Day Hagan Tech Talk: Large Cap Uptrend and Points to Watch
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Summary
The “Index Movers” continue to play a major role in driving the Large Cap Growth/Technology-oriented domestic equity market indices higher, pretty much at the expense of everything else. Consequently, what price levels can help us discern when a turn lower by the Index Movers leads to a reversal by Large Cap Growth indices (S&P 500, NDX, and NASDAQ) and another time or price correction—relative or absolute basis? Figures 1 and 2.
A Tale of Two Cities
It’s been “A Tale of Two Cities” with the domestic equity market this year, namely Large Cap Growth/Technology/AI—SPX, NDX, NASDAQ—and everyone else (Figure 3).
According to Ned Davis Research:
As of the close 7/5/24, the percentage of S&P 500 stocks outperforming the S&P 500 over the past three months is 20.68%. The long-term median is 49.5%. “On a calendar year basis, 2024 is on pace for a record low.”
As of the close 7/5/24, the percentage of S&P 500 stocks outperforming the S&P 500 over the calendar year is 20.96%.
Wall Street veteran Doug Kass also noted:
Led by NVDA… the “Magnificent 7” have accounted for approximately 62% of the S&P 500’s total return this year.
The other 493 companies lost 1.2% in market value.
Six of the 11 S&P sectors fell in the second quarter, including financials, energy, and industrials. The market is imbalanced because the earnings are heavily weighted toward a limited number of names, most of which happen to be enormously profitable mega-cap technology companies, or what I have referred to as the “Index Movers.”
As expressed in previous Chart Jamborees, when it comes to assessing the health of the broad market, it is okay for Mega-Caps/Index Movers to lead if they are taking other stocks with them. Consequently, are the other stocks being carried along by the Index Movers?
Bottom Line: With a full week of trading and several different macro inputs throughout the week (Fed speakers, inflation reports, earnings season, and domestic/overseas politics), the figures shown above need to expand (broader upside participation) this week!
At What Point?
As 2024 has progressed, different domestic internal equity market measuring tools and equity market indices/proxies have attempted several times to broaden out but their efforts failed to take hold. Maybe interest rate cuts, or the anticipation of such, will help small caps (companies that generally carry higher debt levels) and the broad market as a whole. Please keep watch, as we will.
The charts are a starting point for identifying when the Index Movers take a back seat to, or at least a seat directly across from, the non-Index movers. This is why I’ve included short-term rising moving averages (blue lines) and highlighted short-term support (green lines). In reference to Figures 1 and 2, just as important as the support levels is the distance between the current price and the support levels.
Figure 1: NYSE Fang Plus Index and Roundhill Magnificent Seven (Index Mover proxies). | Use the small thumbnail charts to the right to identify initial support levels.
Figure 2: Select Magnificent 7 components – closing price charts. | Only highlighted select components because their downside support levels were more easily identifiable—green lines.
Note: If you can, use the support levels shown above and below to set the limit minders on your quote system. Please reach out for charts of other Index Movers, including NFLX, TSLA, GOOGL, and AVGO.
Note #2: In the meantime, the S&P 500 (5582.75) has initial short-term support in the following areas: 5494 (rising 13-day MA), 5458 (rising 21-day MA), 5446+/- (prior lows), and 5409 to 5375 (gap support).
Figure 3: Year to Date Performance – S&P 500 (green bar) and S&P Macro Sectors (as of 7.5.24). | Please refer to the abovementioned “Bottom Line.”
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 7.5-8.2024. Chart source: Stockcharts.com unless otherwise noted.
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