NON-TRADING CONDITIONS REMAIN SUPPORTIVE, NEAR-TERM MOMENTUM IS STRAINING

 

KEY LEVELS

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%).

OBSERVATIONS

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.

S&P 500: 6 month chart with Bollinger Bands (red) and Support (green).  

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.

2017.08.08-performance-of-various-indices.png

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.

2017.08.08-dow-jones-transportation-average-index.png
2017.08.08-financial-advance-decline-line.png
2017.08.08-us-dolloar-index-cash-settle.png

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..." 

2017.08.08-us-dollar-index-with-critical-support.png

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.

Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either expressed 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. DHAM uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. When evaluating the results of prior DHAM recommendations or DHAM performance rankings, one should also consider that DHAM may modify the methods it uses to evaluate investment opportunities from time to time, that model results do not impute or show the compounded adverse effect of transactions costs or management fees or reflect actual investment results, that some model results do not reflect actual historical recommendations, and that investment models are necessarily constructed with the benefit of hindsight. For this and for many other reasons, the performance of DHAM's past recommendations and model results are not a guarantee of future results. 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.

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