Day Hagan Tech Talk: Random But Pertinent Thanksgiving Week Observations
Summary
Apart from last Tuesday’s “Everything Rally,” during which advancing volume and advancing issues traded on the NYSE were 90% of total volume and total issues traded on the NYSE (bullish), the ensuing tape action displayed by the S&P 500 (SPX) resembled a sideways drift after encountering resistance and sentiment reached “excessive optimism” levels. While the tape action is likely (hopefully) to slow this holiday week, the quality of any pullback/consolidation period going forward, in terms of depth, breadth, and sentiment, will be an important guidepost.
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J.P. Morgan succinctly summed up last week (minor paraphrasing):
Upside leadership… from small caps & lower quality stocks…. The increase in risk sentiment has been a function of the meaningful easing of financial conditions on the back of increased traction behind the intertwined disinflation, soft landing, & peak Fed narrative themes. The move [was] exacerbated by positioning dynamics… stock buyback ramp & supportive seasonality…. Margin expansion has been a bright spot.
The way from Large Cap Growth/Technology and their respective equity market proxies, has mostly been difficult, even after the upside surge on 11/14/23. Please refer to slide 5 from last week’s Chart Jamboree.
Chart Jamboree Follow-up: Charts & Statistics
Figure 1: S&P 500 – includes early 2022 high. | SPX has moved close to previous price peaks (resistance). The quality of any pullback/consolidation period going forward, in terms of depth, breadth, and sentiment, will be an important guidepost. Right now, with favorable seasonals and the 90% session discussed in the summary, the Bulls have the ball.
Figure 2: S&P 500 Cycle Composite for 2023. Through 11/16/23. | While trend is more important than level, this has been very accurate in 2023, as it was in 2022. Based on this chart, we currently appear to be at the point of some downside/choppiness/consolidation before a topside run into yearend.
Figure 3: S&P 500 Index vs. Elite Eight (Cap-Weighted). As of 11/16/23. | This chart supports my belief that 2023 has been a difficult year away from Large Cap Growth/Technology. NDR’s Elite Eight index has soared 71.06% year-to-date. Excluding the Elite Eight, the S&P 500 is up 3.75%. As NDR noted, “Diversifying via asset classes and within equities has been a challenging strategy in 2023.”
Figure 4: Brazil proxy with momentum and relative strength—weekly data. | I also discussed this during last week’s Chart Jamboree. Please let us know if you would like to discuss the Smart Sector International ex. U.S. strategy.
In support of last week’s Chart Jamboree slide 13, Figure 5 includes excellent insights by Raymond James & Associates Institutional Equity Strategist Tavis McCourt.
Figure 5: S&P 1500 Top and Bottom 10% Based on Performance from 1/1-8/31. | “As shown below, YTD Losers tend to outperform starting 11/1 (~2/3rds of the time) by an average of 4% or so after underperforming in the peak tax loss selling season (9/1-10/7). This is top 10% YTD winners vs. Top 10% losers, but the data works for nearly every cohort of winners and losers one looks at. This year in November, we have seen the ‘winners’ getting ‘winner-ier.’ No reversion to the mean trade yet… We believe it’s coming….”
Weekend Observation: A Small Cap proxy (IWM/178.29) has moved up into and slightly backed off from resistance, defined by a falling 200-day MA currently at 180.02. A decisive close above this area would have bullish implications, especially if the moving average started to flatten out. This would also aid in the overall market’s broader upside participation. As discussed many times in these reports, Small Caps play a big part in many internal equity market measuring tools and have played a big part in weak breadth readings. Also, from a corporate perspective, falling/stable interest rates help Small Cap companies and can relieve some of the financial pressures they encounter.
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.
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 11.19.2023. Chart source: Stockcharts.com unless otherwise noted.
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