Day Hagan Tech Talk: Occam’s Razor
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Summary
In the spirit of Occam’s razor, which suggests finding an explanation using “the smallest possible set of elements,” we’ll focus simply on the recent price action of the Large Cap Growth/“Magnificent 7” heavy NASDAQ and S&P 500.
Controlled Pullback
While the important macro data points this week are the CPI and PPI reports on Thursday and Friday, which may move the market as the bond market tries to determine the timing of the first rate cut, most everything related to technology has wobbled since late 2023. This would specifically include a Technology proxy (XLK fell 4.5% between late 12/23 and 1/5/24), NYSE FANG+ Index and many components (index declined 4.1% between late 12/23 and 1/5/24; AAPL and AMD each declined almost 6% last week), and NASDAQ (lost 3.6% between late 12/23 and 1/5/24). During the same period, a proxy for Value was down only 1% and the DJIA was flat—down 0.2%. A controlled, mean reversion type pullback. So far, so good.
Figure 1: NASDAQ – weekly data. | NASDAQ closed at 14,533 the day before the December 2023 Fed meeting. Last Friday’s intraday low was 14,477, giving back all of the rally since the Fed meeting. The support area in and around 14,500 (blue arrows) should have, and has, provided the means for a bounce. A break under last Friday’s low of 14,477 (upper green horizontal line) would open a move towards the next area of support in and around 14,000 (lower green horizontal line—December low).
Figure 2: S&P 500. |A correction can come in price (February-March 2023, August-October 2023) or in time (April-May 2023). We hope it is the latter, but a violation of 4700 to 4682 will open a stair-step move down towards the December low of 4600+/-.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 01.07-08.2024. Chart source: Stockcharts.com unless otherwise noted.
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