Day Hagan Tech Talk: Near-Term Conditions Being Felt
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Summary
Negative A/D Line divergences, an overbought condition, and resistance can be remedied at any point. But until they are, it is prudent to manage risk and have exposure to an investment strategy that objectively manages risk, i.e., our Smart Sector strategies.
Gap Up and Gap Down: Volatility in Both Directions
Ned Davis recently stated the following, which I felt applies to the equity market's current short-term backdrop (my paraphrase): “We are risk managers who try to alert clients to potential risks should trends begin to weaken.” At Day Hagan, we will rely on our unemotional Catastrophic Stop Loss model and sector-specific allocation models as risk management components for our Smart Sector Strategies.
In addition to the conditions mentioned above, considering the heated-up geopolitical backdrop and Figure 1, I ask, “Have equities pulled the historically bullish 4th quarter election returns forward?” Or “Are we at risk of such an occurrence?” This again brings me back to the risk management components of our Smart Sector strategies. Please reach out for details.
Figure 1: NYSE Advance-Decline Line (A/D Line), S&P 500 A/D Line, and S&P 500. | A healthy market usually lifts all/most boats. Recently, like the boats in FL following the two recent hurricanes, many have sunk. Resistance is highlighted in red; support is in green.
Additionally, regarding the degree of further upside and/or downside volatility, I repeat, “Interest rates may also hold the key into year-end and 2025!”
Figure 2: Small Cap Proxy. | Needs to hold support and needs to hold it now! A decisive violation below support, in green, would be especially discouraging and bearish.
Note: While I prefer to follow the small-cap universe through the S&P 600 Small Cap Index (SML), I am showing the small-cap proxy above due to investor and trader interest.
Amongst most domestic equity market indices, I find Figure 3 most intriguing. Why? Because very few investors, if any, are discussing it.
Figure 3: Mid-Cap Index with 40-week MA and A/D Line (weekly data). | Very few on Wall Street are discussing this bullish chart configuration. Will they come around?
Shock Absorber
I've highlighted Gold numerous times, but never as an inflation hedge. Instead, I’ve viewed it as a geopolitical shock absorber, which still appears to be the case.
Figure 4: Gold Proxies. | “Gold optimism (has been) relieved within an uptrend,” per NDR.
Figure 5 is not necessarily a geopolitical shock absorber but please enlighten me if you think differently.
Figure 5: Aluminum Index. | An interesting Bearish-to-Bullish chart configuration.
Please let me know if you would like to schedule a call to discuss the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and/or Smart Sector Fixed Income strategies. Disclosures and Fact Sheets 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 11.18-20.2024. Chart source: Stockcharts.com unless otherwise noted.
Disclosure
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.