Day Hagan Tech Talk: Trump Bump Came and Went
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Summary
The oft-discussed price volatility, in both directions, came to the forefront as 2024 ended and 2025 began. With the ongoing global and domestic political backdrop, “tariffs, taxes, inflation,” negative non-confirmations, and interest rates, the odds favor it continues.
Bullish Sentiment Backs Off
The stealth correction that began late last year has become evident to most Wall Street participants—Figures 1 and 2. Another contributing factor to the equity market price volatility is something our Smart Sector Strategy portfolio managers (PMs) have been in front of for a while: the expanding use of short-dated options (0 days to expiration option contracts). Please reach out if you would like to discuss this in more detail with a PM. That said, it is encouraging to see that many overly bullish sentiment indicators have backed off. This means that many Bulls have either left the party or at least stepped back for the time being. More of this is needed, as I prefer that the extreme bullish sentiment not return so quickly. This may require that the “Mag 7” proxies roll over. Of course, as the Mag 7 roll over and break down, the odds of weakness/breakdowns will increase in the Large Cap Growth heavy domestic equity proxies—SPX, NDX, and NASDAQ. Therefore, MAGS should be used as a guidepost—Figure 3.
Relative to the Mag 7 proxies, let me add, per Ned Davis Research (NDR), that “the dominance of mega-caps is not a problem in and of itself if most stocks are participating. That had been the case for much of the Bull market that started in October 2022).” But not so much recently. Hence the negative breadth divergences previously highlighted. According to NDR:
At year end 2024 less than 30% of S&P 500 components outperformed S&P 500. Yet, the index itself gained over 23% in 2024. At year-end 2024, the percentage of S&P 500 stocks outperforming the S&P 500 over the previous three months was 34%.
All this to say that while the Catastrophic Stop Loss Model continues to favor equities (“the current uptrend is intact”), the recent negative divergences need to be followed closely and remedied early this year. Otherwise, 2025 could be more difficult than many “Bulled up” Wall Street strategists expect and more volatile than I expect. Until we get an answer, it may be prudent to incorporate a strategy that has some built-in risk management parameters (shock absorbers), relative to both sector and equity versus cash portfolio allocation decisions.
Concerning Figure 1, a move above resistance would help strengthen the underlying support for domestic Large Cap Growth-heavy cash indices (see Figure 4). Alternatively, a move below support (green lines) would lock in further overhanging selling pressure (resistance) and increase the odds of further downside probing.
Figure 1: Large Cap Advance-Decline Lines. | Monitor closely as another breakdown would increase the odds of further downside volatility.
Figure 2: NYSE New Highs minus New Lows—Cumulative. | In past instances when this has rolled over, the SPX reacted with “choppy or weak” movements.
As noted above, MAGS should be used as a guidepost; when the Mag 7 proxies roll over and break down, additional weakness/breakdowns in the Large Cap Growth-heavy domestic equity proxies SPX, NDX, and NASDAQ are increasingly likely.
Figure 3: Roundhill Big Tech ETF (MAGS) with rising 50-day MA. | “Mag 7” proxy.
6100 Resistance was Formidable
The weekly chart of the S&P 500 (5909.03) is close to being oversold—the level of which is near 5848—indicating the weekly momentum (MACD) has rolled over but not broken down. Please reach out for the weekly chart.
If equities are unable to rally within the context of oversold conditions, it implies more overhanging selling pressure than what the majority of Wall Street thinks.
Selling pressure (resistance) starts between 6030 and 6050 and scales higher towards 6100.
Near-term support is 5870ish followed by a range between 5830 and 5783 (green circle).
Figure 4: S&P 500. | Support is in green and resistance is in red.
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.
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 01.07.2025. Chart source: Stockcharts.com unless otherwise noted.
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