When viewing the price charts of many domestic equity market proxies, the recent two-month rally has formed an almost “straight-up” (parabolic) near-term chart configuration—please see table and charts below.

While anything is possible between here and year-end/early 2018, this two-month rate of ascent “feels” unsustainable, especially when viewed on an annualized basis. Thus, the odds favor some sort of pullback and/or consolidation period. Does a short-term pullback and/or consolidation period occur now, next month or when the calendar year turns? Hard to say.

What I do know is that within a supportive, intermediate-term price trend, the short-term parabolic angle of ascent by the equity market proxies shown below is not natural. Consequently, from a tactical perspective, please discuss risk tolerance levels and then predetermine stop-loss points that are consistent with these risk tolerance levels.

Day Hagan Tech Talk Table

Carter Worth, an analyst whom I greatly respect, shared about this topic a few years ago: “is it more beneficial to buy into an angle of ascent like this” or to discuss risk tolerance levels and then identify stop loss points that are consistent with said risk tolerance levels?

He answers by stating “tops [I will say consolidations/pullbacks] are typically identified by rapid price increases just as … bottoms typically end with rapid price declines.…

Day Hagan Tech Talk Chart
Day Hagan Tech Talk Chart
Day Hagan Tech Talk Chart
Day Hagan Tech Talk Chart

Have a wonderful rest of 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 10.23.2017. Chart sources:

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