Day Hagan Tech Talk: Sugar High to Gut Check
A downloadable PDF copy of the Article: Day Hagan Tech Talk: Sugar High to Gut Check (pdf)
Summary
Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” While I am not saying that the S&P 500’s uptrend has run its course, following last Friday’s tape action (more below) I believe Wall Street’s sugar high (a state of hyperactivity caused by excessive consumption) towards a certain segment(s) of the equity market has produced a gut check—a test or assessment of courage, character, or determination.
Key Reversal
A key reversal day is defined as the following: in a strong uptrend, prices open to new highs (gap open), reverse sharply, and then close lower (below the previous day's closing price). The wider the price range on the key reversal day and the heavier the volume, the greater the odds that a reversal is taking place.
Considering our summary statement and last Friday’s key reversal, from up to down, is it too soon to apply this observation to a certain segment of the equity market? E.g., semis, NVDA and/or technology vs. SPX (please reach out for the key reversal charts of these), NYSE FANG+ Index vs. NYSE Composite [Figure 1). Interestingly, on a YTD basis through last Friday (3/8/24), NVDA, AMD, and a semiconductor proxy were up almost 77%, 41%, and 29% respectively (sugar high and now gut check time). The S&P 500 (SPX—Figure 3) was up less than 7.5% during the same period.
Figure 1: NYSE Fang Plus Index vs. NYSE Composite. | Following a pattern of lower peaks, a breakdown (move below previous low) & violation of a rising 50-day MA, please focus on next support—green lines.
Bottom Line: The key guidepost, for the ratio shown in Figure 1, and the key reversals of the examples mentioned above, is whether there is downside follow-through or not. Downside follow-through would lock in tops of an unknown time period, while an immediate reversal higher (new highs) would imply my concern over last week’s key reversal was overblown.
What Else Are We Following?
Given the Technology vs. SPX ratio chart highlighted a few times recently, I find Figure 2 interesting.
Figure 2: NASDAQ Cycle Composite for 2024. | While seasonal tendencies can be overshadowed by Fed speak, algo trading, and macroeconomic trends (employment, inflation, economic activity), and we consider this a second-tier indicator and not part of the Smart Sector strategy models, this chart is worth being aware of. It suggests seasonal headwinds. Tactically, I would review risk parameters relative to “anything Technology,” especially if it experienced a key reversal as described above.
Figure 3: S&P 500. | Support between 5060 to 5050 held—green lines. If this area is violated it would represent a change and imply a move down towards 4950/4920 (blue arrows), for starters.
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. Disclosures and Fact Sheet information 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 3.10-11.2024. Chart 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.