Day Hagan Tech Talk: Comfortably Numb
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Summary
Signs of near-term overbought conditions and slowing momentum are evident as investors await more clarity from the Federal Reserve. However, our longer-term models and indicators remain supportive, suggesting that investors hug their equity benchmarks until the weight of evidence suggests otherwise.
Staying the Course
Considering the disconnect between the domestic equity market (all-time highs by large-cap indices and broader domestic/global participation support a positive outlook) and the bifurcated macroeconomic picture (employment is slowing, unemployment claims are rising, inflation is sticky, and a looming potential shutdown), I reflect on the song by Pink Floyd, “Comfortably Numb.”
The song reflects “a desire to cope with intense internal pain by becoming desensitized -- yet enabling one to continue with their responsibilities.” Within that context, and while cautiously approaching the month-end (will the Fed news be sold?), the weight of evidence suggests there is no need to look beyond the current uptrend (bullet points below). Our long-term indicators suggest a positive outlook, and we do not currently foresee a major downturn in the near term. Of course, should our models and indicators shift to bearish, we will quickly move to reduce risk.
Trend over momentum (Figure 1): Higher price troughs and higher price peaks are constructive.
Consumer Discretionary Equal Weight is up just over 10% YTD, despite the bifurcated macroeconomic environment described above. Constructive.
Cyclical sectors continue to outperform defensive sectors. Constructive.
Global markets continue to show strength. Constructive.
Credit spreads are not widening. Constructive.
Financials, Banks (big), and Capital Markets proxies are performing well, up 11.6%, 18% and 13.2% respectively, YTD. The S&P 500 is up just over 12% YTD.
Figure 1: S&P 500. | Please refer to the verbiage and levels shown inside the chart.
Note: Seasonality (second-level indicator): As a firm, we have frequently discussed the seasonal aspects of markets. We have continually stressed that it should be used as confirming evidence to an existing thesis — not as the central thesis itself. Seasonality indicators often rhyme, but we don’t expect pinpoint accuracy. Their usefulness is limited to identifying headwinds vs. tailwinds, i.e., defining a market condition as opposed to an actionable signal. Within this context, here is something Michael Nauss stated relative to the domestic equity market’s current seasonal backdrop:
“History suggests the second half of September could be more challenging than the first half. However, a positive September would bode well for the rest of the year.”
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 09.15-16.25. Chart source: Stockcharts.com unless otherwise noted.
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 (DHAM), 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. DHAM accounts that DHAM, 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. 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.
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