US stock indices likely reach technical support by early next week

US Equity indices have now sold off for five of the last seven trading days, yet remain within established uptrends from mid-April lows.  Technology’s short-term underperformance doesn’t appear too detrimental to technical structure given that many other sectors have snapped back to help “pick up the slack” this past week.   Both the US Dollar and Treasury yields have made minor bounces in recent days, yet are part of existing downtrends and should reassert their pullbacks early next week.  Overall, the mini-correction looks to have gotten underway a bit earlier than expected.  However, breadth levels have improved markedly and there looks to be solid evidence of the “great rotation” getting underway.  Bottom line, I expect this deterioration to prove short-lived and buyable, likely early next week before turning back higher.  SPX likely finds support near 5500 while QQQ could bottom at $468-$473 before turning higher.

As discussed in recent days, the selloff in Large-cap Technology doesn’t look to be too detrimental to the broader market, and has simply helped “Tech” to go through a necessary correction after having gotten overbought.

The fact that other sectors like Financials, Discretionary, Industrials, REITS and parts of Healthcare have all shown above-average signs of exhibiting above-average relative strength over the last two weeks, market breadth has shown exemplary performance and has risen sharply.

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