SPX underperformance vs World continues but likely proves short-lived

Despite the ongoing volatility, last week’s volume and price action suggested a good likelihood of a short-term low in place for US stocks, which might now be followed by a push higher in a “2-steps forward, one-step back” type process into May. Multiple technical factors came together last week to show an inflection coinciding with breadth and volume capitulation at a time when sentiment had reached the most negative levels in years. Technology’s rebound from support last week is certainly a reason for optimism, and along with strength in Financials, it should be able to drive markets higher in the months to come. Thus, while trends and momentum remain negative from mid-February, seasonality and cycles show a rally developing following signs of tariff fatigue from Equities, and breadth has improved following the best one-week performance in SPX since 2023.  Going forward, SPX 5500, QQQ-466.43 and DJIA-40,661 remain key areas to exceed to have confidence, and these likely are tested and exceeded as the rally likely gains momentum over the next week. At this point, it remains premature for me to consider this a bear market, nor that the US Economy should enter a recession.

The final day of trading in this holiday shortened week saw much better performance than SPX might have indicated, and market breadth proved to be meaningfully better on Thursday as a positive, than the negative breadth readings for Wednesday.

While the lack of upward progress is a concern to many investors who have grown impatient with the absence of strength out of Technology, I’m still of the opinion that the low from last Monday (4/7) was important given the breadth and volume dispersion that occurred directly surrounding this day.

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