On behalf of the team at Day Hagan Asset Management, I want to wish everyone a very happy Independence Day holiday, and a short trading week. Ironic, isn’t it, that the U.S. is playing England in the semifinals of the Women’s World Cup 2019 later today. USA, USA!

According to long-time Wall Street veteran Bruce Bittles of Robert W. Bair & Co., “the equity markets ended the first half of the year with the Dow Industrials up 14%, the S&P 500 rising 17% and the NASDAQ climbing more than 20%. The gains were remarkable considering they occurred against a backdrop of slowing global growth and trade wars. The Federal Reserve was the main driver for this upward move exhibiting a willingness to ‘act as appropriate to sustain the expansion.’” In light of Don Hagan’s long-standing relationship with Ned Davis Research (NDR), I looked to see what NDR had to say about this. NDR took a closer look at sector performance after a first Fed rate cut following a tightening cycle and stated the following: “Our S&P 500 history allows us to capture nine cases of first Fed rate cuts, including five recession cases and four non-recession cases. Looking at the sector perfor­mance, we made the fol­lowing conclusions:

  • Despite bullish implications from easing, Consumer Staples and Health Care (both defensive sectors) were top performers 12 months after a first Fed rate cut.

  • Consumer Discretionary and Indus­trials were the next best-performing sectors.

  • Utilities and commodity sectors were the poorest performers 12 months after a cut. Despite the recent trade news between the U.S. and China, the author of this Tech Talk report still likes Gold, mainly because of the recent multiyear base breakout, and a Fed rate cut may pressure the U.S. Dollar, which in turn would support Gold. Regardless, risk levels must be closely monitored.

From a pure relative strength perspective, the Technology sector remains the strongest, while Financials are improving. With the 10-Year U.S. Treasury Yield closing at a multiyear low last week, I am intrigued by the Financial sector’s price trend, which recorded a higher trough—improving relative strength versus the direction of interest rates.

In terms of the domestic equity market’s internals readings, besides our models dictating a marginal increase in equity exposure for July (predominately U.S.), many are supporting the current uptrend. All of the Advance-Decline Lines I follow recorded new highs, with Small Cap being the only exception. Also, the S&P 500 High Beta Index is starting to outperform the S&P 500 Low Volatility Index—market participants are “taking on risk.”

Concerning the S&P 500 (SPX/2964.33—chart below), a close below the first range of support between 2918 and 2874 would reverse the near-term (trading) uptrend and lead to deeper downside probing. A close below support between 2750 and 2728 would forge a lower trough and reverse the current, non-trading uptrend.

S&P 500 Large Cap Index Weekly Chart.

End of Day (7/1/19) Observation: I would label the tape action on 7/1/19 as a “win” but definitely not a decisive victory. What I mean is that domestic and global equity markets proxies opened with a loud bang, mainly due to the G20 and U.S.-North Korea news. However, after recording their intraday high at the open, domestic and many global equity market proxies traded lower throughout the trading session. In other words, after a strong open there was a lot of internal churning taking place. Given the proximity to resistance (please refer to the SPX chart above), this type of near-term churning usually portends some type of new near-term consolidation/pullback period, but still within the confines of an uptrend.

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Day Hagan Market Update Webinar with Donald Hagan, CFA, July 10, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, July 16, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written intraday 07.01.2019. Chart sources: StockCharts.   

PDF Copy of Article: Day Hagan Tech Talk July 2, 2019 (PDF)

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