Day Hagan Research Update




Buying and selling pressure can change without notice.


Neil Leeson


June 17, 2016, 2016


Fed, Brexit, dollar, terrorism, yield curve, Chinese banks, U.S. election, <fill in the blank> are all reasons to hold minimal core positions, have cash on hand, and remain flexible/tactical when indicators confirm.

In extended trading ranges it may be difficult to sit through 4% to 5% shifts up and down. This year alone the S&P 500 index has gone from “up on the year” to “down on the year” more times than I can count. I have reduced my core holdings (long only) and take on more of a trader’s/tactical mentality. While I haven’t gone to a day trading approach (going home flat), it is something I have considered several times over the past few days. I work with a 40-year investing/trading veteran, which advocates in the current environment to “only have on what you can sleep with.” So cash has been my Ambien.

There are many examples in the table below, which shows the percentage gains for various assets, but let’s just focus on the EAFE Index. For the Q1 of 2016, the EAFE index declined -6.52%; in March the index gained 2.93% (in January and February, the index was down considerably). If you’re looking at trend and momentum indicators, March’s strength would signal improvement. Longer-term trend and momentum indicators continue to improve in April as the index gains 1.25%, and you start to allocate money and are doing well in May (1.88% gain). The EAFE index peaked a few days into June, however, and has already declined -4.3% so far this month. A long-term model is most likely still bullish, but you are down on your position, and short-term trends don’t look so good. Do you hold? If you are a longer-term investor, the answer would be yes, but be prepared to sit through volatile times.

Periodic Table Chart
Copyright 2016 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at For data vendor disclaimers refer to


The market remains in a broad trading range. Resistance is not only technical, but fundamental as well. Most valuation measures would suggest that we are at the top end of historical “fairly valued” (slightly overvalued) ranges, as an example shows below.

While the upside may be limited, the downside is also limited given longer-term breadth and technical measures, an accommodative Fed, slow but steady economic growth, and the overall low global yield environment.

SPDR S&P 500 (SPY) Chart

Below are a few areas that are extended to the downside where I would consider looking to establish minimal long exposure/allocation because of oversold extremes:

  • Europe
  • Asia
  • EAFE
  • Health Care
  • Regional Banks
  • Small Caps
  • Mid-Caps
iShares MSCI EAFE Index (EFA)

The following are areas that are extended, and investors can consider reducing exposure or hedge positions.  These areas appear technically overbought:

  • Utilities
  • Treasuries
  • Gold miners
  • Gold
  • Metals
Market Vectors TR Gold Miners (GDX)

Bottom Line: Active management is key when trading ranges, valuations, technicals and macro-influences collide.

Have a wonderful week,

Neil Leeson
Day Hagan Asset Management Investment Committee

— Written 06-17-2016

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.

Day Hagan Asset Management and Mutual Funds ©   |  Disclosures  |  Site Design by Lee Towle Designs