Day Hagan Tech Talk: The Bull Keeps Bullying, But…
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Summary
Equity market proxies grind higher as stocks rotate up and down. While I incorrectly expected a pullback or consolidation, some Advance-Decline Lines did not confirm new highs. The NYSE All Issues A/D Line has diverged for weeks, and the NYSE Common Stock Only for nearly a month.
Undesirable Breadth Condition
Domestic equity market indices continue to march higher, reflecting a bullish price trend. Additionally, the price trend of many equal-weight domestic equity proxies is also bullishly configured—reach out for a chart. Based on readings from many of our models and indicators, we have not moved against this uptrend. However, the A/D Line non-confirmations as shown in Figure 1 present a concerning condition.
Not every A/D Line non-confirmation has led to a significant decline. They can right themselves and realign with their respective benchmark index. That said, a substantial number of hard and fast or severe declines, like last spring’s sell-off, have been preceded by an A/D Line non-confirmation. Accordingly, the Day Hagan Smart Buffer Strategy may complement some of your investment strategies—reach out for details.
Figure 1: NYSE All Issues A/D Line and NYSE Common Stock Only A/D Line. | This can be remedied. But it needs to happen sooner rather than later. Otherwise, it could have some serious consequences.
Figure 2: S&P 500. | This channel has been in place for many months, Q3. A violation of the lower blue channel line (6600+/-) or a previous price low (support indicated in green—6570 to 6550) would be a “change of character” and something to note.
Note #1 (Bearish to Bullish chart configurations): Palladium (weekly) and Biotech versus Health Care (cap weight or equal weight). Please reach out for a chart.
Note #2 (sentiment): The relative strength trend of a “High Quality” ETF proxy versus an S&P 500 proxy is at previous multi-year lows, support levels consistent with those seen in 2021 and 2022. This implies that Wall Street has shifted from quality to speculative stocks, as more money has been/is being allocated to the lower end of the quality scale. This is opposed to trading and investment dollars selling out of the equity market. Rotation was dictated, at least in part, by performance anxiety and short covering. Chart available upon request.
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.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 10.06-07.25. 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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