Small caps broke out and pulled back—false breakout? Maybe, though I believe a small-cap (and DJIA) breakout will eventually stick. Sector rotation (Health Care led last week)? Until we get an answer, bullish price trends are in control. For the Bears, it remains “show me.”  

The S&P 500 cut through resistance like a hot knife through butter, closing at a new high. Index Movers and Small Caps participated. Yet, domestic A/D Lines recorded a second non-confirmation (Figure 1), and New High readings, though not a good timing tool, reflect a diverging backdrop.

Last week, Wall Street experienced a triple blow: a negative “Outside Reversal Day,” above-average volume “Exhaustion,” and hard downside selling. As a result, the Large Cap Growth indices registered a short-term price peak, finally establishing a level of resistance.

The S&P 500 closed over 6,300, yet New Highs contracted and A/D Lines are diverging—a condition, not a sell signal. Index-wise, a similar splintering exists. Until there is some resolve, define risk tolerance and implement an investment strategy with risk management parameters.

The market remains overbought, with sentiment still relatively complacent, as I noted last week. When combined with proximity to resistance, the ingredients are still in place for a pause/pullback.

Advance-Decline Lines are supportive. New Highs recently improved. Yet sentiment is ebullient (the Bulls are all in the pool—a condition, not yet a signal). Equity market proxies are short-term overbought (a condition), and some equity proxies are at or near resistance lines.

When America won its independence, it was no longer constrained by British rule. Similarly, much of Wall Street is not constrained by overhanging selling pressure, as the “Index Movers” led several domestic equity market indices and proxies to new all-time highs.

We had seemingly moved past other issues, but renewed geopolitical tensions have led to a sudden increase in price volatility. Since the only constant is change, a dynamic landscape will continue to produce price volatility, up and down.  

Many domestic equity market indices and the NYSE all issues Advance-Decline Line (A/D Line) had been moving sideways. That is no longer the case as the lateral pattern resolved higher—bullish and supportive of a stair-step move higher.

After such a big rebound, don’t be surprised if the price pattern—a period of digestion, short-lived rallies, and short-lived declines (versus sustained buying and selling)—continues, followed by another, potentially strong, rally.

Equity markets don’t usually enjoy drama, especially now with all the underlying crosscurrents and headline risk. Case in point: Last week’s sell-off and yesterday’s rally. Respect the recent bullish tape action but be aware of ongoing crosscurrents and headline risks.

S&P 500, NDX, and DJIA Advance-Decline Lines hit new highs (bullish) before Monday’s moonshot.  The NYSE A/D Line (all issues only) fractionally did so yesterday. Equities remain emotionally driven and highly subject to news. Sentiment isn’t 100% complacent but is getting close.

Despite a headline-driven environment, the fear factor took a breather and the bulls took charge. Now what? Consolidation? Pullback? More upside? With four recent breadth thrusts, I’m happy with any of these. Regardless, with overhead resistance, more work must be done.

Following one of the biggest short squeezes in recent memory (4.9.25) and within the confines of the S&P 500’s pattern of lower price peaks and lower price troughs, I expect upside and downside volatility to continue despite the recent tariff news. What are we now watching?

After the S&P 500 (SPX) broke the twin support lows of 5500 to 5488 (discussed last week), a cascade of selling quickly followed. The associated selling pressure exceeded early March levels. Thus, the Low-Rally Retest bottoming sequence coupled with breadth thrusts begins anew.  

Bitcoin, the poster child for risk-on versus risk-off, continues to stress risk-off. Let’s revisit the S&P 500’s short-term Low-Rally-Retest bottoming sequence, including what could occur going forward and what we do and don’t want to see.

Following the domestic equity market’s heart attack-inducing decline, it needs a slow, methodical rehab to repair the chart damage. Friday started the process, but more is needed.

Although we set our clocks ahead over the weekend, stock prices fell back as macro risk and political headline fatigue weighs heavily on Wall Street’s psyche. An oversold rally is due (Figure 1). If it doesn’t occur soon, it will be bearish.

Many finally became aware of the unwinding speculative stock market activity in the Index Movers, Quantum stocks, crypto, IPO proxy, and penny stocks that had run up on above-average volume.

Last week, I stated that I’d like new highs to see what selling arises. I also said we would soon know if any topside breakouts were false and full of hot air. We immediately got an answer to both scenarios.