Here’s why this initial decline should prove Short-lived

SPX and QQQ broke support on Wednesday, showing the largest Percentage declines since 2022.  While I expect that SPX is nearing the next serious level of support, just above 5400, it’s going to be important to see US Equity indices stabilize this week and begin to turn back higher.   Wednesday’s decline does not change the outlook of the probable push back to new highs into August.  However, given that cycles (which were correct in forecasting a July peak) don’t bottom until early to mid-August, we’ll need to get more confidence that lows are in place before getting too aggressive on thinking support is imminent following a support violation to new monthly lows that closes near its lows of the day.  Overall, I am expecting that DJIA, RSP, SPX are very close to support, and the wave structure for QQQ suggests this is also getting close.   However, failure to recoup more than 62% of the prior drawdown would invite a bit more consolidation into early August before a move back to new highs gets underway.  While the rally back to new highs was postponed a bit by Wednesday’s decline, I fail to see this as the start of a period of much greater weakness.

Unfortunately, the US Equity market rotation into Small, and Mid-cap Stocks arrived with a few unpleasant consequences, one of them being a larger than expected exodus out of Technology.   While some consolidation was expected in Technology compared to the broader market, the extent to which many large-cap Technology stocks dominate SPX and QQQ has translated into a quick -3.5% decline in SPX since mid-July and even greater amount (-7.0+%) out of $QQQ since mid-July.

Does this mean the rally’s over for US Stocks, and it’s time to worry about a larger correction?  Fortunately, I feel the answer here is No, given a few key reasons:

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