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Equity markets can trend higher (higher price troughs and higher price peaks), lower (lower price peaks and lower price troughs), or sideways (rangebound). With the NYSE Advance-Decline Line (all issues) having just closed at a new high and the NDR Catastrophic Stop Loss model still positive, in mid-March we discussed a “Big Cap hesitation.”

Entering May, the non-U.S. equity Core model overweighted China, France, and Germany. Japan, the U.K., Canada, Switzerland, and Australia were below benchmark weighting. The Explore model favored Israel, Mexico, Malaysia, Netherlands, and Sweden.

Entering May, the fixed income allocation strategy’s positioning is overweight Long-term Treasurys, U.S. High Yield, and International Investment Grade. U.S. Investment Grade Corporates are neutral. Floating Rate Notes, Emerging Market Bond, TIPS, and Mortgage-Backed Securities are underweighted relative to the benchmark.

The sector model maintained mixed leadership this month. Entering May, Financials, Industrials, Consumer Staples, and Utilities are above benchmark weight. Energy, Real Estate, and Information Technology are neutral. Materials, Consumer Discretionary, Health Care, and Communication Services are below benchmark weight.

The DH Smart Value Portfolio continues to invest in companies producing excess returns through positive economic profitability, supported by solid balance sheets (quality), significant cash generation (profitability), and trading with considerable margins of safety (valuation). We believe these factors will continue to provide rational opportunities for the foreseeable future

Following an oversold condition and some “stealth price stability” in areas other than Technology/Growth (discussed last week), the “Index Movers” bounced higher last week. Consequently, the S&P 500 has retraced approximately 50% of the March-April decline and is now amid various pockets of overhanging selling pressure—resistance.

Day Hagan Market Update, hosted by Donald Hagan, CFA, was recorded on April 24, 2024. Don discusses a variety of financial market-related topics, including the driving forces influencing the global financial markets, the U.S. economy, economic growth vs inflation, Equity Sectors, tax policy, Fed rate cuts, Smart Sector with Catastrophic Stop Update, International markets, Fixed Income, and more.

Late last week, the “Index Movers” were sold and consequently the big cap equity indices recorded a significant decline. Meanwhile, other equity market areas attempted to outperform, showing that there was some price stability under the surface. Proxies for utilities, staples, financials, health care, and DJIA were up for the week. Was that it? Is the selling done/close to being done?

Prior to last week’s decline and as volatility picked up in both directions, domestic equity market indices had generally traded sideways for the better part of the past four to six weeks (hesitation). With last week’s sell-off, however, either uptrend lines were violated and not decisively recaptured and/or previous reaction low support levels were broken.

Wall Street tried to “Break on Through (To the Other Side)”—as The Doors might put it—the often-discussed upward trending support lines. With only one exception, however, it was not to be. At least not yet. From a short-term risk management perspective and considering last Friday’s relatively low-quality rally (NYSE Advancing Issues only equated to 57% of Total NYSE Active Symbols).

Entering April, the strategy continued to favor risk-on leadership but did not rebalance. The model remains overweight, U.S. Treasuries (allocated across short-, intermediate-, and long-duration), High Yield, & Emerging Market Bonds. The portfolio is market weight TIPS & Mortgage-Backed Securities & underweight U.S. Floating Rate Notes, U.S. Investment Grade, and International Investment Grade.

Entering April, the non-U.S. equity Core model overweighted China and Germany. Japan and Canada are neutral. The U.K., France, Switzerland, and Australia are underweight. The Explore model favored Malaysia, the Philippines, Poland, Sweden, and Taiwan.

The sector model recommended mixed leadership this month. Entering April, Financials and Utilities are overweight. Communication Services and Real Estate are underweight. Materials, Energy, Industrials, Information Technology, Consumer Staples, Health Care, and Consumer Discretionary are all market-weight.

The Portfolio continues to invest in companies producing excess returns through positive economic profitability, supported by solid balance sheets (quality), significant cash generation (profitability), & trading with considerable margins of safety (valuation). We believe these factors will continue to provide rational opportunities for the foreseeable future.

Despite the recent rotation (large vs. small, growth vs. non-growth, S&P sectors—those other than Index Movers are having their day in the sun) & the simplicity of it, the support (and resistance) lines we’ve highlighted remain intact (walking the line). When the lines break, we will take notice. Also, the domestic equity market indices haven’t shown any distinct, strong patterns of distribution.

This presentation discusses the current Catastrophic Stop Model, Risk Management, potential signaling, U.S. markets, Equity Markets, International Markets, Emerging Markets, China, Technology, Banks, Seasonality, Sentiment, Trends, Growth vs. Value, and more. Financial advisors are encouraged to watch this presentation replay for a comprehensive understanding of the market trends & indicators.

Join Art Huprich, CMT, on Tuesday, May 21, 2024, at 4:15 PM EST, for the monthly Day Hagan Technical Analysis. Art will be discussing the current technical condition of the equity markets (domestic, international, and emerging) based on supply (selling pressure) and demand (buying interest) analysis.

While the primary “trend” remains supportive (higher), a mostly euphoric sentiment backdrop reflects an aggressive, bullish attitude. As a contrarian indicator, sentiment represents a short-term yellow flag. This comes at a time of historical seasonal weakness for NASDAQ and a period of near-term hesitation for the S&P 500 (Big Cap/Index Movers Complex).

Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” While I am not saying that the S&P 500’s uptrend has run its course, following last Friday’s tape action (more below) I believe Wall Street’s sugar high (a state of hyperactivity caused by excessive consumption) towards a certain segment(s) of the equity market has produced a gut check—a test or assessment of courage, character, or determination.