Day Hagan Tech Talk: Purgatory
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Summary
KISS (Keep It Simple, Sam): A push below 4098 would increase the odds of a retest of 4050 to 4045 support, which, if broken, would signal a bearish trend reversal. Alternatively, a push above resistance between 4190 and 4218 would suggest a continuation of the move higher since mid-March. While poor market breadth favors the first scenario, I currently prefer to be reactionary, not anticipatory. While I have been wrong to expect equity market volatility, let’s see what occurs next. Until then, purgatory.
Suffering
Wall Street has suffered its own version of purgatory as most domestic equity market proxies (and interest rates) remain confined to short-term and longer-term trading ranges—It Don’t Come Easy. Another source of pain and suffering, which has been pointed out ad nauseum, is that fewer stocks [and sectors (defensive)] have taken the large cap weighted equity market indices higher. But, as Helene Meisler stated, “Who doesn't know breadth has been terrible? You have to have been living under a rock not to know.” Very true! Figure 1.
Figure 1: NASDAQ 100, NASDAQ 100 A/D Line, Equal Weight vs. Cap Weight (NDX & SPX). | While it started at the beginning of 2023, the move into the “perceived” safety of a small number of stocks accelerated (lower frames) in and around the start of the Regional Banking crisis (vertical blue line).
Please Note: On Wall Street, for every buyer, there is a seller. Someone is always willing to take the other side of a trade/discussion. In this case, relative to the “Narrow” (and bearish) narrative, Sentimentrader recently stated, “narrowing market leadership doesn't always spell doom and gloom for the world's most benchmarked index. Sometimes, investors crowd into the relative safety of meg-cap names or rotate amongst sectors in times of uncertainty” (my emphasis).
Figure 2: S&P 500, 1-year daily. | A trading range, within a trading range, within a trading range—purgatory. A decisive move above 4190 to 4218 may lead to a big “squeeze” and take the SPX higher
Figure 3: Small Cap Proxy with additional Small Cap measuring tools. | Despite abysmal performance of “Smalls,” $170+/- hasn't broken. Short-term, the stage is set for some upside probing, now!
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 5.15.2023. Chart and table source: Stockcharts.com unless otherwise noted.
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