Day Hagan Tech Talk: Special Chart Update
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Summary
After the S&P 500 (SPX) broke the twin support lows of 5500 to 5488 (discussed last week), a cascade of selling quickly followed. The associated selling pressure exceeded early March levels. Thus, the Low-Rally Retest bottoming sequence coupled with breadth thrusts begins anew.
Conditions Move, Charts Reflect
Charts don’t move markets; conditions move markets.
Charts reflect (and often anticipate) the effects of changing conditions.
Following three negative Advance-Decline Line non-confirmations (the first one was early December 2024), we discussed a “cascade of selling” if the twin support lows of 5500 to 5488 were violated by the S&P 500 (SPX) in last week’s report. On Monday (4.7.25), SPX recorded an intraday low of 4835. Consequently, we wanted to highlight a few charts.
The necessity for this update was exacerbated by Monday’s rumor-driven intraday swings. Specifically, at the open, the DJIA fell over 1700 points. Following rumors surrounding tariffs, the “Senior Index” was suddenly up almost 900 points. Once the rumors were denied, the DJIA was in the negative column again. From there, it traded on both sides of the “unchanged line.” At the bell, the DJIA had declined 349 points. Volatility, in both directions, at its best. I expect this type of volatility to continue.
Let’s start out with the following statistics, supplied by 3 Fourteen Research:
“The average non-recessionary correction suffers a max drawdown of ~15 to ~17%.”
6144 closing high minus 15% to 17% = 5222 to 5100. (Exceeded).
“The average recessionary correction/Bear market suffers a max drawdown of ~25 to ~27%.”
6144 closing high minus 25% to 27% = 4608 to 4500. (the 4.7.25 low was 4835).
The weekly SPX chart (Figure 1) was highlighted during our recent Chart Jamboree and recent report. Please note how long-term support (green lines) and the rising 200-week MA line up with the low recorded yesterday. Also, please note how close the SPX’s intraday low was on 4.7.25 (4835) to the 50% retracement level (approximately 4800) of the SPX’s rally from the 2022 low to the 2025 high.
While markets can always go to extremes, overshooting on both the upside and downside, in essence, the SPX has come close to discounting an “average recession.” We are not saying that a bottom has been established (more details below). We are saying that the current decline is “long in tooth” and that some type of reflex, countertrend, rally (potentially sharp and fast) is at hand.
In a sustained downtrend, resistance is more important than support because it gives you a level(s) from which to act (derisk) based on your tolerance for risk. Also, how markets react to resistance reflects the amount of overhanging selling pressure. SPX resistance (not visible on weekly chart): 5292 to 5390 (gap), 5500 to 5571 (gap), 5700 and 5800 +/-.
Figure 1: S&P 500 (weekly). | If there isn’t a recession (our models don’t yet suggest one), the current decline has extended beyond what would be expected. The Low-Rally Retest bottoming sequence coupled with breadth thrusts begins anew – more below.
Sentiment is reaching washed-out levels, suggesting a countertrend rally. Last Friday (4.4.25), Inverse ETF volume hit 50% of the speculative total ETF volume.
Figure 2: S&P 500 – Speculative Short ETF Volume. | Readings of 60% have a perfect one-year forward track record.
Bullish % Readings (a way of gaging a washed-out condition based on buy and sell signals using Point & Figure charts): The NYSE, S&P 500, OEX, DJIA, and NASDAQ reached levels comparable to the price lows from 2022. NDX, D.J. Transports, and XLK were close to 2020 and 2008 levels.
Going Forward
When the market is in a sustained downtrend, and because it is virtually impossible to discern the absolute low, our experience tells us that, instead, it is more prudent to look for some type of multi-step bottoming process. This process consists of an oversold condition followed by a rally period (more than a few days to signify broader demand versus simple short covering). Then a successful price retest of the initial low. The price retest can occur above or below the initial price low. The key, however, is that the selling pressure during the retest is less than what was recorded at the initial low. The final step, in order to confirm the bottoming process, is a huge increase in sustainable buying demand, which in our case consists of breadth thrusts – ideally, a cluster of breadth thrusts. We outlined this scenario last week, and once SPX violated its twin support lows, the ensuing cascade of selling was extremely pressure laden (and there wasn’t a cluster of breadth thrusts).
This means the bottoming process needs to start over again. After the next rebound, look for less pressure-laden selling for signs the market is working through a bottoming process.
As a responsible analyst, I need to recognize the potential downside this implies.
Figure 3: S&P 500 with Monthly Momentum (MACD). | “The average recessionary correction/Bear market suffers a max drawdown of ~25 to ~27%.” The SPX’s closing high was 6144. 6144 minus 25% to 27% equates to 4608 to 4500.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 4.7.25. Chart source: Stockcharts.com unless otherwise noted.
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