US Equities showed signs of extending gains Tuesday in a way that is suggestive that our rally from 4/7 lows should start to work its way higher. As discussed in recent days, the positives surrounding bullish volume imbalances from our US Equity market lows from roughly two weeks ago were more of a positive than the subsequent decline attempts in the past week on lackluster downside breadth, relatively speaking. Furthermore, today’s (4/22) push above a one-week downtrend in SPX does help to add some credibility to a good likelihood of a Spring low being intact for Equities. While some robust upside follow-through now looks necessary to help add further conviction to the idea that a rally to SPX-5500 should be underway, it seems that the bad news largely has been priced in heading into the earnings period for Magnificent 7. Going forward, SPX 5500, QQQ-466.43, and DJIA-40,661 remain key areas to exceed to have confidence in a rally.
Short-term breakouts happened on Tuesday in SPX, along with QQQ, DJIA, and IWM, in a way that makes rallies likely into May.
While this report normally discusses only technically-derived news, it’s important to highlight that President Trump reiterated (after Tuesday’s market close in a speech) that there will be no pressure to fire Jerome Powell, which the Media had been saying could be possible. Furthermore, this came on the heels of some comforting comments by Scott Bessent during the day, which mentioned de-escalation in the tariff war (Equity market futures immediately jumped following Bessent’s comments as well as responded positively after-hours after Trump’s comments). Thus, in my view, both are important as market-moving narratives.
The important technical development, however, for Tuesday seemed to revolve around multiple Equity indices rising above the minor weekly downtrend caused by four consecutive down days of price action.
As seen below, the fact that ^SPX managed to reclaim the prior short-term swing lows from last Thursday near 5221, along with successfully recouping and exceeding the “open-gap” from last Thursday at approximately 5274, was also a bullish development in the near-term.
Technically, this could help to jumpstart the move back to test and exceed April highs. I am optimistic that the recent drop in the VIX along with Junk bond spreads having contracted sharply seem to be suggesting that the fixed income market is far less jittery than at this time two weeks ago which precipitated the “Trump pivot.”
At present, given the negative weekly momentum and trends (which will require a move above 5500 to surpass the downtrend since February), it makes sense to expect a short-term rally only at this time, which might rise to SPX-5500-50 before stalling out into mid-May. While I am optimistic that the lows for the year could be in place, it will take some meaningful improvement in momentum to confirm this thinking in the months ahead. For now, continuing to expect a “2-steps forward, 1-step back” type trajectory makes sense between now and June.
However, any hint of further tariff negotiation (Bessent’s comments Tuesday midday also seemed helpful in coinciding with the rally extending) would likely prove to be a positive in this fragile market. Bottom line, the worst seems to be in, with regards to Tariffs, in my view, and fear has promptly reflected this with hugely pessimistic numbers. Even on some minor negative news, I am skeptical technically that the VIX moves to new highs, and any gains likely would prove to be a fractional bounce before additional selling pressure.
S&P 500 Index
The positives at this point seem to revolve around three important points:
- The momentum and breadth were far stronger on the rally off the 4/7 lows into 4/14 than on the four consecutive down days last week.
- VIX has fallen a sharp 43%+ from peaks seen back on 4/7. In my view, it’s doubtful that any further tariff news would emerge that would catch the market more off-guard than was seen two weeks ago. That’s a positive, meaning that the VIX likely has peaked. Additionally, high Yield OAS spread has also retreated sharply in recent days, which is also a positive.
- A severe US dollar decline during a risk asset meltdown is unusual, but it has generally been a tailwind for earnings.
Small-caps also look to be kicking into gear, which is a technical positive
Outside of SPX, NDX and DJIA, there was also a minor breakout in IWM on Tuesday following its recent consolidation.
While engineering a meaningful rally in Small-caps will certainly take time given the negative weekly momentum following its sharp decline, Tuesday’s gains and recent outperformance seem to be a positive step in “the right direction”.
IWM’s move today above $187.43 broke out of the trend from 4/9 highs, which should help lead a rally up to $197 in IWM.
Performance on Tuesday was in line with Large Caps, and will take meaningful strength before being able to claim that Small Caps are preferred on a relative basis, technically speaking, to Large Caps.
However, Tuesday was a very positive absolute development for IWM, which should help improve its near-term trend.
iShares Russell 2000 ETF
Utilities remains the best of the Defensive groups to overweight
Utilities continue to make progress vs. many other sectors, and even within the Defensive sectors, look like an overweight.
Utilities on an Equal-weighted basis, rose +4.81% in Year-to-Date performance into 4/22/25 the best performance of any of the 11 major sectors, with Consumer Staples in 2nd place at +2.06%.
Healthcare and Energy both dropped over 8% in the past month, making these far less preferable, in my view, and even REITS were down over 3% in the past month.
The ratio chart below highlights the Equal-weighted Utilities sector relative to the Equal-weighted Healthcare Sector.
As shown below, the outperformance in Utilities vs. Healthcare in the last week has successfully exceeded a downtrend extending back since 2014. (RYU vs. RYH shown below, both Equal-weighted ETF’s of Utilities relative to Healthcare.)
RSPU/RSPH
While not shown in this report, movement above $79 would be a very bullish absolute development for XLU, likely helping to drive this up to $83.