Markets have begun the process of bottoming out and have carved out the first meaningful move off the lows since late last week. While many are eager to know if “the bottom is in” or not, the simpler answer is that breadth and momentum look to have bottomed, along with the Equal-weighted S&P 500. Given that weekly momentum remains so sharply negative and insufficient progress off the lows has happened just yet, it will take a while longer before we are able to say with confidence that major US Equity market lows are in place. However, it’s arguably right to be long for a push-up into Summer 2025 at a minimum, and even if some backing and filling do happen over the next week, it’s thought to prove temporary and create an excellent risk/reward situation for US Stocks. The downside should be limited to roughly 3%, while the upside back to new all-time highs should get underway to carry SPX up more than 9% initially.
Monday’s bounce successfully helped Equal-weighted SPX to extend gains following its late week bounce last week to recapture mid-January lows.
This proved to be a very constructive move technically, which has jump-started the broader market, pushing higher, even if Technology requires a bit more time. As many investors noticed on Monday, stocks like AAPL 0.24% , NVDA -1.78% , SMCI -0.40% , and TSLA -5.55% struggled to match the performance of the broader market.
Yet, Technology’s rebound last week proved to be sufficient to help Equal-weighted Technology recapture the former support that had been broken. This is particularly important, as it was arguable that Technology might be breaking down given recent weakness.
While the Equal-weighted S&P 500 might outperform the cap-weighted ^SPX 0.77% in the short run, monthly charts show this to prove short-lived before Tech resumes its upward acceleration.
At present, the act of having recouped prior January lows is certainly positive for RSP 1.35% , the Invesco Equal-weighted SPX. While it will take a while longer before ^SPX 0.77% , DJIA 0.64% or QQQ 0.60% can accomplish this feat, this broad-based surge is helpful towards breadth and short-term momentum to begin to improve markedly after a decidedly negative last few weeks.
Thus, my opinion about US Equities having “begun a bottoming process” remains the best way to describe the gradual bottoming out of many indices and ETFs at the moment. Not all indices have recouped January lows (in fact, just a few), and it’s important to see stocks like AAPL regain former monthly lows that had been breached.
However, it’s my opinion that even if a “backing and filling” occurs (which most Elliott-wave counts say is still the probable near-term scenario), the Equal-weighted SPX will likely not move back to new monthly lows at this point. Furthermore, breadth should expand on this bounce attempt and likely could prove to be not as negative on any retest if/when this occurs.
Overall, I like being long stocks, but I recognize that the bottoming process can take time. I expect that both SPX and QQQ will begin a sharper rally back higher as the month of April gets underway to match cyclic forecasts and bullish seasonality trends. Until then, favoring some precious metals or selective Emerging markets along with defensive sectors like Utilities might make sense for a bit longer.
Invesco S&P Equal Weight ETF
I’ll repost my list from last week below, which discussed some recent developments regarding US Equities bottoming, which some might have missed.
Five bullish developments that suggest stock indices should be bottoming:
- Consumer Staples sold off sharply most of the week. Seeing a defensive sector like this losing ground despite the market still struggling to bottom is normally a key sign that a low to the decline could be near.
- Equity Put/call ratio finally pushed above 0.90. I had discussed this in Thursday’s note which failed to include the results from Thursday’s close, but Equity Put/call ratio did indeed spike up above 0.90 which is roughly in-line with levels that have marked Stock market lows over the last year.
- Advance/Decline in volume spiked to show more than 80% of the volume on the upside in Friday’s session.
- VIX, the CBOE Implied Volatility index, closed down on the week despite SPX also closing down.
- My cycles composite suggested a low to this decline might happen Friday, 3/14/25.
Utilities still deserve an Overweight, even if SPX is bottoming out this week
I recently lifted my technical ranking of Utilities to an Overweight, and I expect this sector to continue to show above-average strength likely into April.
This sector on an Equal-weighted basis (RYU) has shown the best performance of any of the 11 major Equal-weighted sectors that make up the S&P 500 on a 3-month and Year-to-Date (YTD) basis with returns of +3.01% and +5.31% respectively over these periods.
As shown below, the sector began to make a strong showing of strength last month as the S&P along with Treasury yields both began to retreat.
While both arguably have begun to stabilize and might begin turning higher in the weeks to come, it still looks favorable to consider Utilities a technical Overweight.
In relative terms, shown below, Utilities on a ratio basis to the Equal-weighted S&P 500 have just broken out to the highest levels since early 2023. This is a bullish development and should continue to outperform in the short run.
The downtrend on an intermediate-term basis connecting the relative highs of Utilities vs. SPX from 2009 to 2020 intersects a bit higher than current levels, while momentum has grown quite strong in recent weeks.
Furthermore, no evidence of weekly or monthly DeMark-related exhaustion signals is currently present and will take at least another three weeks.
I suspect that XLU 0.42% exceeding $80 should allow for a quick move back up to $83, which would likely be an area where this could stall out.
RSPU/RSP
EEM looks to be emerging, though it might pay to be more selective
As shown below, EEM 1.39% looks to be starting some acceleration following its minor breakout of the triangle pattern that’s been ongoing since last Fall.
Several well-known Emerging market ETFs showed above-average strength in trading Monday as the US Dollar’s decline continued.
Areas like Mexico (EWW 1.76% ) and India (INDA 1.21% ) would be areas to consider, while China’s move looks to have gotten a bit stretched in recent weeks. (I’ll discuss this more below.)
Overall, EEM could rise to test prior highs near $47.50, and this looks to be a diversified way of participating in this move vs. trying to initiate new long positions in Chinese Equities at current levels.
Overall, EEM looks attractive here, but I feel that selectivity within the space is necessary.
iShares MSCI Emerging Index Fund
China’s Large-Cap ETF from Ishares has reached the highest levels since early 2022; Some stalling out is possible this week
For the first time since this most recent leg higher in Chinese equities started early this year, both daily and weekly DeMark-related indicators have come together to show exhaustion.
It’s worth keeping a close eye on FXI 2.36% and KWEB 4.11% here, given the tendency for Chinese Equities to show sharp trend reversals without much notice.
While the move to new three-year highs is certainly a technical positive, it’s unlikely, in my view, that FXI 2.36% should move above $41.50 near the 61.8% Fibonacci retracement area without a stalling out.
Ratio charts of SPY vs. FXI (not shown) show that US Equities should be nearing the end of their underperformance compared to Chinese Equities after the recent steep decline.
Thus, it’s my view that favoring SPY and Large-cap Technology here makes sense for investors with a timeframe longer than 1-2 weeks. I suspect that SPY and QQQ should both be in the process of stabilizing in relative terms vs. China and should be close to turning back higher.
Overall, I don’t find China as attractive from a counter-trend perspective given the presence of both daily and weekly DeMark signals. One should watch carefully for any evidence of FXI closing back under $37.50. This would likely indicate that some stalling out and consolidation might be underway following this steep run-up.
Bottom line, for those favoring Emerging markets, China would not have the same level of appeal at present until it can consolidate some of these recent gains. Investors might consider US Technology, and/or consider other areas within Emerging markets like Mexico or India.
China Largecap Ishares ETF – FXI
