NON-TRADING CONDITIONS REMAIN SUPPORTIVE, NEAR-TERM MOMENTUM IS STRAINING
S&P 500 (SPX/2480.91) – Support [level(s) where buying interest exists]: 2460, 2445 (rising 50-DMA), 2436 to 2429 (gap support) and 2400+/-. Resistance [level(s) where selling pressure exists]: New highs make it difficult to identify resistance levels because there are no "disappointed holders." Thus, 2488 is considered "overbought" as measured by an upper Bollinger Band. 2500+/- is a target price, based on a previous base breakout.
Russell 2000 (RUT/1414.17) – Tactical support: 1402 to 1396. Resistance: 1432 and 1452.
10-Year U.S. Treasury Yield Index [TNX/22.57 (2.25%)] – Support: approximately 22.25 (2.22%) and 21.03 (2.10% - critical level). Resistance: 23.96 to 24.23 (2.39% to 2.42%).
Trend: Non-trading price trend of major indices and the overall trend of various Advance – Decline Lines remain supportive of equities.
On a near-term basis, despite new highs by the large cap indices, there has been a wide dispersion of performance over the past 10+ trading sessions, as shown in the table below. This leaves stocks vulnerable to an increase in near-term volatility, evident by either a pullback or lateral trading. Consistent with this, please don't use a rising market as a reason to dismiss risk management strategies.
Breadth: The segmented Advance-Decline Lines (NYSE, S&P 500, S&P Mid Cap, S&P Small Cap), along with a Global Advance-Decline Line, hit new highs over the past one to two weeks. Until a series of new price highs by equity market indices occurthat are accompanied by non-confirmations from their respective A-D Lines, we view the current action of A-D Lines and price highs as supportive of the equity market.
Momentum: Except for the DJIA, and more specifically a handful stocks within the DJIA, upside momentum for most indices has been laboring when measured by new high readings and the lower number of stocks above their 50-DMA and 200-DMA.
S&P Macro Sectors: As discussed in my verbal comments during our August "Global Economic and Technical Update," Financials continue to show leadership qualities and appears to be under accumulation, as defined by relative price action and the Advance – Decline Line of the Financial Select Sector SPDR (XLF/$25.35).
U.S. Dollar: Within the context that the U.S. Dollar Index has fallen to critical support, please see Don Hagan's report titled "Watching the U.S. Dollar," dated 7/28/17 – please let me know if you need a copy.
Since July 24th, the short-term tape action of the domestic equity market hasn't been as broad as the headline news would have you believe, given all the hype about "DJIA 22,000." In essence, there are some short-term divergences occurring. Given the historically choppy period for the equity market between here and late- September, the near-term take away is to review your positions and tighten stops on positions that have significantly lagged year-to-date or are over-extended.
Like the small cap universe, the Dow Jones Transportation Average (9284.66) has underperformed. It's time for the "Transports" to find support at the rising 200-DMA, shown below. Otherwise, some near-term optimism towards the equity market may be relieved by lower prices.
As John Murphy recently stated, "The weak dollar has been supportive for large cap multinational stocks. A stronger dollar might not be. So there's a lot riding on what the dollar does from here..."
Have a wonderful start to your week. Please know that Day Hagan Asset Management appreciates your support and hard work!
Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management
—Written 8.07.2017. Chart sources: Stockcharts.com.
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