With the Catastrophic Stop Loss Model still favorably positioned (when it reverses and recommends increasing cash, we will follow) and favorable seasonals into year-end, the S&P 500’s price trend remains intact. However, many internal measuring tools are vulnerable.

During Q324, with the S&P 500 near 5700, we highlighted 5900 and 6100 price targets. SPX printed 6099.97 last week. The Catastrophic Stop model remains bullish, but resistance, negative A/D Line divergences again, and a lot of bullishness suggest volatility in the next few weeks.

In November, domestic equity market indices—including capitalization, equal-weight, small, mid-, large cap, value, and growth—closed higher. With complacency (excessive optimism) building and a potentially sloppy start to 2025, price momentum is supportive until the month’s end.

Near-term resistance exists within a bullish price channel and as negative A/D Line divergences are resolved. The Bulls remain in control, but we’re watching for signs that post-election market action is part of a transition to a choppier 2025.

Negative A/D Line divergences, an overbought condition, and resistance can be remedied at any point. But until they are, it is prudent to manage risk and have exposure to an investment strategy that objectively manages risk, i.e., our Smart Sector strategies.

Following the 2016 and 2020 Presidential elections, equities ripped higher into year-end and beyond. Including 2024, I’d call it a three-peat, at least into year-end. The odds favor the S&P 500 follows a year-end rally scenario with volatility in both directions. 

Alongside the U.S. Presidential and Congressional election outcome, how equities react to today's Fed announcement may be significant in the short term. Considering yesterday’s moonshot, please incorporate a strategy emphasizing risk management.

The S&P 500 uptrend continues. Yet, with domestic elections and geopolitical jitters plus a recalibration of Fed interest rate cut expectations, select equity indices, sector proxies, and well-known Large Cap stocks have been sloshing around for months.

Election uncertainty, elevated geopolitical tensions, and pockets of excess optimism could lead to a price pullback or time correction, setting the stage for a post-election rally.  

Our Smart Sector models, which update today, recommended overweighting China at the beginning of the month. Despite election worries, when we combine our Smart Sector strategies with our weight-of-the-evidence approach, the Bulls remain in control.

Two weeks ago, the S&P 500 (SPX) experienced its worst weekly decline in 2024. Last week, SPX experienced its best weekly gain in 2024. Similar reversals have been more bullish than bearish. Equity’s reaction to the Fed’s interest rate decision doesn’t appear to change that belief.

Fed watchers and prognosticators continue to lather on about whether the Fed is behind the curve and whether it should cut 25 basis points (bps) or 50bps on 9/18/24. At Day Hagan, we rely on our models and charts, not opinion, for guidance.

Despite favorable trend and breadth evidence, we recognize that seasonality may introduce periods of weakness as September progresses. Our immediate focus will be on the market’s reaction to tomorrow’s employment report and the FOMC decision slated for 9.18.24. We remain focused on risk management at current levels.

Following the “Powell Pivot” last week, Wall Street continued to favor the Non-Index Movers (non-growth/technology/value type) over the Index Movers (large cap growth/technology). Consequently, we have a lot to focus on.

Despite the equity market rally, which went up faster than expected, the S&P 500’s uptrend is intact but overbought (condition, not a signal). For 2024 the Catastrophic Stop model has been positive, and we are aligned accordingly. If our models shift bearish, we will raise cash.

The market might retest last week’s lows after its rebound, but with the upcoming economic data and potential developments in the news cycle this week, it’s difficult to predict which way it will go.

Wall Street experienced its own version of Hurricane Debby due to sector and stock rotation, position unwind, seasonal headwind, economic and EPS growth concerns, geopolitical concerns, machine trading, liquidity concerns, and widening credit spreads (Figure 1).

Wall Street veteran Ralph Acampora has said, “Rotation is the lifeblood of any bull market,” an apt description of the domestic equity market last week.

The “Index Movers” continue to play a major role in driving the Large Cap Growth/Technology-oriented domestic equity market indices higher, pretty much at the expense of everything else. Consequently, what price levels can help us discern when a turn lower by the Index Movers leads to a reversal by Large Cap Growth indices and another time or price correction—relative or absolute basis?

As we recognize and celebrate the birth of our wonderful nation later this week, I think back to one of the things I have learned over four-plus decades on Wall Street.