Day Hagan Tech Talk: Peace on Earth, Good Will to All and/or Trick or Treat
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Summary
What you see is largely a function of where you sit. And when it comes to 2023, you are either espousing “peace on earth, good will to all” or you are thinking about how 2023 has offered up many “tricks” with only a few, very select “treats.”
What Kind of Market Has 2023 Really Been?
I chuckle at, but can’t disagree with, Art Cashin’s description of the recent tape action as “The Wall Street bulls and bears had their own version of the shootout at the O.K. Corral, and, by the nasty results of things, it looked like the bears had one or two extra men up in the hayloft.”
Considering the headlines out of the Middle East, energy prices (oil, natural gas, gasoline), the ECB, U.S. GDP, U.S. inflation reports, interest rates, earnings, the Fed’s policy announcement tomorrow, and Friday’s employment report, can you blame Wall Street participants for trying to hide their bullish or bearish identity or, as Helene Meisler is fond of saying, “Nothing like price to change sentiment!”
Given extreme bearish positioning, JPM stated, “This suggests that elevated probability of a squeeze that drives Equities higher especially if we see risk reduction in any combination of earnings (AAPL this week), geopolitical, or macro (Fed narrative and quarterly refunding Wednesday, Employment report Friday.)” Emphasis mine.
I will add “weakness by the U.S. Dollar Index.” A violation of 105ish by the U.S. Dollar Index (106.14) may set the stage for a squeeze/rally by domestic equities. Please reach out if you would like a chart of the U.S. Dollar Index.
Figure 2: S&P 500 (SPX) with falling 50-day MA (resistance, dashed red line). | Within the context of a downtrend, at the intraday low last Friday the SPX was 2.5 standard deviations below its 50-day MA, statistically oversold. At the same time, it held support at 4100. We need to see indications of strong upside demand—a series of new breadth thrusts or an expanding number of new 52-week highs on a stock basis. Otherwise, the directional trend is likely to continue, or, at least, support will be retested.
Figure 3: Small Cap proxy with stochastics (weekly data). | Despite a deeply oversold reading, more oversold than the COVID low in 2020, the bounce yesterday both on an actual and relative basis was anemic—concerning. If Small Caps are going to bounce, it needs to happen soon!
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.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 10.29-30.2023. Chart source: Stockcharts.com unless otherwise noted.
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