Day Hagan Catastrophic Stop Update June 30, 2026
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The Day Hagan Catastrophic Stop model declined to 59.09% as the Stock/Bond Relative Trend Factor turned negative. 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 S&P 500’s short-term relative momentum versus the U.S. Aggregate Bond Index has weakened enough to fall back below the model’s upper threshold. Historically, this “sell” regime has been less favorable for equities, with lower annualized returns, deeper drawdowns, and a weaker Sharpe ratio than the positive regime. This does not necessarily imply an imminent bear market, but it suggests stocks have lost enough relative momentum versus bonds to warrant a more cautious equity posture.
Figure 2: Recent stock weakness has shifted the Stock/Bond Relative Trend Factor to negative. Note that it could quickly revert to a buy signal.
The Day Hagan Daily Market Sentiment Composite has fallen to 39.16, down from overbought territory above 70, but remains above the lower pessimism bracket near 30. That suggests enthusiasm has faded, yet conditions are not washed out enough to provide a classic contrarian buy signal. The backdrop is more neutral than bullish: less complacent, less stretched, but not yet deeply pessimistic. Price momentum remains constructive.
Figure 3: In the near term, sentiment is approaching levels indicating excessive pessimism.
U.S. credit conditions remain supportive for equities. Investment-grade OAS is 0.75%, well below its 1.45% long-term mean, while high-yield OAS is 2.82%, also far below its 5.02% mean. High-yield ex-energy spreads are similarly contained at 2.91% versus a 3.97% mean. The message is that credit markets are not signaling systemic stress. CDS and cash spreads appear calm, but tight levels leave less cushion if growth or liquidity conditions weaken materially from here.
Figure 4: OAS not signaling systematic stress. CDS trends confirm (not shown).
Breadth remains constructive, but not euphoric. About 66.6% of Russell 3000 stocks are above their 50-day moving averages, while 64.0% are above their 200-day averages, signaling broad participation behind the S&P 500’s advance. Both are below the 70% “strong breadth” zone, so conditions are healthy rather than stretched. Other breadth gauges, including the positive McClellan Oscillator, improving advance/decline trends, and contained new-lows data, generally confirm participation has broadened, supporting the uptrend for now.
Figure 5: Market breadth is improving.
The S&P 500 Total Return Index has pulled back toward its 50-day average, while remaining above its rising 200-day average, keeping the broader trend constructive. RSI has cooled sharply: the 14-day RSI is 48.4, and the 5-day smoothed RSI is 42.3, both neutral and not oversold. This suggests short-term froth has been worked off. Other gauges, including sentiment cooling, positive McClellan readings, and 50/200-day breadth above 60%, support a reset rather than a major deterioration.
Figure 6: Froth faded, trend intact, breadth supportive.
Figure 7: Similar message from the Nasdaq RSI.
The McClellan Oscillator is +34.4, meaning advancing issues are modestly outpacing declining issues after smoothing. However, +34 is not an extreme reading. Historically, the oscillator has often moved above +60 to +100 during stronger short-term breadth surges and below -60 to -100 during oversold washouts. So, this is more of a constructive / mildly bullish breadth reading, not a “sell signal” from being overbought.
Figure 8: Neither overbought nor oversold based on the McClellan Oscillator.
As of last Friday’s close, positioning looked selectively crowded, not broadly euphoric. Vol-target exposure appeared below normal, leaving some potential buying power. However, active-manager equity exposure was high, upside call demand had increased, and crowding remained most visible in AI, semiconductors, leveraged ETFs, and other momentum leadership. Fund flows and retail sentiment looked mixed rather than manic. Overall, positioning remains supportive but less contrarian than in April.
Figure 9: Volatility-targeting funds' exposure is below average.
DBMF’s S&P 500 exposure is still positive at 24.26%, but has backed off from recent highs. That squares with the earlier paragraph suggesting positioning is supportive, not washed out, but not universally crowded. Trend-following exposure has rebuilt meaningfully, while vol-target exposure still looks below normal.
Figure 10: Positioning indicators remain mixed.
Earnings revisions remain a major support for equities, but momentum is uneven. The S&P 500’s 63-day forward EPS revision trend is up 10% year-to-date, in the 99th percentile historically. Technology, Communication Services, Energy, Materials, Industrials, Consumer Discretionary, Real Estate, and Utilities are elevated. However, several groups have started to flatten or roll over, especially Energy, Materials, Tech, and Communication Services. Bottom line: earnings breadth is strong, but upside velocity is cooling.
Figure 11: Earnings remain the key.
Valuations are mixed. Forward P/E ratios remain above long-term averages, suggesting the market is not cheap on traditional earnings multiples. However, the PEG ratio appears more attractive at roughly 0.80, as expected earnings growth has outpaced the forward P/E. That makes valuations look more reasonable if profit forecasts are achieved. Other measures, including narrow credit spreads, strong revisions, and elevated margins, support current prices, but leave less room for disappointment.
Figure 12: Valuations holding up rests on earnings expectations being achieved.
WTI has repriced sharply lower. The front contract is nearly $70, down from roughly $84 one month ago, while the curve remains in backwardation, with front prices above later deliveries. Lower oil prices should modestly ease inflationary pressures and help non-energy margins, especially in transports, chemicals, and consumer goods. The effect of earnings is likely small at the index level, but meaningfully negative for Energy sector revisions if prices stay lower.
Figure 13: Lower energy prices aren’t likely to meaningfully impact broader index earnings expectations.
GPU availability has rebounded from very tight levels, rising to 23.5%, but remains far below the 2024–2025 highs. This suggests AI compute supply is improving, not abundant. For tech earnings, it’s a mixed but mostly positive development, in our view. Better availability supports AI deployment and cloud revenue, while lower scarcity could eventually pressure pricing. The index-level earnings effect is likely moderate, but it can be large for AI infrastructure, cloud, semiconductor, and data center leaders.
*The 23.5% means that, as of June 29, 2026, roughly 23.5% of the tracked on-demand Nvidia cloud GPU capacity was available across the index’s sampled providers and chip types.
Figure 14: Compute supply potentially improving. (Source: 3 Fourteen Research.)
Margin debt has surged to a record $1.42 trillion, showing investors are using more leverage as stocks rise. However, margin debt is a condition, not a trade signal. It can remain elevated for extended periods. Importantly, margin debt as a share of S&P 500 market value is only 1.9%, below the post-1997 median and below pre-pandemic levels. That suggests leverage is rising quickly, but is not yet extreme relative to market size.
Figure 15: Margin debt levels relative to market cap are increasing but not at historically high levels.
Policy expectations have turned more hawkish. The 2-year Treasury yield is 4.07%, about 44 bps above the fed funds rate, implying markets expect tighter policy rather than imminent cuts. The 10-year yield at 4.38% reinforces a higher-rate backdrop. CME FedWatch probabilities suggest markets expect the Fed to hold in July but price in roughly a 70% probability of a hike by September.
Figure 16: Fed expectations are a headwind.
Figure 17: Updated S&P 500 cycle composite for 2026 and 2027
U.S. Economic Releases:
Last week’s releases pointed to a firmer nominal backdrop. GDP was revised higher, jobless claims fell, ADP employment improved, income and spending beat expectations, and PMIs stayed in expansion. Inflation remains sticky, with core PCE at 0.3% month-over-month and inflation expectations still elevated. Housing was mixed, with weak new home sales. For earnings, stronger demand and spending are supportive, but firm inflation and rates may keep pressure on margins and Fed policy.
Employment data throughout the week. Thursday is the big day.
PMIs on Wednesday.
Figure 18: Economic release calendar. Source: Forexfactory.com
Bottom Line: The Day Hagan Catastrophic Stop model declined to 59.09% after the Stock/Bond Relative Trend Factor turned negative, but it continues to support maintaining benchmark equity exposure. The message is more cautious, not defensive. Sentiment has cooled from excessive optimism, breadth remains constructive, RSI readings are neutral, and the McClellan Oscillator is positive but not overbought. Credit spreads and CDS trends are not signaling systemic stress, while positioning indicators are mixed rather than broadly crowded. Earnings revisions remain the key support, with S&P 500 forward EPS revisions still historically strong, though upside momentum has begun to cool in several sectors. Valuations are not cheap on a forward P/E basis, but the PEG ratio looks more reasonable if earnings expectations are met. Lower oil prices may modestly help inflation and non-energy margins, while Fed expectations have turned more hawkish. Overall, the backdrop remains constructive, but potentially less forgiving.
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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.
This material is intended to provide general market commentary and should not be relied upon as individualized investment advice. Investors should consult with their financial professional before making any investment decisions based on this information.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise, and bonds are subject to availability and changes in price. Bond yields are subject to change. Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest, and credit risk.
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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). For more information, please contact us at:
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