In last week’s Tech Talk report titled Tariff Fights Make An Uncertain Market, I stated, while a near-term countertrend rally may occur at any time, until the short-term pattern of lower peaks and lower troughs is broken (short-term downtrend) or buying intensity occurs following any near-term rallies, don’t be surprised by further downside probing–2650.” (Please let me know if you would like a copy of last week’s report.)

Last week’s tape action, with the S&P 500 (SPX/2886.73) rallying almost 4.5%, clearly indicates a near-term rally occurred. However, given the supportive “weekly outside reversal” pattern (a two-week chart pattern that can indicate a reversal in trend when the intraweek low and high is beneath and above, respectively, the previous week’s low and high and the weekly close is above the previous week’s high—please refer to the chart below) that occurred last week, I think the SPX established an important range of support last week between approximately 2729 and 2722.

Since the Global Advance Decline Line I follow is close to a new all-time high, new 52-week highs are expanding on a domestic basis, and NDR’s Trading Sentiment Composite has reversed up from, yet still remains in, “excessive pessimism” territory, I feel that, in order for deeper downside probing towards 2650 to occur, the new area of support between approximately 2729 and 2722 will need to be violated on a closing basis.

From my perspective, all of this intraday, day-to-day, week-to-week, and even month-to-month volatility is occurring within the confines of a secular bull market. This type of tape action, however, is frustrating and extremely nerve-wracking. Small cap stocks, value stocks, and certain broad-based domestic and international indices have underperformed and outperformed the SPX at certain points during the current cycle. Yet, as highlighted in previous reports and webinars, despite all of the headline reasons why this volatility is occurring, lengthy trading range periods, sharp corrections, and periods of outperformance/underperformance are consistent with how the market has traded during previous secular uptrends and, more recently, how it has traded since the March 2009 domestic equity market low—please refer to the chart below.  

Summary: Our objective models, comprising economic, fundamental and technical indicators, currently dictate a preferance for the domestic equity market over international and emerging markets and Large Cap over Small Cap. While vigilantly managing the risk in each position, we invest according to our models. When they change, we will change.

SPY SPDR S&P 500 ETF NYSE. SPDR S&P 500 Weekly Chart. SPY used, versus S&P 500 to better illustrate the expansion in volume (green line) that occurred during last weeks bullish “outside reversal” pattern - green circle.
S&P 500 Large Cap Index. Perspective: S&P 500 Weekly Chart with rising 200-week MA. Please note that within the context of an up tend, there have been many periods of lateral (sideways) price action - blue horizontal lines.

Finally, as shown on the chart below, on a “here and now” basis (yes, short-term) the S&P 500 has resistance at 2900 (previous breakdown level), is “overbought” at 2905 (upper Bollinger Band, not shown on chart), and must contend with previous price peaks (resistance) at 2945 and 2954.

Considering the SPX’s proximity to overhanging resistance and short-term overbought condition, don’t be surprised by a short “back and filling” period.

S&P 500 Large Cap Index with support and resistance..


Day Hagan Market Update Webinar with Donald Hagan, CFA, June 12, 2019 @ 4:15 PM EST

Day Hagan Technical Analysis Webinar with Art Huprich, CMT, June 18, 2019 @ 4:15 PM EST

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written intraday 06.10.2019. Chart sources: StockCharts. *Over the weekend, Mike Adamson tweeted, “Investing is not a minute chart, or even a daily chart. Zoom out. While everyone else is betting against randomness, increase your odds by increasing your time frame.”   

PDF Copy of Article: Day Hagan Tech Talk June 11, 2019 (PDF)

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