Note: There will be no video tonight due to travel commitments.
Near-term Equity index trends remain under pressure despite the brief bounce attempt near mid-March lows. While it’s difficult to call for a low in Equities, most technical indicators seem to suggest lows are quite close and should happen in the month of April. Ideally, the mid-March bottom and subsequent retest have brought about a bottoming process vs. a meaningful bottom. Thus, while minor new lows are possible into mid-April, the risk/reward is quite favorable for US Equities at a time when most have chosen to reduce exposure and/or favor European or Emerging market equities. Overall, whether one decides to stick with US Technology or not depends on one’s own time horizon and timeframe. In the short run (meaning 2-3 weeks), it’s certainly possible and even likely that European and Emerging markets, along with Defensive sectors and Precious metals, can outperform the US Equity market. However, for those with longer timeframes, it looks compelling to consider the exposure in US sectors like Financials, Industrials, Discretionary, and Technology, despite the recent setback. Patience looks necessary, but ultimately, the risk/reward is favorable, and I am skeptical that this recent pullback means that a bear market is imminent or that a recession is right around the corner.
Despite the ability to hold mid-March lows as a positive for US Equities, momentum and breadth remain quite negative. Moreover, neither SPX nor QQQ have made sufficient structural progress off the lows along with a subsequent breadth thrust (like directly following 3/13) to give much credence to this being low. Pattern-wise, yet another retest and possible break of these lows is certainly quite possible this week. Such a move would undercut SPX 5500 (albeit briefly) and help to complete an Elliott-style 5-wave decline, which could then help to mark a legitimate trading low.
Understandably, market participants are eagerly awaiting tomorrow’s announcement on tariffs which might bring some clarity to the situation which markets could then work around.
As seen below, SPX requires a move up above 5671 to have confidence that lows are in place. This level approximates the lows from last Thursday, 3/27, and would help structure improve.
Until that happens, it’s still hard to rule out a brief retest and undercut of recent lows. Such a development would help to “flush out” those who had attempted to buy dips near prior lows, likely bringing about more serious capitulation.
Additionally, it’s highly likely that market breadth and momentum would not return to new lows on any retest, despite prices undercutting prior lows. This positive divergence normally is something to watch for as indices try to bottom out, and is considered a technical positive.
S&P 500 Index
Equal-weighted Technology has broken down under prior lows, but exhaustion counts look to be 1-2 weeks away
When monitoring DeMark counts for the likelihood of any downside exhaustion, we see that ratios of Equal-weighted Technology vs. Equal-weighted S&P 500 did break down under prior lows, which was thought unlikely.
However, the good news for Tech bulls is that the weekly count could show a bottoming in Technology as early as next week.
Interestingly enough, both SPY and QQQ (on their own individual absolute charts) show DeMark “7 counts” (out of a possible 9 counts required for a TD Buy Setup to emerge).
This alignment gives me some confidence that mid-April is likely for Technology and US indices to bottom out vs. our recent retest of March lows.
Moreover, this would make my prior alternate count of the April low something that would come to the forefront now as the next major cycle low. (Recall that mid-March did, in fact, work to produce a low on 3/13, despite this proving short-lived.)
Bottom line, Techonology remains under pressure in the short run, and it’s going to be unlikely to have confidence in a bottom in US equities barring Technology vs. S&P in ratio form either recovering the prior lows that were broken, or forming DeMark exhaustion within two weeks.
In either scenario, I don’t mind owning Technology for a 3-6 month hold at a minimum, despite this not having given signals that it’s properly bottomed out just yet. I suspect that a bottoming process brings about a sharp rally back higher from mid-April, which could prove quite tricky to “catch the lows” in a timely fashion. I do not suspect that Technology has lost favor towards expecting it to come back, given the relative attractiveness of valuation coupled with the longer-term uptrend still in place on ratios of “Tech vs. SPX” on weekly and monthly charts going back since 2022.
RSPT / RSP
Evidence of SPY now bottoming vs. TLT
Following 3 months of Treasuries outperforming US Equities (meaning SPY), this ratio looks ready to reverse.
The near-term trend has pulled back sharply. However, this has reached support, and weekly TD Buy Setups are triggering this week (above TDST support).
Thus, I favor switching from Treasuries into Equities, expecting the ratio of SPY vs TLT moves back to highs in the months ahead.
SPY / TLT
