US Equity Index Technical Strategist: There are plenty of warning signals, but until the market reacts to them, the broader rally stays in gear
S&P 500 Index
: There are plenty of technical indications that suggest the index is setting up for a sizable correction in the months ahead, but until the market reacts, we favor a tentative bullish outlook. One of two things would shift our bias to negative: a break below the 2031-2040support area or a more preferable bearish reversal pattern formation that follows a break above 2120-2125 range resistance. We view the recent global yield rise as a warning signal for the US equity market. While the initial bond backup did not materially shift Fed expectations, we think a subsequent move will. Early 2004 and early March 2015 provide good examples of that dynamic. In both cases, equity-interest rate correlations broke down and both markets sold off together...…pg. 2
Russell 2000 Index
: The market holds an initial test of key support at the 1212-1213 2014 range highs and 1206 Mar 10 trough. The corrective tone of the recent rebound keeps a negative medium-term bias as long as the market is trading below the 1247 Apr 30 gap and 1248 Apr 17 low. Bears would gain significant traction with closes below 1200, marking a Feb-May head-and-shoulders reversal pattern breakdown. That would open the door for a decline to the 1135-1151 support layer....……pg.4
The Nasdaq 100 Index
consolidates after the Apr 27 rejection of the 4538-4594 resistance zone. Like the other indexes, bearish divergences on multiple timeframes and a multi-month ending diagonal pattern raise the odds for an eventual correction. However, the resilient nature of the market in the first quarter in the face of that setup and the forward shift of Fed tightening expectations favor trailing stop-loss type strategies. In that regard, breaks below the 4281 Mar 26 low would be problematic for the broader bull trend........pg.5