Day Hagan Catastrophic Stop Update June 30, 2025
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The Day Hagan Catastrophic Stop model is unchanged from last week at 77.27%. The model indicates that investors should maintain their benchmark equity exposure.
Measures evaluating recent breadth thrusts, oversold mean reversion probabilities, investor sentiment, longer-term trends, volume-adjusted supply versus demand, relative stock versus bond trends, credit spreads, and economic activity are supportive. We note that several indicators are positioned to shift to sell signals should upside momentum start to fade.
Figure 1: The Day Hagan Catastrophic Stop model remains constructive for equities.
Technicals
Sentiment remains optimistic. Optimistic sentiment continues to support equity exposure. A reversal below 70 would be negative, indicating that upside demand was starting to fade.
Figure 2: The Day Hagan Daily Market Sentiment Composite.
Is the S&P 500 overbought? It all depends on the indicators being evaluated and the time frame in which they are assessed. An RSI, for example, is a momentum-like indicator that divides the average gain by the average loss over a specified period to determine whether an asset is overbought or oversold. Using a 14-day RSI for the S&P 500, one could conclude that, near-term, equities are more overbought than oversold, but there is upside potential relative to previous indicator highs (black line, second clip).
A decisive reversal from current levels would indicate that a near-term consolidation period was likely gaining traction. Note: The 3-month volatility is 30.19% (purple line), compared to 1-month volatility at 9.67% (blue), illustrating the difference between continuing to capture the early-April market gyrations versus not doing so.
Figure 3: Short-term measures of overbought/oversold are moving into overbought territory.
However, the 83-day RSI (it’s been 83 days since the April 8 closing low) shows that the S&P 500’s overbought/oversold condition is more neutral. Keep in mind that it has been 131 days since the February 19 peak of the S&P 500 (at 6,144), which we consider the start of a consolidation phase that included a significant washout.
Figure 4: Intermediate-term OBOS indicators are more neutral.
Volume-adjusted supply vs. demand for the S&P 500 measures the balance of selling versus buying pressure, weighted by trading volume. When demand exceeds supply, it indicates strong, conviction-backed buying, often characterized by bullish sentiment. When supply outweighs demand, it suggests heavy selling pressure and potential weakness. This metric helps identify underlying market strength or fragility beyond price movement alone, offering insight into whether trends are supported by broad participation or vulnerable to reversal. Like the intermediate-term RSI, this indicator suggests that demand is solid but hasn’t yet reached significantly overbought levels previously associated with market peaks.
Figure 5: Volume-adjusted demand outpacing supply, but not excessively.
Systematic and Algo Traders: JP Morgan notes that aggregate positioning is at the 52nd percentile, slightly above neutral. Net leverage among equity long/short funds is 56% on a 5-year basis. The 3Fourteen chart directly below shows that funds targeting 10% volatility (annually) are now sporting a more neutral stock exposure. As described last week, the net result is that this cadre of investors is no longer a strong source of demand, but there is still room to the upside based on net exposures.
Figure 6: Several investment allocation categories have been chasing the markets higher and are becoming more fully invested, yet there is still upside potential.
Positioning: Smart Money Confidence is providing a similar message: Risks rising, but not yet at sell levels. And even when the sell threshold is breached, the signal has historically been early. Source: Sentimentrader.
Figure 7: Smart Money Confidence neutral.
Expected Move based on Options Pricing: “The Expected Move, which is also referred to as Implied Move, reflects the price range that a security is expected to move from its current price. The Expected Move is calculated based on 85% of the value of the at-the-money straddle. The range as predicted by the expected move can be used to target high and low prices and is especially useful around earnings season. The chart reflects the prior six months of price activity, followed by the expected move based on the next two weekly and monthly options contracts.” Source: Barchart.
Figure 8: The upper and lower range levels for the July 18 OPEX are 6,049 and 6,297.
Seasonality: Based on the last 15 years, July has been a pretty good month for the S&P 500; up 86.67% of the time, average gain of 2.86%, and the largest decline of just -2.15%. August and September have historically been negative. (Source: Barchart)
Figure 9: Heading into July, S&P 500 seasonality is a tailwind.
Operating Environment for Equities
Tariffs are still causing havoc. For example, the U.S. and China reached a preliminary agreement on a trade deal, but then trade talks with Canada were halted. The markets’ intraday reactions were notable. Nonetheless, as of this morning, negotiations with Canada are back on.
However, standing back a bit, we see that the Economic Policy Uncertainty Index for the U.S. is back to levels seen around the February 19, 2025, ATH. As has been our view, we would continue to fade tariff panic, opting to keep an eye on global economic activity and inflation trends for signs that the equity markets continue to benefit from economic activity and liquidity support. We also view the Big Beautiful Bill as a potential market positive, providing additional fiscal stimulus and clarity around taxes.
Figure 10: Tariff uncertainty has moderated. However, we expect the rhetoric to intensify as the July 9th end of the reciprocal tariff pause approaches, only to subside as new deals are announced and consummated.
Earnings: We’ve discussed our view that S&P 500 earnings are likely to show the lowest annual growth rate during the Q2 period, followed by higher forecasts. The chart below illustrates year/year EPS growth expectations through 2026.
Figure 11: If earnings growth troughs in Q2, expect markets to react positively in 2H. Source: FactSet via MarketEar.
Revenues: Revisions to sales for FY1 have been generally positive. Another positive indication longer-term.
Figure 12: Positive revisions for sales this year have been outpacing negative revisions. Constructive.
U.S. Economic Activity: Real GDP contracted ~0.5% annualized in Q1 2025, though core domestic demand remained modestly positive (~+1.9%). The contraction was largely due to weak inventory investment and net exports, while consumer spending and business investment were more resilient. The labor market is still solid, but hiring has decelerated, with monthly job additions following suit. Trade policy uncertainty, including tariffs and slowed immigration, continues to cloud the outlook. The good news is that monetary policy is “ready” to be supportive while the Fed holds the Fed funds rate at current levels. Bottom line: The U.S. economy is slowing down, shifting from earlier strength to moderate growth, but remains positive overall. The FOMC is projecting 2025 real GDP growth around 1.4% (as of June 18).
Interestingly, according to the S&P Global Flash U.S. PMI, “U.S. business activity continued to grow in June, though the overall rate of expansion lost a little momentum to remain well below those seen late last year. Falling exports of goods and services acted as a drag on growth, in part offset by stock building by U.S. companies, often linked to concerns over tariffs.” Additionally, “Companies, meanwhile, struggled to meet rising workloads, with backlogs of work increasing at the fastest rate for over three years and encouraging firms to take on additional staff to the greatest degree for a year. However, confidence in the outlook deteriorated slightly.” This harkens back to the “hard data” versus “soft data” debate, with hard data our preferred measure.
Figure 13: The Atlanta Fed GDPNow model indicates Q2 real GDP may come in above trend.
Inflation: The New York Fed's DSGE (Dynamic Stochastic General Equilibrium) model is built on microeconomic foundations and rational expectations. It integrates current data (through Q1 2025, plus forecasts for Q2 2025) and anticipated tariff shocks, producing projections for key variables such as real GDP, core PCE inflation, and the natural interest rate. While it’s not the official NY Fed forecast, it informs staff analysis and highlights risks, such as the probability of recession, inflation persistence, and economic slack.
Currently, it projects Core PCE inflation for 2025 at 3.4%, 2026 at 2.1%, and 2027 at 1.6%.
Figure 14: Like other models we are monitoring, the NY Fed’s DSGE model for PCE inflation shows an uptick in Core PCE inflation into 2026, followed by a quick decrease. The Fed is aware of this and is also likely to consider inflation increases over the next quarter or two as, and I hate to say it, “transitory.” In other words, with economic activity moderating, housing slowing, and energy prices reversing lower, we would likely view any upside surprise in inflation as temporary.
Upcoming Reports we’ll be watching closely:
Tuesday: June ISM Manufacturing PMI (exp 48.8)
Wednesday: ADP Employment Report (exp. 97k)
Thursday: Employment Report. Nonfarm payrolls (exp. 120k), Unemployment Rate (exp. 4.2%), June ISM Services PMI (exp. 50.3)
Friday: Markets Closed. Happy Independence Day!
Conclusion: The technical and operating environment indicators in the model remain supportive. Measures of economic activity, inflation trends, earnings trends, positioning, sentiment, and overbought/oversold are modestly constructive. At this juncture, our models remain positive, confirming that investors maintain their benchmark equity weightings. Of course, if our model moves to a sell, we will raise cash immediately.
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.
Relative Strength Index (RSI) - Is an oscillating indicator that is designed to measure a stock's momentum, which is both the speed and size of price changes. Many investors use this indicator to help identify whether a stock is overbought or oversold.
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.
Real Gross Domestic Product (GDP) – Is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. Real GDP is expressed in base-year prices.
Core Personal Consumption Expenditures (PCE) price index – An economic indicator that measures inflation in the United States by tracking the prices of goods and services consumers purchase, including food and energy costs.
Purchasing Manager Indexes (PMI)—The purchasing Managers’ Index is a survey-based economic indicator designed to provide timely insight into business conditions.
Disclosure: The data and analysis contained herein are provided "as is" and without warranty of any kind, either express or implied. Day Hagan Asset Management, any of its affiliates or employees, or any third-party data provider shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. Day Hagan Asset Management accounts that Day Hagan Asset Management or its affiliated companies manage, or their respective shareholders, directors, officers, and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. Day Hagan Asset Management uses and has historically used various methods to evaluate investments which, at times, produce contradictory recommendations with respect to the same securities. The performance of Day Hagan Asset Management’s past recommendations and model results is not a guarantee of future results. The securities mentioned in this document may not be eligible for sale in some states or countries nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates, or other factors.
There is no guarantee that any investment strategy will achieve its objectives, generate dividends, or avoid losses.
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