Believe European outperformance should prove short-lived

SPX’s technical trend, breadth, and momentum have slowly improved over the last two weeks, showing evidence of a “Two Steps Forward, One Step Back” type trajectory.  However, it’s important to reiterate that the Equal-weighted S&P has largely made no change in over a week, so there has been some stalling out after the initial bounce off the 1/13 lows. Large-Cap Technology has proven to be a short-term drag on US Equity performance compared to Europe and parts of Asia, but it’s doubtful that the “Mag 7” becomes the “Lag 7”.  Overall, technically it’s premature to make the case just yet of pushback to immediate highs, given the lack of sufficient structural progress and notable weakness in some large Technology stocks. However, I believe it’s right to think that larger trends remain in excellent shape and that short-term consolidation should prove short-lived and not overly damaging to the technical structure.   Weakness into February likely proves temporary and not too damaging for US Equities.   In general, I suspect that downside volatility should create attractive opportunities for US Equities, but at present, SPX remains in consolidation, which cannot be called complete. 

The daily chart of the Equal-weighted S&P 500 helps to illustrate the quandary for bulls and bears alike.   Recent price action over the last week has made little to no net change, and RSP closed under levels that had been made last Tuesday.

Stocks like AAPL have struggled to break out, while other large-cap Tech stocks like NVDA have been slowly stabilizing but also not pushing higher. MSFT, as discussed earlier this week, has been range-bound for months and lies near the bottom of its ongoing triangle pattern. All of this suggests a picture of short-term underperformance in large-cap Technology, which has been evident as January comes to a close.

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