Day Hagan Tech Talk: Hard Work Begins Now!
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Summary
Following an oversold condition and some “stealth price stability” in areas other than Technology/Growth (discussed last week), the “Index Movers” bounced higher last week. Consequently, the S&P 500 has retraced approximately 50% of the March-April decline and is now amid various pockets of overhanging selling pressure—resistance. Simultaneously, U.S. outperformance (leadership) vs. the rest of the world is at an important near-term tipping point from the perspective of relative strength.
Overhanging Selling Pressure (resistance)
Now that the S&P 500 (SPX) has approached an initial pocket of resistance (Figure 1), and considering the Fed announcement/Q&A session Wednesday afternoon, I believe that the near-term direction of bond yields will continue to influence the near-term direction of domestic equity market indices/proxies, starting with Small Caps and extending through the spectrum of the Index Movers. Reach out for a chart showing the 1-month inverse correlation between interest rates and SPX/IWM.
Figure 1: S&P 500 – daily data. | Please see the areas of resistance (red lines and box) and support (blue arrows) and use them accordingly, especially considering Figure 2.
Helene Meisler recently posted, “Corrections tend to be a process of ups and downs. Their purpose is to shake out weak holders and often they are the market’s way of changing leadership. That doesn’t tend to happen in a few short weeks but over time.” Relative to the importance of the support levels shown in Figure 1, I want to note again longer-term support levels and weekly momentum—Figure 2.
Figure 2: S&P 500 with Momentum and Rising 30-week MA (green line) – weekly data. | The NDR Catastrophic Stop Loss model is currently showing a favorable condition. Since corrections can occur from a time or price perspective or a combination of the two, I reemphasize the importance of the support levels shown in Figure 1 and below.
Us Against the World
While the Technology complex has bounced higher over the past week, it continues to underperform the S&P 500 (and several S&P macro sector proxies) year-to-date on both an absolute and relative basis. Considering the weight the complex carries, the U.S. is getting close to losing its leadership role (relative outperformance) when compared to the rest of the world. It hasn’t occurred yet, but a well-defined critical support level—a line in the sand—is evident; Figure 3.
Figure 3: U.S. vs. the Rest of the World ex U.S. – weekly data. | 2-year chart used to discern the important underlying support level more easily. If you prefer a longer-term chart, please reach out.
The Day Hagan/Ned Davis Research Smart Sector International ex U.S. strategy came into April overweight China. While the model will update Wednesday, 5/1/24, and we’ll have to see how things stand, as one who will define risk management levels ahead of time I continue to find the country intriguing. Please reach out to discuss the strategy in more detail.
Figure 4: Hang Seng China Enterprises index – weekly data. | Please see the verbiage and resistance (red lines) and support (green lines) shown inside the chart.
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 4.29.2024. Chart source: Stockcharts.com unless otherwise noted.
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