Day Hagan Tech Talk: Trump Being Trump: Trade Wars 2.0
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Summary
Between early December 2024 and early 2025, we highlighted a negative Advance-Decline Line non-confirmation and expected price volatility to continue. We still feel the same. Equity market price volatility will continue deeper into Q1, at a minimum.
January Jump to a February Frump?
While the S&P 500 (SPX/6037.88) closed higher for January, its multi-month chart configuration remains “frumpy:” dull, drab, and boring—Figure 1. Against this backdrop, after President Trump followed through on his promise to implement tariffs, domestic equity market proxies sold off sharply at the open Monday. Wall Street was digesting the news surrounding trade tariffs imposed on Canada, Mexico, and China, but when Mexico conceded, SPX bounced from a level above gap support between 5905 and 5843—blue circle, Figure 1. Following a concession from Canada Monday evening, Wall Street spent early Tuesday digesting China’s retaliation as well as a string of earnings reports. With Price being the final arbiter, the outcome was supportive. Now, Friday's employment report may affect future Fed decisions and, when coupled with more earnings reports from some “Index Movers,” short-term directional moves by equity market proxies.
Figure 1: S&P 500. |Within higher troughs and higher peaks (an uptrend), the multi-month short-term lateral “chop fest” continues. Support levels in green and blue.
A Good Reminder
While the equity market’s volatility since 4Q24 has likely worn out many people, Figure 2 reminds us that equity market pullbacks/corrections are a natural, annual occurrence, especially when dealing with an asset class that is constantly bombarded by positive and negative crosscurrents. Additionally, for SPX, from a seasonal perspective (we view seasonals as secondary inputs), the month of February is choppy (strong early, weak late) and is one of the weaker months over the past 20 years, with September being the weakest. Please reach out if you are interested in the chart.
Figure 2: Average Annual Returns and Intra-year Declines. | Stock market selloffs should be expected, especially following the strong gains exhibited by SPX in 2023 and 2024.
Consistent with Figure 2, 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/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 02.03-04.2025. Chart source: Stockcharts.com unless otherwise noted.
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