Day Hagan Tech Talk: Rotation: Lifeblood of a Continuing Uptrend
A downloadable PDF copy of the Article: Day Hagan Tech Talk: Rotation: Lifeblood of a Continuing Uptrend (pdf)
Summary
Since the beginning of June, people are playing “catch up” in the domestic equity market by buying relative strength laggards (economically sensitive, non-growth, regional banks, small/mid-caps, energy) and taking profits and/or reducing buying the former relative strength leaders (large and mega-cap growth). This is a positive step, but more is needed because a return to a narrow environment (limited upside participation; A/D Lines are still lagging), coupled with short-term sentiment currently leaning too bullish, is not a healthy internal backdrop!
June Agony
Ralph Acampora once noted, “rotation is the lifeblood of any bull market.” The current action of the S&P 500 replaces “bull market” with “continuing uptrend.” At the close last Friday, the weekly gains were Russell 2000 +1.92%, S&P 500 +0.40%, DJIA +0.36%, and the NASDAQ +0.15%. One small cap proxy is up well over 7% month to date (Figure 1).
Further illustrating the type of rotation described in the summary, at the sector level, four sectors are up over 5% month to date: Consumer Discretionary (red), Industrial (blue), Materials (green), and Energy (pink). The two best-performing sectors year-to-date—Technology (black) and Communication Services (purple)—have lost some of their mojo this month (Figure 2).
Figure 1: Select Domestic Equity Market Performance 5.31.23-6.12.23. | While underperforming on a year-to-date basis, the former laggards, small cap (red) and mid-cap (blue), are outperforming large cap growth (green, pink, & aqua) month-to-date, even though the performance differential narrowed dramatically yesterday.
Figure 2: S&P Macro Sector Performance 5.31.23 to 6.12.23. | Sector rotation, the lifeblood of a continuing uptrend, must continue to develop a healthier internal equity market backdrop.
Two final points of emphasis:
While narrow market breadth has cast doubt on the strength of the overall market, high stock market concentration is not a bearish development in and of itself. If the largest stocks can hold up on an absolute basis while breadth broadens out, the market can move higher as leadership rotates. Generally speaking, this has occurred in the last few weeks and must continue for the current uptrend(s) to continue into the second half of 2023.
AAPL, AMZN, NVDA, MSFT, GOOGL, META, TSLA, NFLX, and AVGO—what I call the “Big 9”—have a clear and huge influence on the large cap-heavy indices: NYSE FANG+ Index, NDX 100, NASDAQ, and SPX. I suggest following the NYSE FANG+ Index (7586.18). In terms of initial support, the most immediate reaction price low is 7234.93 (closing basis) and 7212.68 (intraday basis). The next price peak (resistance), from early 2022, is 7604.
Please reach out to view a chart of the NYSE FANG+ Index’s topping pattern from late 2021/early 2022, which ultimately produced a 50% decline that ended in late 2022.
If you own any of these institutional favorites, consider tightening stops now (use the 50-day MA and/or most or second-most immediate reaction low price) and/or taking partial profits while not giving up your entire position, then raising the stop on the balance of the position.
KISS—Keep it Simple, Sam
Figure 3: S&P 500. | Please refer to target/resistance levels (red lines) shown inside the chart, plus the support levels. At some point, I wouldn’t be surprised to see gap support tested.
Note: Why should we expect periods of volatility this week?
6/13: CPI, earlier today – net positive for the market
6/14: Fed interest rate announcement and PPI
6/15: Retail sales, initial jobless claims
6/16: Triple/quadruple option expiration and SPX/NASDAQ rebalance
6/19: Long weekend; NYSE closed.
The Day Hagan/Ned Davis Research Smart Sector strategies utilize measures of price, valuation, economic trends, monetary liquidity, and market sentiment to make objective, unemotional, rational decisions about how much capital to place at risk, as well as where to place that capital. Please reach out for specifics.
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®
Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 6.11 and .12.2023. Chart and table source: Stockcharts.com unless otherwise noted.
Future Online Events
Disclosure: The data and analysis contained herein are provided “as is” and without warranty of any kind, either express or implied. Day Hagan Asset Management (DHAM), any of its affiliates or employees, or any third-party data provider, shall not have any liability for any loss sustained by anyone who has relied on the information contained in any Day Hagan Asset Management literature or marketing materials. All opinions expressed herein are subject to change without notice, and you should always obtain current information and perform due diligence before investing. DHAM accounts that DHAM or its affiliated companies manage, or their respective shareholders, directors, officers and/or employees, may have long or short positions in the securities discussed herein and may purchase or sell such securities without notice. The securities mentioned in this document may not be eligible for sale in some states or countries, nor be suitable for all types of investors; their value and income they produce may fluctuate and/or be adversely affected by exchange rates, interest rates or other factors.
Investment advisory services offered through Donald L. Hagan, LLC, a SEC registered investment advisory firm. Accounts held at Raymond James and Associates, Inc. (member NYSE, SIPC) and Charles Schwab & Co., Inc. (member FINRA, SIPC). Day Hagan Asset Management is a dba of Donald L. Hagan, LLC.