Day Hagan Tech Talk: Fluidity
A downloadable PDF copy of the Article: Day Hagan Tech Talk: Fluidity (pdf)
Summary
The market might retest last week’s lows after its rebound, but with the upcoming economic data and potential developments in the news cycle this week, it’s difficult to predict which way it will go.
Uncertainty
The current equity market situation is fluid, and “tactical considerations and positioning can change rapidly.” A lot of economic data is coming out this week, and with geopolitics, we could experience more price and interest rate volatility (and possibly commodity volatility) in both directions. The Catastrophic Stop Loss model is favorably positioned, but as our indicators shift, we will adjust to stay on the right side of the prevailing trend, introducing risk management and raising cash when conditions deteriorate.
Aftershocks
Following Hurricane Debby, family and friends in South Carolina experienced storm aftershocks as floodwaters rose. On Wall Street, an aftershock may be a partial or full retest of last week’s lows (Figure 1)—hard to say which, with more details needed.
Last week:
Support tested and held. (Figure 1; reach out for Small Cap chart or to see last week’s report.)
Strong rebound following oversold condition and declining volume, declining issues, and volatility spikes.
Overhead resistance (selling pressure) now looms—Figure 1.
Sentiment has reset in the short-term from predominately Bullish to mostly Bearish. But positioning remains all-in. Household equity allocations are at record highs.
Figure 1: S&P 500. | Focus on gap resistance between 5384 and 5411 and potential retest of support.
Figure 2: S&P 500 – 1 month. | Very short-term; use support (green) and resistance (red) accordingly.
Large Cap Growth vs. Large Cap Non-Growth
The Technology Select Sector SPDR (XLK) recently recorded a 10-month relative strength low versus the S&P 500. Within the Day Hagan Smart Sector strategy, the XLK model is at a neutral 50% level. So, a Bull and/or a Bear wouldn’t be a surprise. Please reach out for details from a portfolio manager.
Please refer to Figures 3 and 4 as guideposts for another perspective, which may also help determine if XLK (as a Large Cap Growth proxy) will start outperforming. I remain skeptical but will defer to our models, indicators, and the overall market.
Figure 3: NASDAQ (large cap growth) vs. DJIA (large cap non-growth). If growth and technology is going to start outperforming non-growth, it’s in the vicinity where it “should” occur. If it doesn’t occur…
Figure 4: Vanguard Growth proxy vs. Vanguard Value proxy. | As market volatility has picked up, risk appetite has softened. As with Figure 3, however, if Growth is going to pick up again and start outperforming, it needs to start soon/now!
Note: I am fully aware of, and frustrated by, the shenanigans that go on in populating Growth and Value proxies.
Bonus Chart
There are few unique observations I could add to the already well-documented Japanese Yen and carry trade. All I will note is that the dollar-to-yen ratio declined to support and held while also meeting a downside price target (162 minus 152 = 10. 152 minus 10 = 142).
Figure 5: U.S. Dollar to Japanese Yen. | It should be especially interesting to see how resistance, highlighted in red and blue, and any retest of support, highlighted in green, are handled.
Please let me know if you would like to schedule a call to go over the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and/or Smart Sector Fixed Income strategies. Disclosures and Fact Sheet information 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 8.12.2024. Chart source: Stockcharts.com unless otherwise noted.
Future Online Events
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.
Investment advisory services offered through Donald L. Hagan, LLC, a SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC) and Charles Schwab & Co., Inc. (member FINRA, SIPC). Day Hagan Asset Management is a dba of Donald L. Hagan, LLC.