Day Hagan Tech Talk: What, Me Worry?
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Summary
As with the negative Advance-Decline Line divergence from late 2021, A/D Line divergences can last a while before being felt. While most technology-related proxies (SPX, NDX, XLK/SMH, “FANG+,” etc.) are reflecting Mad Magazine’s Alfred E. Neuman slogan, “What, me worry?” A/D Lines are again negatively diverging from underlying equity market proxies.
Yes, Me Worry!
To further emphasize my summary, I will paraphrase John Murphy’s description of last week’s tape: 8 (of the 11 S&P sector proxies) ended the week in the red. In addition, the S&P Equal Weighted Index declined. This may not prevent further gains in the SPX, especially if technology stocks keep rising, but narrow participation could limit the size of further gains. I’ll also add that it could magnify the size of downside selling if this situation isn’t righted.
Figure 1: S&P 500, NYSE Composite, and Respective Advance-Decline Lines. | Unless favorably resolved (everything starts moving in sync, higher), these negative divergences will have bearish implications for large cap technology/growth proxies. More reason to have an investment strategy in place with a risk management component. Please identify stop-loss levels now.
Our models and indicators will update and rebalance on Thursday, 6/1/23. Model and additional indicator deterioration, or a worsening of the banking turmoil, would dictate a cut in equity exposure. Until then, the NDR Catastrophic Stop Loss Model has kept us on the right side of our benchmark, S&P 500. Please reach out for details about the strategy, and/or register for this week’s online event.
As of this writing, the DJIA has only closed higher five times during May—Figure 2, green bars. Amazingly, over the past month the DJIA is down -0.63%. Yet the SPX, NASDAQ, NDX, and NYSE FANG+ Index are up +3.68%, +9.46%, +11.65%, and +21.46% respectively. Considering the dearth of participation by the broad market, as highlighted above, let’s look at the Dow Jones Industrial Average (DJIA) and Dow Jones Transportation Average (TRAN)—Figure 2.
Figure 2: DJIA and TRAN. | I want to see the black and red resistance lines decisively broken and held! Also, I don’t want to see the green support lines violated, especially given the narrow backdrop.
Figure 3: S&P 500, 18-month daily. | A move above 4218 to 4228 (gap resistance—red circle) would take the SPX higher, towards the August 2022 high in the vicinity of 4300+/-. Note the importance of initial support, pointed out over the past few weeks, in the vicinity of 4100+/- and 4050 to 4045.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 5.29.2023. Chart and table source: Stockcharts.com unless otherwise noted.
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