Day Hagan Catastrophic Stop Update June 22, 2026
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The Day Hagan Catastrophic Stop model remained at 68.18%. The model continues to indicate that investors should maintain their benchmark equity allocation.
Figure 1: A decline below 40% for two consecutive days would generate a risk-off signal for the S&P 500.
The Day Hagan Daily Market Sentiment Composite is moving closer to “Extreme Pessimism” readings (below 30). A move below 30, followed by a decisive reversal back above that level, would generate a buy signal.
Figure 2: Near-term, sentiment is less optimistic.
The chart shows that sentiment is mixed but not euphoric. Smart money confidence, which tracks the behavior of historically better-timed investors such as hedgers, insiders, and institutional risk managers, is at 0.57. Dumb money confidence, which reflects more trend-following or late-cycle retail/speculative behavior, is at 0.51. Both are near neutral, with smart money slightly higher. That is generally healthier than a euphoric backdrop. Note that dumb money confidence tends to be lowest at market bottoms. A move below the lower bracket and a reversal higher would be a positive development. (Source: Sentimentrader.com)
Figure 3: Low Dumb Money confidence has historically occurred near market troughs.
The chart below shows SPX near the gamma-flip level at 7,476. With the price slightly above it (as of this writing), dealers are likely in positive gamma, meaning hedging flows may dampen volatility by buying weakness and selling strength. That can help support orderly upside, but the cushion is thin because the price is close to the flip line.
It is calculated by estimating option gamma at each strike using open interest, implied volatility, time to expiration, and spot price, then aggregating dealer exposure across calls and puts.
Figure 4: An SPX move below the gamma-flip price would likely lead to an increase in volatility. (Source: Barchart.com)
The Treasury market treated the FOMC decision as a hawkish reset. The Fed held rates steady, but the dot plot shifted toward possible 2026 hikes, pushing yields higher across the curve. Short maturities repriced policy risk, while the 10-year near 4.5% and 30-year near 4.9% reflected renewed concern over sticky inflation, term premium, and reduced forward guidance. Lower oil prices helped breakevens, but nominal yields remain hostage to incoming inflation, labor, and Fed communication data.
Figure 5: The model indicates 10-year yields may be slightly too high.
Breakevens declined as the market marked down near-term inflation risk. The biggest driver appears to be lower oil and gasoline prices as the Middle East risk premium eased, reducing expected headline inflation. A hawkish FOMC also pushed real yields higher and reduced the market’s willingness to pay for inflation protection. Slower growth expectations, softer near-term CPI components, and cooling risk appetite likely added pressure. The move is most visible in short maturities, which are more sensitive to energy prices.
Figure 6: U.S. Breakeven Inflation Rates continue to move lower.
WTI crude oil prices have fallen sharply over the past three months (down 21.9%), while the 10-year Treasury yield has edged up slightly (+0.19 percentage points). Over the full period since 1990, the 3-month changes in oil prices and 10-year yields show a modest positive correlation (0.33), with oil moves explaining about 11% of the variation in yield changes. The relationship is statistically significant, but the effect size is small. On average, a 1% move in WTI is associated with just a 0.0075 percentage point change in the 10-year yield.
Figure 7: Historically (since 1990), WTI Crude prices have only had a small effect on inflation.
Back to some technicals: Breadth remains constructive but not overextended. About 59% of Russell 3000 stocks are above both 50- and 200-day averages, confirming participation beyond mega-caps, though readings remain below strong breadth thresholds.
Figure 8: Market breadth is neutral. A decline below 30 (50-day MA) would likely indicate oversold conditions.
With the S&P 500, Russell 2000, and Nasdaq 14-day RSIs all below 50, short-term momentum has weakened. The readings are not deeply oversold, but they suggest buyers are under pressure.
Figure 9: The near-term technical outlook is neutral.
Figure 10: Similar message from the Nasdaq RSI.
We’re seeing mixed messages from positioning-related indicators. Overall, we view positioning as high-neutral.
Figure 11: Volatility-targeting funds' exposure is below average.
As detailed last week, DBMF's exposure to the SPX is relatively high, though not at the early-2024 peak.
Figure 12: Managed futures and trend-following funds likely have re-established their equity allocations at this point. There wasn’t much change last week.
We do not want to see earnings revisions start to tail off. The former leaders are showing some negative trends, while laggards are gaining some ground.
Figure 13: Earnings remain the key.
A longer-term view of earnings estimate trends suggests the peak may have been reached. Stay tuned.
Figure 14: 3-month change in 12-month forward earnings’ estimates showing signs of a peak.
Figure 15: S&P 500 Cycle Composite for 2026 and 2027. Note: CY 2026 S&P 500 earnings growth is expected to be +23.3%, while CY 2027 is +16.3%. (Source: FactSet)
Below is our small-cap proxy (Russell 2000) cycle composite for 2026 and 2027. Note that the data is more limited, so we’ve removed the 10-year (decennial) cycle from the calculation, as there were only a few observations.
Figure 16: Small-cap stock proxy Cycle Composite. Another chart that suggests a major opportunity may potentially present itself in October of this year.
Turning to the U.S. economy, we still view the current Economic Regime as stable. We’d also note that downside risks are likely reduced by the U.S.-Iran agreement, lower energy prices, and still relatively firm labor market conditions. Lower gas prices, AI-related spending, and the wealth effect are also more constructive.
Figure 17: Net hiring is slow, but so is net firing. We view the U.S. as still in a “low-hire, low-fire” environment.
Today’s market backdrop is not a repeat of past crises, but several conditions rhyme with prior periods of stress. This slide highlights key parallels that deserve monitoring as risk appetite, valuations, and leverage remain elevated.
Figure 18: Our summary view of parallels to the Tech Wreck and GFC. (Source: Day Hagan Research.)
Figure 19: Charts illustrating factors 1-4. (Source: Federal Reserve Economic Data | FRED | St. Louis Fed.)
Figure 20: Charts illustrating factors 5-8.
Figure 21: Charts illustrating factors 9 and 10.
U.S. Economic Releases:
Last week’s releases pointed to an economy still expanding, but unevenly. Retail sales, core retail sales, the Philly Fed index, home sales, and capital flows beat expectations, supporting risk assets and the soft-landing narrative. However, Empire Manufacturing, Building Permits, Housing Starts, and Unemployment Claims showed softer underlying momentum. Inflation signals were mixed: import prices were firm, but capacity utilization and industrial production were subdued. The Fed held rates steady, keeping markets focused on inflation progress and policy guidance.
Flash PMIs on Tuesday.
Crude inventories on Wednesday.
PCE Price Index, Unemployment Claims, Personal Income/Spending on Thursday.
Figure 22: Economic release calendar. Source: Forexfactory.com
Bottom Line: Overall, the weight of the evidence remains balanced, with enough technical, macro, and sentiment support to maintain benchmark equity exposure, but not enough to ignore rising selectivity. The Catastrophic Stop model remains positive, market breadth is neutral, and the economy continues to expand, likely to be helped by lower energy prices, AI-related spending, and reduced geopolitical downside risk. At the same time, short-term momentum has softened, sentiment is moving closer to levels that could eventually create a better entry point, and the S&P 500 remains near a key gamma-flip level where volatility could rise if support breaks. Fixed income is sending a mixed message: breakevens are falling as inflation expectations cool, while nominal yields remain elevated after a hawkish Fed reset. Earnings remain the critical variable. If estimate revisions stabilize, the market can continue to advance. If they deteriorate, elevated valuations, leverage, and concentration could become more important risks.
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.
Sincerely,
Donald L. Hagan, CFA
Chief Investment Strategist, Partner, Co-Founder
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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 model histories; they should be considered hypothetical. All Rights Reserved. © Copyright 2026 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.
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Disclosure: The information contained herein is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. The securities, instruments, or strategies described may not be suitable for all investors, and their value and income may fluctuate. Past performance is not indicative of future results, and there is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses. Investing involves risks, including loss of principal.
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S&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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