The price trend of the “Technology-weighted” S&P 500 continues higher (Figure 3). Simultaneously, several breadth measures within the Technology sector have deteriorated, and I have already noted and likely over-discussed the internal deterioration beneath the broader domestic equity market.

“Yet” can be defined as “something has not happened up to the present time, although it may.”

The domestic equity market has experienced a fair amount of volatility over past few months, including 2 large, short-term intraday reversals. Considering uptrend by equity indices affected by the “Growth Index Movers” & the favorable position of the CSLM, many domestic equity market indices remain confined to large trading range patterns, staying a bit longer than desired & frustrating many.

While volume expanded last Thursday, it didn’t come close to exceeding its 50-day average as it did when the key reversal occurred in April. Therefore, before labeling last Thursday’s intraday high of 5341.88 as a short-term top (it is now a resistance point), more evidence is needed.

The domestic equity market has sloshed back and forth over the past few months, confined to a multi-month trading range. Nonetheless, some Advance-Decline lines have reached new highs and new 52-Week Highs are slowly expanding, supporting equities from a primary-trend perspective.

Equity markets can trend higher (higher price troughs and higher price peaks), lower (lower price peaks and lower price troughs), or sideways (rangebound). With the NYSE Advance-Decline Line (all issues) having just closed at a new high and the NDR Catastrophic Stop Loss model still positive, in mid-March we discussed a “Big Cap hesitation.”

Following an oversold condition and some “stealth price stability” in areas other than Technology/Growth (discussed last week), the “Index Movers” bounced higher last week. Consequently, the S&P 500 has retraced approximately 50% of the March-April decline and is now amid various pockets of overhanging selling pressure—resistance.

Late last week, the “Index Movers” were sold and consequently the big cap equity indices recorded a significant decline. Meanwhile, other equity market areas attempted to outperform, showing that there was some price stability under the surface. Proxies for utilities, staples, financials, health care, and DJIA were up for the week. Was that it? Is the selling done/close to being done?

Prior to last week’s decline and as volatility picked up in both directions, domestic equity market indices had generally traded sideways for the better part of the past four to six weeks (hesitation). With last week’s sell-off, however, either uptrend lines were violated and not decisively recaptured and/or previous reaction low support levels were broken.

Wall Street tried to “Break on Through (To the Other Side)”—as The Doors might put it—the often-discussed upward trending support lines. With only one exception, however, it was not to be. At least not yet. From a short-term risk management perspective and considering last Friday’s relatively low-quality rally (NYSE Advancing Issues only equated to 57% of Total NYSE Active Symbols).

Despite the recent rotation (large vs. small, growth vs. non-growth, S&P sectors—those other than Index Movers are having their day in the sun) & the simplicity of it, the support (and resistance) lines we’ve highlighted remain intact (walking the line). When the lines break, we will take notice. Also, the domestic equity market indices haven’t shown any distinct, strong patterns of distribution.

While the primary “trend” remains supportive (higher), a mostly euphoric sentiment backdrop reflects an aggressive, bullish attitude. As a contrarian indicator, sentiment represents a short-term yellow flag. This comes at a time of historical seasonal weakness for NASDAQ and a period of near-term hesitation for the S&P 500 (Big Cap/Index Movers Complex).

Sir John Templeton once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” While I am not saying that the S&P 500’s uptrend has run its course, following last Friday’s tape action (more below) I believe Wall Street’s sugar high (a state of hyperactivity caused by excessive consumption) towards a certain segment(s) of the equity market has produced a gut check—a test or assessment of courage, character, or determination.

The best way to describe the tape action last week and since the October 2023 low is “the grind higher continues”. Fortunately, the grind higher has recently been taking on more participants, albeit hesitantly and with much consternation. Also, the number of New 52-Week Lows (a guidepost for when the odds of a meaningful decline increase—reach out for a chart) refuses to expand.

While various measures of short-term breadth continue to diverge, the equity market maxim “the trend is your friend” remains true. This is especially evident with the Large Cap “Index Movers.” As Don Hagan penned, “The Catastrophic Stop model is still positive, and we are aligned with the message.

From “Mag 7” to “Lag 7?” Not completely, yet. But the number of technology stocks exhibiting relative outperformance is slowly declining, especially when compared to alternative equity market proxies. Also, while still underperforming the S&P 500 YTD, other sectors—Energy, Health Care, Financial, Consumer Discretionary, and Industrial—are slowly moving up the relative strength scale.

For the most part, the “Index Movers” have held up and marched higher—still bullish. However, under the surface, while a sell signal has not occurred, “conditions” (broad upside participation), which don’t offer a precise timing aspect, are not as rosy and are actually downright poor/weakening.

During my four days in Montana for a wedding, I was struck not just by the state’s beauty but the similarities Montana shares with the condition of certain parts of the domestic equity market.

Large Cap Growth/Technology stocks that dramatically influence the price direction of certain capitalization-weighted domestic equity market indices are starting to outperform again. This is at the expense of the broader market and has produced some negative breadth divergences. Unless remedied, it is set up to produce either a time or a price correction.

In the spirit of Occam’s razor, which suggests finding an explanation using “the smallest possible set of elements,” we’ll focus simply on the recent price action of the Large Cap Growth/“Magnificent 7” heavy NASDAQ and S&P 500.