Day Hagan Catastrophic Stop Update June 16, 2026
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The Day Hagan Catastrophic Stop model declined to 68.18%. The model continues to indicate that investors should maintain their benchmark equity allocation.
The decline resulted from the Daily Market Sentiment Composite reversing back below 70, generating a sell signal.
Figure 1: A decline below 40% for two days would generate a risk-off signal for the S&P 500.
The Day Hagan Daily Market Sentiment Composite falling below 70 suggests excessive optimism has begun to unwind. As optimism builds, risk appetite and buying pressure can support prices. Once optimism peaks and reverses, good news may already be priced in, leaving markets more vulnerable. A shift toward pessimism building implies investors are moving from risk-seeking to risk-reducing behavior, increasing the potential for profit-taking, weaker breadth, and higher short-term volatility.
Figure 2: Near-term, sentiment is less optimistic. A move below 30 would suggest investors have become overly pessimistic.
Recent cash and money market ETF flows suggest investors became somewhat more defensive last week. The chart shows another sizable 5-day inflow into cash-oriented ETFs, consistent with rising caution. This also aligns with the Day Hagan Daily Market Sentiment Composite falling below 70, suggesting optimism may have peaked. However, some cash buildup may reflect liquidity raised in anticipation of the SpaceX transaction. Bottom line: the signal is cautionary, but not a standalone recession or bear-market warning.
Figure 3: The short-term cash build was likely part defense and partly in anticipation of the SpaceX IPO.
U.S. credit markets are still sending a constructive, not stress-driven, message. Investment-grade and high-yield OAS remain tight, with HY near 2.75%, suggesting investors continue to accept credit risk. CDS indices have not shown a sustained widening trend, and corporate bond demand remains supported by yield buyers and strong cash balances. Recent Treasury auctions were mixed but acceptable: 10-year and 30-year auctions cleared near market levels, with bid-to-cover ratios around 2.6 and 2.3, respectively, indicating demand is intact.
Figure 4: High-yield bond OAS is still constructive.
The Day Hagan 10-Year Treasury Fair Value Model shows the 10-year yield modestly above fair value, at 4.48% versus 4.27%. That roughly +21-basis-point spread suggests yields are somewhat high relative to the model, making 10-year Treasuries mildly attractive.
Other bond-market signals have also improved. Inflation concerns have eased as oil prices have retreated, credit spreads remain contained, CDS markets are not showing broad stress, and recent Treasury auctions indicate demand remains intact. With yields still elevated, bonds offer more income, better diversification potential, and a more reasonable entry point than they did when yields were lower.
Figure 5: The model indicates 10-year yields may be slightly too high.
U.S. equity breadth is constructive, but not exceptionally strong. Roughly 60% of S&P 500 stocks remain above their 50-day moving averages, while the index is still above key trend support. Equal-weight performance has recently improved, suggesting participation is broadening beyond mega-cap leadership. However, breadth is not strong enough to signal a powerful, all-clear advance. The message is positive but selective: participation is improving, though still vulnerable if leadership weakens.
Figure 6: Market breadth is neutral. A decline below 30 (50-day MA) would likely indicate oversold conditions.
By last Friday, the 14-day Relative Strength Indexes for both the S&P 500 and Nasdaq had approached oversold territory, with readings nearing 30. That suggested short-term selling pressure had become stretched and that a reflexive bounce was becoming more likely.
However, the oversold condition proved brief. As of Monday afternoon, both RSIs had rebounded sharply back toward the high-60s to low-70s range. This quick reversal indicates that downside momentum faded quickly and buyers stepped back in aggressively.
The key takeaway is that the market did not remain oversold long enough to suggest deep or persistent technical weakness. Instead, the one-day oversold condition was quickly relieved, and momentum has now shifted back toward the upper end of its recent range. While that is constructive in the near term, readings near 70 also suggest the market has moved quickly from short-term weakness back toward a more extended momentum condition.
Figure 7: The S&P 500 and Nasdaq briefly approached oversold RSI levels on Friday, but quickly rebounded on Monday, signaling buyers returned.
Figure 8: Similar message from the Nasdaq RSI.
The chart suggests 10% volatility-target strategies rebuilt equity exposure sharply off the April lows, but that re-risking has recently faded. With the current z-score around -0.2, exposure is now slightly below its 5-year average, meaning vol-target investors are not aggressively positioned long equities. That reduces the risk of forced selling from an overextended systematic cohort, but it also means this group is not providing the same buying support it did during the rebound.
Figure 9: Volatility-targeting funds exposure is neutral.
As detailed last week, DBMF's exposure to the SPX is relatively high, though not at the early-2024 peak.
Figure 10: Managed futures and trend-following funds likely have re-established their equity allocations at this point. There wasn’t much change last week.
The level of 63-day revisions remains strong, especially across the S&P 500 and sectors such as Energy, Technology, and Communication Services. However, the direction of change has started to soften across many sectors.
Energy has clearly rolled over from its peak. Technology, Communication Services, Materials, Industrials, Financials, Staples, Utilities, and Health Care also appear to be flattening or drifting lower. Real Estate and Consumer Discretionary look more stable, but not accelerating.
The message is that earnings revisions are still positive, but momentum is no longer improving broadly. That is usually a more nuanced signal. It supports the market from a fundamental standpoint, but it also suggests the strongest part of the revisions cycle may be behind us, making future price gains more dependent on valuation expansion, breadth, and macro conditions.
Figure 11: Earnings remain the key.
The chart shows that the Atlanta Fed GDPNow model is tracking Q2 real GDP growth well above consensus, but with some recent moderation.
GDPNow was above 4% SAAR in mid-May, then fell sharply toward roughly 3.0%, before rebounding to around 3.3% in early June. Even after that decline, it remains meaningfully above the Blue Chip consensus, which is closer to 2%.
The message is that the economy still appears to be growing at a solid pace, not slowing toward recession. However, the drop from the May peak suggests some of the strongest data inputs have cooled. Overall, this is a positive growth signal, but no longer as strong as it looked a few weeks ago.
Figure 12: We rate economic activity as stable for the time being.
The chart below suggests that broad state-level economic weakness is not currently signaling recession risk.
The bottom panel tracks the number of states with declining coincident indexes. As of April 2026, only 4 of 50 states were declining. That is below the long-run average of 7.5 states, well below the one-standard-deviation level near 18.5, and far below the recession-warning zone of 25 states.
Historically, recessions have been associated with a much broader deterioration across states, often with 30 to 50 states showing declining coincident activity. The recent reading is nowhere near that level.
The top panel shows the S&P 500 continuing to trend higher, which is consistent with the message from the state diffusion model: economic weakness is not broad enough to challenge the expansion. Note that this is a supportive macro chart, though not a market-timing tool by itself.
Figure 13: Another indicator signaling stable economic activity.
Financial stress remains low, which is supportive for equities and credit conditions.
The St. Louis Fed Financial Stress Index was -0.87 as of June 5, 2026, well below zero. Negative readings indicate below-average financial stress, while positive readings indicate above-average stress. Current conditions are therefore much closer to “easy” than “tight” financial-market conditions.
Historically, major equity drawdowns and recessions have often coincided with sharp spikes in this index, such as in 2008 and 2020. We are not seeing that today.
Therefore, despite concerns around valuations, sentiment, inflation, and positioning, the financial system is not showing broad stress. Liquidity and credit conditions remain orderly, which helps support risk assets.
Figure 14: Financial stress is relatively low.
This table shows that markets expect the Fed to stay on hold in the near term. For the June 17 and July 29, 2026, meetings, futures imply the highest probability that the fed funds target range remains 3.50%–3.75%. By September and October, markets begin assigning some probability to a higher 3.75%–4.00% range, suggesting rate-cut expectations have faded, and some tightening risk is being priced.
Figure 15: The table’s message is higher-for-longer.
Figure 16: S&P 500 Cycle Composite for 2026 and 2027. Note: CY 2026 S&P 500 earnings growth is expected to be +23.2%, while CY 2027 is +16.2%. (Source: FactSet)
U.S. Economic Releases:
Last week’s data pointed to a firm but inflation-constrained U.S. economy.
Growth data were generally not recessionary. Existing home sales beat expectations at 4.17 million, trade data improved, wholesale inventories were in line, and jobless claims were only modestly above expectations at 229,000. The NFIB Small Business Index missed slightly, but not enough to change the broader message. Consumer sentiment improved to 48.9, helped by lower gasoline prices, though it remains historically weak.
Inflation was the problem. CPI rose 0.5% month over month and 4.2% year over year, while core CPI was 2.9%, matching expectations but still above the Fed’s comfort zone. PPI was also hot, with headline PPI up 1.1% month over month and 4.0% year over year.
Truflation (truflation.com) offers a more constructive counterpoint. Its real-time U.S. inflation index reportedly showed 1.84% year-over-year as of June 5, down from roughly 2.24% a week earlier. Truflation measures inflation using real-time consumer and spending datasets, so it can sometimes lead the official CPI data.
Bottom line: official inflation data remain too high, especially at the producer level, but Truflation suggests price pressure may be easing beneath the surface. The economy still looks positive, but the inflation backdrop argues for a cautious Fed and limited room for near-term rate cuts.
Retail Sales and FOMC on Wednesday.
Figure 17: Economic release calendar. Source: Forexfactory.com
Bottom Line: Overall, the weight of the evidence remains constructive, but less one-sided than earlier in the rally. The Day Hagan Catastrophic Stop Model remains positive at 68.18%, supporting a benchmark equity allocation, though the Daily Market Sentiment Composite’s move below 70 suggests optimism has started to unwind. Cash ETF inflows, fading vol-target exposure, and less enthusiastic sentiment point to a more cautious investor backdrop.
At the same time, credit spreads, CDS trends, Treasury auctions, and low financial stress do not indicate broad market strain. Economic data remain supportive, with GDPNow above consensus and state-level coincident weakness well below recession-warning levels. Earnings revisions are still positive, but momentum has begun to roll over across several sectors.
Bottom line: the market backdrop remains supportive, but short-term risks have increased. We would characterize conditions as constructive but more selective, with risk management becoming more important.
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.
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Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
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&P 500 Index—An unmanaged composite of 500 large-cap companies, 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.
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.
Purchasing Manager Indexes (PMIs) – survey-based economic indicators that provide timely insight into business conditions.
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.
OAS: OAS spreads are the extra yield a bond offers over Treasuries, after adjusting for embedded options, used to gauge credit risk and relative value.
Catastrophic Stop model — Proprietary model used to indicate suggested equity exposure levels.
Russell 3000: The Russell 3000 Index measures the performance of approximately 3,000 of the largest U.S. publicly traded companies, representing about 98% of the investable U.S. equity market.
PPI: PPI, or the Producer Price Index, tracks average price changes producers receive for goods and services, offering an early signal of inflationary pressure.
PCE: Personal Consumption Expenditures measures prices paid by U.S. consumers across goods and services, serving as the Federal Reserve’s preferred broad inflation gauge.
Supercore PCE: Supercore PCE tracks services inflation, excluding energy and housing, helping policymakers assess underlying wage-sensitive price pressures that are less distorted by volatile categories.
DBMF: DBMF is an actively managed futures ETF that aims to mirror hedge fund trend-following strategies by using long and short futures positions across stocks, bonds, currencies, and commodities.
Communication Services sector: The Communication Services Sector includes telecom and media & entertainment companies, including producers of interactive gaming products and companies engaged in content and information creation or distribution through proprietary platforms.
Consumer Discretionary sector: The Consumer Discretionary sector's manufacturing segment includes automobiles & components, household durable goods, leisure products, and textiles & apparel. The services segment includes hotels, restaurants, and other leisure facilities. It also includes distributors and retailers of consumer discretionary products.
Consumer Staples sector: The Consumer Staples sector includes manufacturers and distributors of food, beverages, and tobacco, as well as producers of non-durable household goods and personal products. It also includes distributors and retailers of consumer staples, including food & drug retailers.
Energy sector: The Energy sector includes companies that operate in exploration & production, refining & marketing, and storage & transportation of oil & gas, as well as coal & consumable fuels. It also includes companies that offer oil & gas equipment and services.
Financials sector: The Financials sector encompasses banking, financial services, consumer finance, capital markets, and insurance. It also includes Financial Exchanges & Data and Mortgage REITs.
Fixed Income sector: The Fixed Income sector includes investment securities that pay investors fixed interest payments until maturity. Designed for income generation and capital preservation, this sector includes government, corporate, and municipal bonds, as well as certificates of deposit (CDs).
Health Care sector: The Health Care sector includes health care providers & services, health care equipment & supplies, and health care technology companies. It also includes companies involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products.
Industrials sector: The Industrials sector includes aerospace & defense, building products, electrical equipment, machinery, and companies that offer construction & engineering services. It also includes providers of commercial & professional services, including printing, environmental & facilities services, office services & supplies, security & alarm services, human resources & employment services, and research & consulting services. It also includes companies that provide transportation services.
Information Technology sector: The Information Technology sector includes software and information technology services, manufacturers and distributors of technology hardware & equipment, such as communications equipment, cellular phones, computers & peripherals, electronic equipment and related instruments, and semiconductors and related equipment & materials.
Materials sector: The Materials sector includes chemicals, construction materials, forest products, glass, paper and related packaging products, and metals, minerals, and mining companies, including steel producers.
Real Estate sector: The Real Estate sector includes companies engaged in real estate development and operation. It also includes companies offering real estate-related services and Equity Real Estate Investment Trusts (REITs).
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