaks (resistance), is why I am calling the short-term condition of the domestic equity market “fragmented.”

S&P 500 Large Cap Index: Less than 1 percent from 2018 high. Russell 2000 Small Cap Index.

Similar to the observation and chart above, relative to Large Caps and Small Caps, the Value Line Geometric Index has a lot of work to do before it can be labeled “supportive of higher prices.” In the meantime, please remain committed to an investment process that manages risk and is supported by an unemotional investment process that combines economic, fundamental and technical indicators. This helps reduce any anxiety that may arise during these frustrating periods

Value Line Geometric Index. Some good (violation of green down trend line) and some not so good (multiple levels of resistance between - 550 and 556 - red lines).

The team at Day Hagan Asset Management would like to congratulate Jeff Saut, a long-time friend to the firm and my former colleague and mentor, for retiring from the demands of full-time employment! 

UPCOMING EVENTS

Day Hagan Market Update Webinar with Donald Hagan, CFA, May 15, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, May 21, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 04.22.2019. Chart sources: StockCharts.    

PDF Copy of Article: Day Hagan Tech Talk April 23, 2019 (PDF)

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express 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. 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.