RUBBER BAND REBOUND

 

SUMMARY

Similar to what happens when you release a severely stretched rubber band, and following deeply oversold readings from just over a week ago, domestic equity markets have recorded a sharp “snap back” rebound. In doing so, the S&P 500 stopped right at resistance last Friday, defined by a declining 20-day moving average and a “retracement” level—2744 was a retracement level of the recent waterfall decline.

LOOKING FORWARD

While I don’t believe the ingredients were in place at the late January high to signal an end to the secular Bull market, I do believe that the odds favor a further period of digestion for the equity markets—the development of a broad consolidation range as opposed to an immediate return to new highs. Consistent with a trading range environment, I continue to believe the odds favor additional equity market volatility in both directions.

While I believe the odds favor that the recent low was sustainable, I still think that the potential exists for a retest of the February lows. However, I have no way of knowing if a retest of the recent low will be a “full” retest [2581 to 2532 basis the S&P 500 (SPX/2716.26)], a “partial” retest (please refer to chart) or an “undercut” retest.  

Finally, I need to be cognizant of an alternative scenario to my current line of thinking. An acceptable scenario to my “retest sequence” would be that the broad consolidation period lasts for a period of months, not weeks. It doesn’t include another “waterfall” decline and is contained within the levels shown in the second chart.

 S&P 500 Chart: 15 minute chart, starting from the February 9th Intraday Low. 
 S&P 500 with declining 20-DMA resistance (red line) and rising 200-DMA support (green line). An alternative sequence, to my "resistance scenario," is a broad multi-month consolidation range. This range is depicted by the red rectangle (resistance zone) and green rectangle (Support zone). 

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 on 02.20.2018. Chart sources: Stockcharts.com.

Download PDF copy of article: Day Hagan Tech Talk 02.21.2018 (pdf)

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.

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.