Day Hagan Tech Talk: Three-Peat
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Summary
Following the 2016 and 2020 Presidential elections, equities ripped higher into year-end and beyond. Including 2024, I’d call it a three-peat, at least into year-end. The odds favor the S&P 500 follows a year-end rally scenario with volatility in both directions.
Into Year-End
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Figure 1: Election Day to Year-End When Incumbent Democrats Lost Presidential Election. | Based on this table, the odds favor more upside into year-end, but expect volatility in both directions.
Relative to the 2000 statistics in Figure 1, Ned Davis Research (NDR) observes that the contested election, bursting of the dot-com bubble, and ensuing recession triggered a 7.8% drop.
Looking more closely at year-end volatility, NDR also notes that “year-end rallies have tended to be stronger in election years, with the second half of November and the second half of December the two strongest two-week stretches, based on median returns.” In other words, expect volatility in both directions.
On the other side of the coin, the biggest risks between now and year-end 2024/early 2025 are interest rates (mentioned last week) and inflation expectations.
Our Smart Sector strategies aim to stay on the right side of the prevailing trend, introducing risk management when conditions deteriorate. As has been the case for all of 2024, the Catastrophic Stop model is positive, and we are aligned with the message. Simply stated, we manage risk by responding to changes in our models, not someone’s opinion. If our models shift to bearish levels, we will raise cash.
Trend
On Wall Street, the term “trend” refers to the direction of prices. In the case of most domestic equity market indices, rising price troughs (lows) and rising price peaks (highs) constitute an uptrend. David Keller recently wrote, “An uptrend should be considered innocent (intact) until proven guilty (broken).” Refer to Figure 2.
Uptrends happen when various stocks and sectors make new annual or all-time highs. We have been and are seeing this now as the domestic equity market sorts out the full trading and investment ramifications of last week’s election. This will hopefully sync Advance-Decline Lines again with their respective cash indices. Right now, there is a small negative divergence (condition, not a signal).
For now, low volume consolidation (ideally with inline to strong breadth) would be bullish; immediate filling of the 11/6 topside gap, not so much.
Figure 2: S&P 500. | While I prefer the 11/6 topside gap not be filled, support levels are shown in green.
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/or 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 11.08-10.2024. Chart source: Stockcharts.com unless otherwise noted.Future Online Events
Disclosure
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