Day Hagan Tech Talk: Bullish into Year-End with Bouts of Profit Taking
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Summary
Near-term resistance exists within a bullish price channel and as negative A/D Line divergences are resolved. The Bulls remain in control, but we’re watching for signs that post-election market action is part of a transition to a choppier 2025.
Bullish Trend Channels
Noted technical analyst “Phil D. Gap” (kudos to Walter Deemer for this quip) notes that Large-, Mid-, and Small-cap proxies didn’t come close to filling the upside gap generated following the election results. Nor did they break below their recent topside breakout ranges and levels. I view this as supportive (bullish) near-term. It also suggests the recent low offers the first level of short-term support. See Figure 1 below.
Figure 1: Dow Jones Industrial Average and S&P 500. | Short-term resistance is still in place. When coupled with high levels of “Excessive Optimism” (illustrated by NDR’s Daily Trading Sentiment Composite), bouts of profit-taking shouldn’t be surprising. Please mindthe gaps.
Election Year Cycle – Less Favorable in 2025
Last week, I asked, “Have equities brought forward the historically bullish returns of the fourth quarter following elections?” and “Are we at risk of such an occurrence?” While I still believe there will be instances of profit-taking as we approach year-end, I consider seasonal charts to be secondary; they are not as significant as primary indicators and models.
Recently, NDR noted, “The bull market usually continues into the first year after an election, but the first two years tend to be rocky.” Many bear markets begin in the first year and persist into the midterm election year, like how the bear market started in 2021 and continued into 2022. Therefore, in looking forward, prudence suggests adopting an investment strategy that objectively manages risk, such as our Smart Sector strategies.
Figure 2: Dow Industrials Four-Year Presidential Cycle. |This suggests a choppy start to 2025 and weakness in the latter part of the first Presidential year into the second year—something we have not heard Wall Street discuss.
Final Observation
From a seasonal perspective, Bitcoin and MicroStrategy (MSTR—a bitcoin proxy) are approaching a difficult seasonal period (December). See Figures 3 and 4.
The seasonal charts show a monthly histogram, with bar heights indicating the percentage of years the proxy has risen. The number below each column depicts that month’s average gain or loss.
As Don Meredith, a former quarterback for the Dallas Cowboys and a TV commentator during Monday Night Football, famously sang in the 1970s, “Turn Out the Lights, The Party’s Over.” Perhaps this is worthy of reflection as we approach year-end.
Figure 3: Bitcoin – Four Year Seasonal. | If interested in a price chart, please reach out.
Figure 4: MicroStrategy – Fifteen Year Seasonal.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 11.25-26.2024. Chart source: Stockcharts.com unless otherwise noted.
Disclosure
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