By Art Huprich, CMT
Summary
Given the S&P 500’s (SPX/4337.44) bearish reversal in late July, early August downside follow-through, and poor seasonal factors, the challenges faced by equity markets have consistently built up. This includes deteriorating price-related guideposts (breadth, new lows, selling volume over buying volume, trend, risk-off sectors outperforming, etc.), plus a more hawkish Fed: “higher for longer,” fewer rate cuts in 2024 than initially expected and continuing liquidity drain.
Avoiding the Lion’s Roar
My wife calls her brother’s propensity to draw out the telling of a story an MGM Lion Roar—please Google it. I don’t want to drag out a lion’s roar here, so let’s get right to it: As the market exits its seasonally weak period (Figure 1) and with sentiment starting to reflect extreme pessimism (it now needs to reverse up to give a buy signal), it will be critical that longer-term guideposts not deteriorate further and, starting now/soon, short-term guideposts rebound/reverse direction. (Long-term guideposts include the NDR Catastrophic Stop Loss model, trend, breadth, etc. Short-term guideposts are “price,” interest rates, energy, U.S. Dollar, and short-term oversold condition.) Otherwise, I won’t be surprised if SPX eventually visits 4200+/- —Figure 2.
Figure 1: S&P 500 Cycle Composite for 2023. | Allowing that “trend is more important than level,” this guidepost has been very accurate in 2023, as it was in 2022.
Figure 2: S&P 500 with rising 200-day MA. | Please refer to the commentary above and inside the chart. Areas of resistance (selling pressure) and support (buying interest) reflected by red and green/blue dashed lines respectively.
Follow-Up: As a follow-up to last week’s topic (Really? Can’t Make This Stuff Up), I read the following recently (emphasis mine):
Even though the economy continues to face a myriad of near-term risks, including a potential downside from the UAW strike, the resumption of student loan payments, a possible government shutdown, and rising energy prices, the Fed… revised up its projection for real GDP growth in 2023 and 2024.
I’ll note that among the myriad of risks (short- and long-term) is rising interest rates/secular-long-term uptrend in interest rates, i.e., a “higher-for-longer” interest rate policy. In terms of revised up projections, I’m not sure what world the Fed is living in. Surely not mine.
Note: Please let me know if you’d like to schedule a call to go over the process and discipline underpinning our Smart Sector with Catastrophic Stop, Smart Sector Fixed Income, and/or Smart Sector International strategies. Considering the tape action of both equity and fixed income markets in 2022 and 2023, I believe it may be a good investment of time.
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Art Huprich, CMT®
Chief Market Technician
Day Hagan Asset Management
—Written 09.25.2023. Chart source: Stockcharts.com unless otherwise noted.
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Art Huprich, CMT
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