Day Hagan Catastrophic Stop Update July 22, 2025
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The Day Hagan Catastrophic Stop model level is 77.27% as of today’s open, unchanged from last week. The model indicates that investors should maintain their benchmark equity exposure.
Figure 1: DH Catastrophic Stop Model.
Technical indicators are mixed. For example, most of the model’s longer-term trend-following indicators remain on buy signals while short-term overbought/oversold indicators show overbought conditions. Sentiment is registering extreme optimism, but overall institutional investor positioning is neutral. The net result is that we continue to expect a shorter-term period of consolidation before the market resets for the next leg higher. Of course, should our models turn negative, we will quickly raise cash.
Figure 2: Long-term trend-following indicators generally remain on buy signals.
Figure 3: Short-term overbought conditions are still in play. For example, the Info Tech sector’s relative short-term OBOS measure (below) is reversing from overbought levels. A decline below the lower SD Band (orange) and a reversal back above would indicate that the consolidation period had concluded.
Figure 4: The DH Sentiment Composite illustrates the level of extreme optimism. A reversal below 70 would be concerning.
Figure 5: Positioning indicators overall are neutral. However, within the data, there are some extreme levels among categories. For example, the High Beta segment is crowded (institutional ownership/liquidity), indicating increased risk. (Source: JPM)
Figure 6: At the same time, the Low-Vol segment of the market is not over-owned and may provide lower-risk alternatives. We note that our sector allocations have been shifting toward lower-volatility cyclical and defensive areas of the market.
The pace of earnings announcements is heating up, and so far, it's going well. We’ve discussed Q2 y/y earnings as potentially exhibiting the trough growth rate for the next six quarters. Note that if second-half earnings growth expectations for both the Mag 7 and the rest of the S&P 500 are achieved (chart below), we would expect markets to respond favorably. As of last Thursday, S&P 500 y/y Q2 growth was expected to be 5.6%, up from 4.9% indicated on June 30.
Figure 7: Earnings growth expectations are constructive for the second half of the year.
Economic data has been coming in better than expected, illustrated by the Citigroup Economic Surprise Index turning positive. The data indicate that, on average, results have been better than consensus forecasts over the past three months.
Figure 8: The U.S. Economic Surprise Index indicates that expectations are no longer overly optimistic.
Last week, inflation numbers were better-to-in-line with expectations (both CPI and PPI), Industrial Production was better, Retail Sales surprised strongly to the upside, Unemployment Claims were lower than expected, the Philly Fed Manufacturing Index was much better, Building Permits and Housing Starts were better, and even the TIC report showed foreign purchases at $259.4 billion versus just $48.3 billion expected (disabusing the notion that U.S. assets would be sold in response to the tariff negotiations). Did I mention the Federal Budget Balance was +$27.0 billion versus expectations of -$41.5 billion? (Due to an increase in tax receipts, tariff revenues, and a decrease in federal outlays, with spending falling below $500 billion for the first time in the fiscal year.)
None of these reports are recessionary. In fact, they support the notion of continued positive economic activity.
Figure 9: Economic data is constructive. Initial unemployment claims below 350,000 have typically been a positive indicator for economic growth. A rise above 400,000 would be concerning.
Figure 10: Over the three-month period through May, global M2 money supply increased by 4.1% and made new highs. The increase is bullish for financial assets and economic activity.
Figure 11: Equity Market-related Economic Uncertainty now resides at the low end of the range over the past year. Lower Uncertainty = Constructive.
Lastly, seasonal cycles indicate potential softness over the next couple of months. However, a large decline is not anticipated at this time.
Figure 12: Seasonality hints at softness during August and September, with a potential year-end rally.
Upcoming Reports we’ll be watching closely
Tuesday: Powell spoke today but focused on bank regulation and the importance of a robust capital framework.
Wednesday: Existing Home Sales (exp. 4.00 million – will it confirm last week’s better-than-expected housing stats?)
Thursday: Unemployment Claims (exp. 227k), Flash Manufacturing (exp. 52.7) and Services PMIs (exp. 53.0), New Home Sales (exp. 649k)
Friday: Durable Goods Orders
Conclusion
No change from last week: “Shorter-term technical measures are overbought, and there are signs of excessive optimism. Historically, these conditions have historically led to periods of consolidation and/or weakness following reversals in the indicators. Intermediate and longer-term measures remain constructive for the markets. The key is whether earnings can continue to grow, and forecasts indicate continued positive growth. Despite a rise in soft data concerns, such as consumer sentiment, hard economic data continues to support our outlook for moderate expansion. Should our model shift toward a higher risk of contraction, we’ll adjust portfolios accordingly.”
For more details on each sector and current model levels, please visit our research page at https://dayhagan.com/research
This strategy utilizes measures of price, valuation, economic trends, monetary liquidity, and market sentiment to make objective, rational, and unemotional decisions about how much capital to place at risk and where to allocate 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 time that is convenient for you.
I hope you have a wonderful week,
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 and Fact Sheets 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.)
Disclosures
S&P 500 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.
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.
S&P 500 Information Technology – Comprised of those companies included in the S&P 500 that are classified as members of the GICS information technology sector.
OBOS Indicators – Overbought/Oversold (OBOS) index relates the difference between today’s closing price and the period’s low closing price with the trade margin of the given period.
MAG7 – A group of seven high-performing and influential stocks in the technology sector.
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.
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.
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There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
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