Day Hagan Tech Talk: First and Goal
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Summary
Despite favorable trend and breadth evidence, we recognize that seasonality may introduce periods of weakness as September progresses. Our immediate focus will be on the market’s reaction to tomorrow’s employment report and the FOMC decision slated for 9.18.24. We remain focused on risk management at current levels.
First and Goal from the 5-Yard Line
Tuesday’s equity market selloff (the NASDAQ and our Small Cap proxy each fell over 3%, the SPX was down 2%, and DJIA was down 1.5%) quickly reminded me of the high school football game I attended last Friday evening. The similarity between the game and Tuesday’s tape action is interesting. Suffice it to say that the home team marched downfield, got to the goal line, and then promptly fumbled the ball. The air came out of the stadium as the home team and their fans sighed collectively – a resignation of what just happened. Needless to say, the opposing team picked up the ball in the end zone, and the game essentially ended. Similarly, while Wall Street bulls were sitting on the goal line looking to score (close to new all-time highs), they fumbled, and the bears recovered. In essence, the selling that had been occurring in the “Index Movers” (large-cap technology/growth) picked up steam, and investment “dollars” continued to rotate into the “Non-Index Movers” and recession-proof sectors and stocks.
Figure 1: S&P 500. | Which causes the SPX to bounce? The rising 21-day MA or gap support between 5501 and 5463? Levels are shown inside the chart.
“Goodbye, summer (unless you live in FL). Hello, September.”
Seasonality and Sentiment: Context is key. When it comes to seasonality and sentiment, we tend to view both as second-level indicators (somewhat less important). Their inclusion in our process is used primarily to provide added confirmation for an existing thesis, thereby increasing our conviction.
The chart below depicts the S&P 500 Cycle Composite for 2024, specifically pointing to a difficult (choppy, volatile, consolidation phase) four-to-six-week period ahead. At the same time, the SPX’s current non-trading, longer-term uptrend, while a bit wobbly, remains intact. Note: The DJIA Four-Year Presidential Cycle tells a similar story. Please let me know if you’d like a copy of that chart.
Figure 2: S&P 500 Cycle Composite for 2024. | Updated 2024 Cycle Composite, through 9/3/24.
Bottom Line: Given the Index Movers' loss of leadership, upcoming geopolitical events, and seasonal headwinds, a time correction and/or a price correction prior to the November elections wouldn’t necessarily be a bad thing. Especially if it occurs with in-line to strong internal breadth readings. I say this because it would help reset sentiment, which has been tracking back toward “Excessive Optimism” levels since the August 5th low.
As our summary statement focuses on risk management, the Day Hagan Smart Sector Strategy includes a Catastrophic Stop risk overlay and sector allocation components, which are both risk management tools. This may complement your efforts and help you navigate periods of high and low volatility within various domestic and international equity markets and the fixed-income market. If you are interested in a 30-minute webinar with me and one of the portfolio managers to delve into how we approach modeling, indicator development, and overall strategy, I would happily arrange it.
What I’m Watching
Figure 3: Staples and Financial proxies relative to Technology proxy—weekly data. | Non-Index Movers outperforming the Index Movers. We view the troops joining the generals as positive for the market's long-term health.
Please let me know if you would like to schedule a call to discuss the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and/or Smart Sector Fixed Income strategies. Disclosures and Fact sheets can be found here: https://dhfunds.com/literature.
Day Hagan Asset Management appreciates being part of your business, either through our research efforts or investment strategies. Please let us know how we can further support you.
Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 9.04.2024. Chart source: Stockcharts.com unless otherwise noted.
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