Day Hagan Tech Talk: Yet
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Summary
“Yet” can be defined as “something has not happened up to the present time, although it may.”
Narrowing
Domestic equity market indices most affected by large-cap growth index-moving stocks (S&P 500, NASDAQ, NASDAQ 100) continue to hold their own, as does the favorably positioned Catastrophic Stop Loss Model. Yet broader-based internal measuring tools have not traded well and have recently negatively diverged from the “growth index-oriented indices” (Figure 1). While negative divergences can be remedied at any point, until they are, it is prudent to manage risk consistent with your objectives and/or have exposure to an investment strategy that incorporates an objective risk management philosophy, such as the Smart Sector strategies.
Figure 1: S&P 500 and More Broadly-Based Advance-Decline Lines. | While these negative divergences haven’t registered an actual sell signal, this chart depicts a “condition” that must be monitored because there is no timeframe associated with it to see if it will be remedied or not.
The Market We Have
To better understand how NVDA and the “Growth-Only Index Movers” have siphoned interest from the broader market, consider the following:
On May 15 the S&P 500 closed at a new high. Since then, it has closed at a new high three times, including yesterday. Yet at the same time, various groups have not made a new high with the large cap growth-oriented market indices. This would include several sector/group proxies, including Industrials (plus the DJIA), Software, Homebuilding/Construction (even with a sharp drop in interest rates last week), Transports, Health Care, Discretionary, Biotech, Energy, Financials and Materials. Also, several commodity proxies.
J.P. Morgan pointed out yesterday that from a performance perspective, “only a third of the S&P 500 components are beating the S&P 500 on a year-to-date basis—near the lowest share in the past 10 years.” Bespoke Investment Group recently published a chart depicting a similar condition.
Figure 2: “Home on the Range” (versus Large Cap Growth, Figure 3). | A flat/declining 50-day moving average (red lines) depicts a wide and lengthy “home on the range” pattern over the past few months. Away from the Large Cap Growth complex, I believe this has, understandably, produced a fair amount of frustration and angst for many Wall Street participants.
Figure 3: S&P 500 (5360.79) with rising 13-day moving average (very short-term support). | SPX closed above 5341 (discussed last week), which was favorable for the index and solidifies the importance of support at 5191.68—see below. To extend the current uptrend, I think we need to decisively clear resistance somewhere between 5362 and 5375 (red line +). In the meantime, please watch underlying support shown and monitor the negative divergences. Reach out for updated charts going forward.
Please let me know if you would like to schedule a call to go over the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector International, and/or Smart Sector Fixed Income strategies. Disclosures and Fact Sheet information can be found here: https://dhfunds.com/literature.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 6.9-10.2024. Chart source: Stockcharts.com unless otherwise noted.
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