Day Hagan Catastrophic Stop Update August 20, 2024
A downloadable PDF copy of the Article:
Catastrophic Stop Update
The Catastrophic Stop model declined to 48.6% from 53.6% last week. The Internal and External composites are neutral.
Figure 1: The Catastrophic Stop model is neutral. A decline below 40% for two consecutive days would generate a sell signal. Currently, it continues to recommend a fully invested position.
The model’s decline resulted from the short-term sentiment composite moving into the neutral zone.
Figure 2: Sentiment has reversed from the excessive pessimism lows seen on August 8th (the market low was on the 5th). If the sentiment composite moves above 62.5, we’d then view it as unfavorable. It currently resides at 48.9.
Figure 3: Following up from last week’s Update, the 20-day and 40-day TRIN measures still haven’t flipped to buy signals, but they are heading in the right direction.
Figure 4: The Three-Year Treasury Note Yield’s magnitude of decline over the past 26 weeks has historically been bullish for equities. The bond market is currently doing the Fed’s job.
Figure 5: Waning commodity pressures are also constructive for equity performance. (As long as the weaker commodity complex is due to increased supply or supply-chain pressures easing, not the result of economic weakness.)
Figure 6: There was a mini breadth thrust following the August 5th lows. As you can see in the chart below, most of the buy signals have been followed by continued market gains. The latest buy signal occurred on 8-19-2024.
Figure 7: A 10:1 Up Day (advancing volume more than 10x declining volume) occurred on 8-8-2024. A confirming 10:1 Up Day would be bullish.
A host of PMIs will be released over the course of this week. On Thursday, we’ll get the U.S. Flash Manufacturing and Services PMIs. With the increasing discussion around “Soft vs. Hard Landing,” our view is that the reports will get outsized attention.
Figure 8: Services PMI for the U.S. still in expansion territory. The consensus is for a slight decline to 54.
Figure 9: Manufacturing PMI is still struggling to get above 50. The consensus is for a slight increase to 49.7.
Figure 10: On average, U.S. economic releases are still coming in below expectations. Our view is that for the markets to move appreciably higher, this will need to shift positively.
Bottom Line: The quantitative, unemotional outlook confirms that economic growth is decelerating but still positive overall. Inflation pressures continue to diminish. As our indicators shift, we will adjust the portfolio accordingly, up or down.
Our goal is to stay on the right side of the prevailing trend, introducing risk management when conditions deteriorate. Currently, the uptrend remains intact. As has been the case for all of 2024, the broader-based composite models calling U.S. economic growth, international economic growth, inflation trends, liquidity, and equity demand remain constructive. The Catastrophic Stop model is positive, and we are aligned with the message. If our models shift to bearish levels, we will raise cash.
This strategy utilizes measures of price, valuation, economic trends, monetary liquidity, and market sentiment to make objective, unemotional, rational decisions about how much capital to place at risk and where to place that capital.
If you would like to discuss any of the above or our approach to investing in more detail, please don’t hesitate to schedule a call or webinar. Please call Tyler Hagan at 941-330-1702 to arrange a convenient time.
I hope you have a wonderful week,
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. Charts courtesy Ned Davis Research (NDR). © Copyright 2024 NDR, Inc. Further distribution is prohibited without prior permission. All Rights Reserved. See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers, refer to www.ndr.com/vendorinfo.
Disclosures
S&P 500 Total Return Index – An unmanaged composite of 500 large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. This index assumes reinvestment of dividends.
Sentiment – Market sentiment is the current attitude of investors overall regarding a company, a sector, or the financial market as a whole.
TRIN - is a technical analysis indicator that compares the number of advancing and declining stocks (AD Ratio) to advancing and declining volume (AD volume). It's used to gauge overall market sentiment.
Dow Jones Industrial Average – Is the aggregate dividend yield on the 30 stocks that make up the Dow Jones Industrial Average. The DJIA is one of the most widely watched market ideas in the financial markets and is considered a bellwether of the U.S. economy.
Producer Price Inflation (PPI) – Measures the average change over time in the prices domestic producers receive for their output. It is a measure of inflation at the wholesale level that is compiled from thousands of indexes measuring producer prices by industry and product category.
Consumer Price Index (CPI) – Measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of pcires for a basket of goods and services representative of aggregate U.S. consumer spending.
Continuous Commodity Index (CCI) – Measures the current price level relative to an average price level over a given period of time. CCI is relatively high when prices are far above their average. CCI is relatively low when prices are far below their average.
Purchasing Managers Index (PMIs) – Is an indicator of the prevailing direction of economic trends in the manufacturing and service sectors. The indicator is compled and released monthly by the Institute for Supply Management (ISM).
Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express or implied. Day Hagan Asset Management, 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. Day Hagan Asset Management accounts that Day Hagan Asset Management 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. Day Hagan Asset Management uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. The performance of Day Hagan Asset Management’s past recommendations and model results is 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.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
For more information, please contact us at:
Day Hagan Asset Management
1000 S. Tamiami Trail, Sarasota, FL 34236
Toll-Free: (800) 594-7930
Office Phone: (941) 330-1702
Websites: https://dayhagan.com or https://dhfunds.com
© 2024 Day Hagan Asset Management
