Day Hagan Tech Talk: It Don’t Come Easy
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Summary
Having absorbed and contained some issues last week (Fed meeting, AAPL earnings, and April jobs report), on tap this week is the CPI (Wednesday) and PPI (Thursday). Day Hagan’s view is that inflation has peaked. That said, most domestic equity market indices remain confined to trading ranges (within trading ranges) that will eventually be broken. On a here-and-now basis, I continue to believe the S&P 500 (SPX) will experience more volatility.
Home on the Range
Got to pay your dues if you wanna sing the blues
And you know it don't come easy
You don't have to shout or leap about
You can even play them easy
Forget about the past and all your sorrows
The future won't last, it will soon be your tomorrow
I don't ask for much, I only want trust
And you know it don't come easy
~Ringo Starr, 1971
In 1971, Ringo Starr released the hit song It Don’t Come Easy. Wall Street has been learning this lesson as it pays its dues while singing the blues over multiple issues. Consequently, domestic equity market proxies are being confined to multi-day, week, month, and quarter trading ranges—Figures 1 and 2.
Our belief that the S&P 500 will experience more volatility in both directions is reinforced by the fact that the SPX Advance-Decline Line recently tagged a previous peak (resistance) and was unable to break above it, as well as by waning internal component participation within the index, Figure 3.
Concerning “not coming easy,” Ned Davis’s Chief Global Macro Strategist Joe Kalish used the phrase “hope and pray policy” to describe the box the U.S. Fed is currently in. “The Fed will implement a ‘hope and pray’ policy—it hopes falling inflation and tighter credit will allow policy to be sufficiently restrictive and prays that nothing else breaks.” I found it humorous but also extremely applicable.
Please prepare for a continuation of equity market and fixed income volatility in both directions.
Figure 1: S&P 500 and NASDAQ – weekly. |See verbiage, resistance (red lines), & support (green lines).
Figure 2: DJIA & Small Cap proxy - weekly. |See verbiage, resistance (red lines), & support (green lines).
Figure 3: S&P 500: Advance-Decline Line, % Stock above 50-day MA & 200-day MA. | While the A/D Line (top frame) is closer to its February peak than the cash index (normally bullish), it failed to get above resistance. Also, while the indicators in the middle and lower frame are poor timing tools, unless/until they start moving in sync with SPX, they make me uncomfortable.
Grind it Out/Down and Difficult/Wear ’em Out
I thank John Rogue for the header above, which he applied to equities (and I agree). I also think the phrase can be applied to the secular (long-term) interest rate cycle.
Figure 4: 10-Year U.S. Treasury Yield with 12-month MA – monthly log chart. | While there is room for interest rates to pull back short- to intermediate-term, from a macro perspective, “the worm has turned.”
Figure 5: 30-Year U.S. Treasury Yield with 12-month MA – monthly log chart. | While there is room for interest rates to pull back short- to intermediate-term, from a macro perspective, “the worm has turned.”
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 5.08.2023. Chart and table source: Stockcharts.com unless otherwise noted.
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