Day Hagan Tech Talk: Inflection Point?!
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Summary
Interest rates, energy prices, and the U.S. Dollar moved lower last week following softer macro data, dovish remarks from Chairman Powell, and a less hawkish Bank of Japan policy tweak. When combined with outsized CTA short positioning, a squeeze occurred. This produced an impressive topside move by all domestic equity market proxies. This now begs the question, “What’s next?”
Now What?
In terms of defining potential inflection points and applying them to the current condition of the domestic equity market, this is where many price-related equity market measuring tools stand: Within the context of a continuing near-term downtrend (lower price peaks & lower price troughs), and the risk-off signal from the DH/NDR Catastrophic Stop Loss Model (detailed in last week’s Trade Notification), many measuring tools have rallied close to, or into, zones denoting significant overhanging selling pressure and resistance. (See Figures 1 and 2.)
Bottom Line: To discern the next emerging trend, watch the quality of rallies and the subsequent pause/pullback periods, in terms of both sentiment and participation. Good participation without excessive optimism would signal that the uptrend that started in October ‘22 is resuming. Low participation and too much optimism would confirm a likely resumption of the downtrend.
Figure 1: NYSE Advance – Decline Line (all issues) and S&P 500. | Resistance levels are highlighted by red lines, and support levels by green.
Figure 2: DJIA, NASDAQ, and Small Cap proxy. | Resistance highlighted by red lines, support by green.
Figure 3: 10-Year U.S. Treasury Yield proxy. |The 45.5 to 45 area (4.55% to 4.50%) looks to be important support. Meanwhile 48 (4.80%) ought to be a formidable wall, at least on the first attempt to get above.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 11.06.2023. Chart source: Stockcharts.com unless otherwise noted.
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