Key Takeaways
  • QQQ looks to rally to 360 while SPX might reach 4325 before minor consolidation
  • Equal-weighted SPX breakout looks bullish for broader market recovery
  • Small-caps could begin to strengthen relatively to broader market given IWM breakout
Equal-weighted SPX breakout looks bullish for broader market recovery

Trend bullish- Expecting that SPX-4325 might prove temporary stopping point only and pullbacks should be buyable for rally into late June

A few important technical developments occurred over the past week that are worth mentioning:

First, SPX got back over the 4200 level and proved to be a more broad-based rally, as breadth indicators strengthened. 

Second, Equal-weighted S&P 500 broke out above its downtrend from February 2023 which had been lacking thus far on the bounce from March 2023 lows

Third, Russell 2000 broke out to the highest level in more than two months, suggesting that Small-caps might begin to gain ground on Large-Caps.  DeMark weekly Symbolik charts show three different counter-trend exhaustion measures, signaling that Small-caps could strengthen relatively speaking.

Fourth, the broad-based Russell 3000 index along with the Equal-weighted Value Line index (1700 Equal-weighted names) both showed meaningful breakouts last week

Fifth, S&P sentiment among non-commercial traders turned even more negative as Short positioning reached record highs.

Finally, Equal-weighted Technology ETF ( RYT) broke out to the highest levels of the year.

Thus, while many continue to claim that this rally is spread within just a handful of large-cap Technology stocks, last week’s breakout in many of the more broad-based indices like Russell 3k or Value Line looks quite encouraging.

SPX daily chart, shown below, looks to have little resistance ahead of last August’s (2022) peak near SPX-4325.  Overall, I’m not expecting any sort of meaningful peak this week.  Rather, both QQQ and SPX might just encounter minor resistance by end of week before consolidation. 

However, further strength looks likely in June to exceed SPX 4325 overall, as US market strength starts to grow more broad-based in nature.  Pullbacks this week to 4150-4200 should prove to be buying opportunities ahead of additional strength back to prior Fall 2022 highs.

Equal-weighted SPX breakout looks bullish for broader market recovery
Source: Trading View

Equal-weighted S&P 500 has broken out of downtrend since February

The popular narrative says that the market rally has been concentrated in only a handful of names.  Many use this argument to justify why markets should be lower, not higher.

However, this can also work in another way, namely that the broader market can begin to play catch-up and join the strength being seen in the market leaders.

This looks precisely to be what’s begun to happen as of last week.  The Equal-weighted S&P 500 has just exceeded the four-month downtrend that’s connected former highs since February.

Importantly, this should translate into a broader market recovery, vs. a bearish selloff based on overbought Technology stocks moving lower.   Other popular gauges like Value Line Arithmetic Average and Russell 3000 index have shown similar breakouts which help to add to the conviction that this rally should become more broad-based.

The percentage of stocks above their 20 and 50-day moving averages have jumped in the last week.  The lackluster breadth in May was cited by many bears as a reason for concern. 

However, as I tried to explain in my last report, the lack of breadth doesn’t matter as much if the driving forces of SPX and QQQ strength aren’t showing any weakness.  Overall, I feel like this breakout in  RSP 0.35% , (the Invesco Equal-weighted S&P 500 ETF) looks important and positive.

Equal-weighted SPX breakout looks bullish for broader market recovery
Source:  Trading View

Technology has broken out on an Equal-weighted Basis

Technology’s breakout has extended well beyond what’s been seen lately purely in Large-cap Technology stocks and stocks which make up the NY Fang index (Bloomberg)

As shown below, Equal-weighted Technology has broken out above a meaningful area of trendline resistance which extends back from last Spring.

Many might view the breakout to the highest levels in more than nine months is bullish for Equal-weighted Technology.  Moreover, this pattern resembles a reverse Head and Shoulders pattern which normally has bullish implications on the rally above the “neckline”.

Overall, while this pattern is not completely symmetrical, this is a bullish development.  Weekly closes at nine month highs suggests that the Technology rally which began to accelerate in recent weeks likely can continue in the month of June.

Equal-weighted SPX breakout looks bullish for broader market recovery
Source:  Trading View

Russell 2000 breakout suggests that Small-caps should begin to recover

Finally, it’s important to recognize that the Russell 2000 (shown here as  RUT) has reached the highest levels since March.

While Mid-caps have not made the same progress yet as Small-caps, this breakout is encouraging and is coinciding with a similar move in the SPDR S&P Regional Banking ETF ( KRE 0.52% )

Additionally, relative charts of  IWM 0.34%  to  SPY 0.02%  (not shown) have produced three separate counter-trend “buy” signals which were confirmed last week after the “13 Countdown” signal appeared on weekly Symbolik charts.  This is constructive towards thinking Small-caps can begin to make progress higher vs. Large-Caps.

Overall, at a time when it was uncertain heading into last week whether it would be Large-cap Technology stalling and rolling over, or the broader market starting to turn higher, it looks like the latter choice has won out.  Furthermore, this chart above challenges the notion that recent Technology strength is concentrated in just a few names.  The strength of the Semiconductor sub-sector alone is compelling in the short run, and still looks to have upside in the weeks ahead.

While this will have to be continually monitored over the next couple weeks, it’s still premature for either SPX or QQQ to peak out.   Dips in  AAPL -1.12%  on Monday likely will prove to be buyable for further strength in the month of June.

Daily Russell 2000 Index charts by Marketview ( RUT) are shown below, highlighting last week’s minor breakout. ( IWM 0.34%  looks identical to this RUT chart and could lead IWM to rise to $195-$200.

Equal-weighted SPX breakout looks bullish for broader market recovery
Source: Trading View
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