Day Hagan Tech Talk: Resistance Prevails Again and Price Volatility Continues
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Summary
Internal measuring tools have moved to be supportive, yet resistance stands, and a negative Advance-Decline Line condition remains. Meanwhile, the Catastrophic Stop Loss model and U.S. High Yield Index OAS-Credit Spreads support the S&P 500’s uptrend.
Condition, Not a Sell Signal
The S&P 500 (SPX) recently closed at a new all-time high, yet it wasn’t joined by “most stocks,” defined in this case by the NYSE Advance-Decline Line. This condition, a negative non-confirmation, can be remedied. Until it is, prudence suggests incorporating an investment strategy with built-in shock absorbers for managing risk (i.e., Day Hagan Smart Sector strategies). I say this because while not every negative A/D Line divergence has produced a significant price decline, a negative A/D Line divergence has preceded many considerable price declines. This happened most recently in 2021-2022—Figure 1.
Figure 1: NYSE Advance-Decline Lines and S&P 500. | Sector rotation (broader participation) could be the answer to remedying this. Until then, it is a conditional warning.
Note: Besides Figure 1, a global A/D Line comprising over 20 developed markets recently closed at a new high. Thus, the U.S. isn’t the only market trending higher—global markets also offer opportunities. Reach out about how our Smart Sector International strategy may complement your efforts.
Resistance and Rotation
We have been harping on 6100+/- resistance for the SPX for quite some time. Monday’s tape action was brutal for technology and related; NASDAQ fell over 3%, and SPX fell nearly 1.5%. Yet it was an excellent internal session, more about rotation (sector) than wholesale liquidation. “Money” left Technology (profit-taking, reduction, scared selling, etc.), but it didn’t leave the equity market. On Monday, the S&P 500 ex-Technology closed at a new high, the DJIA gained 0.65%, 7 of 11 S&P sectors (63%) closed higher, and 9 of 11 S&P sectors (82%) outperformed the SPX. To paraphrase Ralph Acampora, sector rotation is the lifeblood of an uptrend.
Figure 2: Domestic Equity Market Proxies. | Resistance (red lines) and non-trading support (green lines). Please see last week’s report for short-term support or reach out for an updated chart.
Drill, Baby, Drill
During a recent speech, President Trump called on OPEC to lower oil prices. A barrel of WTI Crude is down from just under $80 on January 15 to $73.77 today, “erasing its gains from the Biden administration’s last-minute added sanctions on Russia,” per Yardeni research. While NDR remains bullish towards crude, the best I can say for now is that it is neutral (range bound), with a retest of the lower end of the multi-month/year trading range a real possibility—Figure 3.
Figure 3: Light Crude Oil – Continuous Contract—weekly data. | Red lines depict resistance (selling pressure) and the upper ends of the range. Green lines depict support (buying interest) and the lower ends of the range.
Our Smart Sector Strategies incorporate built-in risk management parameters relating to sector allocation and equity versus cash allocation. 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.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 01.27-28.2025. Chart source: Stockcharts.com unless otherwise noted.
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