Day Hagan Tech Talk: Sheesh
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Summary
After such a big rebound, don’t be surprised if the price pattern—a period of digestion, short-lived rallies, and short-lived declines (versus sustained buying and selling)—continues, followed by another, potentially strong, rally.
More Noise
“Sheesh” reflects the surprise or annoyance many feel about the stock market, as captured in a recent Wall Street Journal (WSJ) article: “Why This Stock Market Makes So Many of Us Want to Scream,” While we are more concerned with our unemotional models and indicators (currently supportive of equities) and focus less on the ongoing narrative, my response to the WSJ’s “why” includes a sampling of recent news headlines:
Traders deal with trade policy confusion.
Fed Chair Powell met with President Trump.
A lower court struck down most of the President tariffs.
Presidents’ tariffs reinstated by a federal appeals court, for now.
The Supreme Court might determine the fate of Trump's tariffs.
China has violated agreement with US. on tariffs…
President Trump is expected to double his levies on foreign steel and aluminum… even as U.S. courts question his tariffs’ legitimacy.
When Trump imposes tariffs, the likely effects aren’t always clear.
Is the economy slowing or speeding up? Yes, it is doing both according to a batch of economic indicators.
Ukraine destroyed a third of Russia's strategic bomber fleet with drones.
CTAs are now sellers in every scenario globally and in the U.S. over the next week.
As Helene Meisler wisely points out, “There is a reason I don’t put much stock in market narratives because… the narrative changes all the time. The things we worry about today are things we don’t care about tomorrow. Or sometimes we just ignore them until we can't ignore them anymore.” Consequently, the Day Hagan Smart Sector and Day Hagan Smart Buffer strategies, each with built-in management parameters, may be prudent complements, especially during these times. Please reach out for details.
Under the Hood
I prefer to focus on our models and certain equity market internal measuring tools. For instance, the Advance-Decline Line (A/D Line) is a value-added guidepost. The NYSE A/D Line gave us three distinct warnings (negative non-confirmations—a condition, not a signal) before the February-to-April decline. When it starts to lag or falter, setting up a potential negative non-confirmation, I take notice. For example, following the April low, the A/D Line moved in sync and/or led the way higher. After recently recording a new high (bullish), the A/D Line has started to lag/lose its relative outperformance—Figure 1.
Figure 1: NYSE all-issues A/D Line, S&P 500 A/D Line, and S&P 500. | If the S&P 500 stays over its mid-May high and the A/D Line cannot follow suit (we’ll give it a few days to confirm), we’ll have to put this on the negative side of the ledger, short-term. Please note the thumbnail charts to the right.
Digestion (short-lived declines and short-lived rallies) is positive, following a strong advance—Figure 2.
Figure 2: S&P 500 with rising 50-day MA (dashed lime line) & rising 200-day MA (solid lime line). | Red bars depict when SPX closes lower. Green bars depict when SPX closes higher.
Figure 3: S&P 600 with 50-day MA (blue dashed line) & 200-day MA (red dashed line). | A legitimate (bullish) pattern of accumulation is developing—an inverse Head and Shoulders bottom. Wait, and don’t anticipate a breakout. Please see the levels of resistance listed in the paragraph above.
The Day Hagan 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 Smart Sector Fixed Income strategies. Disclosures and Fact Sheets can be found here: https://dhfunds.com/literature.
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 06.02-03.25. Chart source: Stockcharts.com unless otherwise noted.
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.
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