Day Hagan Catastrophic Stop Update December 2, 2025
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The Day Hagan Catastrophic Stop model remains steady at 68.18%. The model continues to indicate that investors should maintain their benchmark equity exposure.
Figure 1: The Catastrophic Stop model would generate a sell signal by closing below 40% for two consecutive days. The current message is positive, indicating investors should maintain benchmark equity exposure.
The markets have rebounded nicely from the November 20th lows. 314 Research put out some interesting research showing that on November 20th, while the S&P 500 index was only about 5% below its all-time high, the typical individual stock within it had fallen much more, around 16%. In other words, weakness was broader beneath the surface than the headline index implied. Historically, when the median stock is down 16%, the overall index typically pulls back about 9.5%. This suggests that the market was more oversold toward the end of November than most realized from the index alone. And this helped set the stage for the ensuing rally.
Figure 2: This FELT like more than a 10% correction. Here’s why.
From the November 20th low through Friday the 28th, the S&P 500 rallied nicely, up about 4.6%. The rally was supported by much better breadth, with the percentage of stocks above their 20-day moving averages spiking to 76.73%, near levels seen during the rally following the Liberation Day declines. In fact, the increase in breadth using 10-day MAs nearly generated a Zweig Breadth Thrust signal.
Figure 3: Zweig Breadth Thrust
For the Russell 3000, the percentage of stocks above their 50-day moving averages rose to 52.22%, generating a buy signal from this indicator.
Figure 4: We noted modest improvement in breadth last week. By Friday, breadth had increased even more.
Also, as noted last week, one reason for broader breadth may be that earnings expectations for the “other” 493 are improving. Through Q3 2026, Mag 7 earnings are expected to grow 24.5%, while the other 493’s earnings are expected to increase 10.1%. We do note, however, from a PEG perspective, Mag 7 looks more attractive. (Mag 7 PEG: ~28.1x / 24.5% = ~1.15. Other 493 PEG: ~19.8x / 10.1% = ~1.96.)
Figure 5: Earnings growth is still constructive. Data as of 11-24-2025.
Sentiment remains excessively pessimistic based on our short-term model. This is viewed as a net positive from a contrary opinion perspective.
Figure 6: Sentiment is a near-term tailwind. May support a year-end rally.
Positioning, even with last week’s gains, is rated neutral. A neutral positioning in volatility funds is constructive for equities because it signals neither excessive fear nor complacency. With volatility not overcrowded, markets avoid forced deleveraging or volatility-driven selling. This balance provides room for equities to advance, allowing fundamentals—earnings, liquidity, and growth expectations—to drive returns rather than mechanical volatility pressures.
Figure 7: Vol-targeting funds equity exposure rated as neutral.
There are many ways to gauge market positioning—surveys capture sentiment, while fund flows reveal how investors are actually allocating capital. We place more weight on investors’ real-money decisions, though both perspectives matter. The percentage of inverse ETF volume relative to total speculative volumes shows investors turned bearish quickly, removing excess optimism.
Figure 8: Bears moved in fast!
Credit spreads remain tight, reflecting fixed-income investors’ collective view that there aren’t any high-probability disruptions on the horizon.
Figure 9: Option-adjusted spreads.
The S&P 500 (SPX) is currently in a positive gamma state, suggesting market volatility will likely be muted.
The "gamma flip point" for the SPX is currently at 6,736; if the index moves below this level, the market will shift into negative gamma territory. Note: The gamma flip point changes throughout the day.
(A negative gamma state means dealers are positioned short gamma, forcing them to sell into market declines and buy into rallies. This amplifies volatility, making intraday swings larger and price moves more erratic as liquidity providers dynamically hedge against rapid index changes.)
Figure 10: SPX Gamma exposure by strike.
Upcoming U.S. Economic Releases
The S&P Global Manufacturing PMI indicates expansion while the ISM Manufacturing PMI indicates contraction (with a ninth straight month in November). The difference between the two is that the S&P Global Manufacturing PMI surveys a broader set of U.S. manufacturers, including smaller firms, and is internationally comparable. The ISM Manufacturing PMI focuses more on large U.S. companies and uses a different weighting method, which often makes it more sensitive to domestic economic shifts. Manufacturing is 10.1% of the U.S. economy. This will have investors focused on Wednesday’s Industrial Production report.
Economic optimism increased and beat expectations, according to RCM/TIPP.
Services PMIs on Wednesday.
Job cuts and initial unemployment claims on Thursday.
Core PCE Price Index, Personal Income and Spending, and Consumer Credit.
Figure 11: Economic Calendar for the Week.
Bottom Line: The Day Hagan Catastrophic Stop model remains steady at 68.18%, signaling investors should maintain benchmark equity exposure. Markets have rebounded strongly from the November 20th lows, helped by deeper underlying oversold conditions—while the S&P 500 was only 5% off its high, the median stock had fallen 16%, historically consistent with a larger index pullback. The subsequent rally has been supported by sharply improving breadth: stocks above their 20-day averages jumped to 76.7%, while the percentage above their 10-day moving averages nearly triggered a Zweig Breadth Thrust, and the Russell 3000 generated a 50-day breadth buy signal. Earnings expectations for the “other 493” are improving, sentiment remains excessively pessimistic (a contrarian positive), and positioning in volatility-targeting funds is neutral, reducing risks of forced selling. Credit spreads remain tight, and the S&P 500 sits in positive gamma, suggesting muted volatility.
For more details on each sector and current model levels, please visit our research page at https://dayhagan.com/research.
This strategy uses measures of price, valuation, economic trends, liquidity, and market sentiment to make objective, rational, and emotion-free decisions about how much capital to place at risk and where to allocate it. 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 for you.
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
This material is for educational purposes only. Further distribution is prohibited without prior permission. Please see the information on Disclosures here: https://dhfunds.com/literature. Charts with models and return information use indices for performance testing to extend the model histories, and they should be considered hypothetical. All Rights Reserved. © Copyright 2025 Day Hagan Asset Management. Data sources: Day Hagan Asset Management, 3Fourteen Research, J.P. Morgan, Goldman Sachs, Barchart, StreetStats, Atlanta Fed, St. Louis Fed, Koyfin, Yardeni, MarketEar, S&P Global, SPDR, FactSet.
Disclosures
S&P 500 Index—An unmanaged composite of 500 large-cap companies, this index is widely used by professional investors as a performance benchmark for large-cap stocks.
S&P 500 Total Return Index – An unmanaged composite of 500 large capitalization companies. Professional investors widely use this index as a performance benchmark for large-cap stocks. This index assumes reinvestment of dividends.
Sentiment – Market sentiment is the prevailing attitude of investors toward a company, a sector, or the financial market.
CBOE Volatility Index (VIX) – A real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). Because it is derived from SPX index options with near-term expiration dates, it produces a 30-day forward volatility projection. Volatility, or how quickly prices change, is often seen as a way to gauge market sentiment, particularly the degree of fear among market participants.
OBOS Indicators—The overbought/Oversold (OBOS) index relates the difference between today’s closing price and the period’s low closing price to the trade margin of the given period.
NFIB – The National Federation of Independent Business advocates for America’s small and independent business owners.
Purchasing Manager Indexes (PMIs) – Purchasing Managers’ Indexes are survey-based economic indicators designed to provide timely insight into business conditions.
FOMC Meeting – The FOMC (Federal Open Market Committee) holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-term goals of price stability and sustainable economic growth.
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 prices for a basket of goods and services representative of aggregate U.S. consumer spending.
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