Technical Analysis

• Our outlook remains bullish following the S&P 500’s multi-month base breakout above 5670, alongside constructive market dynamics which have significantly improved over the past week.
• Last week’s 11/5/24 report titled “Buy the Pullback” discussed how we were buyers, expecting a strong end-of-year rally to start that day or the following day (day after the election)
• The strong rally officially started on election day, and all that is left to do is ride the trend higher into year-end and the early part of 2025

• Considering constructive market dynamics and the recent $SPX breakout above 5783 following several months of consolidation, we upgraded our outlook to bullish as of our 10/15/24 U.S. Macro Vision report
• Since late-July, we have been neutral on the SPX, preferring to buy near 5100-5200 support and sell near 5670-5783 resistance until there is a break in either direction.
• The verdict of the market is the only one that matters, and the breakout above 5783 is the market’s way of saying the path of least resistance is higher.

• Seller understanding that product may not sell immediately, similar to rainy day insurance with put options
• Tight correlation between supply, demand, and prices in liquid markets like put options
• Market risk climate currently influenced by high implied volatility due to upcoming events like elections, similar to date certain macro events in the past like Brexit or company earnings dates

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• The $SPX continues to hold below 5783, the upper-end of an important target/resistance area (5670-5783) we’ve discussed since our 8/13/24 Compass, just after SPX hit our 5100-5191 “expected pullback zone.”
• The current “breakout” above 5670 is an extraordinarily weak one, which suggests a false breakout/bull trap is brewing; SPX has spent nearly three weeks above 5670, with zero upside follow-through.
• As long as the SPX does not have a weekly close above 5783 we continue to recommend reducing risk and shifting to defensives.

• Major indexes in the three largest global equity markets (U.S., Europe, Japan) all remain below critical resistances of 5783 on SPX, 5000-5120 on EURO STOXX 50, and 2740-2820 on TOPIX
• Additionally, broad global MSCI indexes (local currency) including the ACWI, ACWI ex-U.S., and EAFE all remain at/below resistance from their YTD highs; reduce exposure or shift to defensives.
• In late-July we discussed expectations for a 1-to 4-month pullback/consolidation period on MSCI ACWI. We believe it seems likely to last closer to four months, and potentially 4- to 6-months

• $SPX remains below 5783, the upper-end of important target/resistance area we’ve discussed for a month+ (5670-5783). 5670 was prior all-time high set in July, while 5783 is 2% above 5670.
• It’s hard to call it a “decisive” breakout if SPX isn’t even 2% above its prior high.  In 2007, SPX made a top after climbing 1-2% above its prior high.
• The 2007 topping analog has tracked the current market almost perfectly, with similar backdrops to today including new Fed cutting cycle, recession indicators going off, yield curve un-inverting, defensives outperforming

• The S&P 500 (SPX) is approaching 5783, which is the upper-end of an important target/resistance area we have discussed for over a month (5670-5783).
• 2007 SPX topping analog has tracked the current market almost perfectly, suggests a 2% or less move above the prior all-time high set in July at 5670 before topping (i.e.,5783)
• SPX is “breaking out” which is bullish, but time and time again we have seen bull/bear traps (false breakouts/breakdowns) at major turning points. Bull trap confirmed on break below 5670

• The S&P 500 (SPX) is back to test YTD highs and important resistance in the 5670-5783 range. This is an important target/resistance area we have discussed for weeks.
• Using the 2007 SPX topping analog suggests a 2% or less move above the prior all-time high set in July at 5670 before topping, which gives the 5783 number.
• As long as SPX does not have a weekly close above 5783 we continue to recommend reducing risk and shifting to defensives,and this is the ideal time to do so.

• Our long-term outlook remains neutral on the S&P 500 (SPX) as of our 8/6/24 Compass, after being bullish since early-November 2023.
• Since late-July discussed expectations for a 1-to 4-month pullback/consolidation on SPX and QQQ; now it’s likely to last closer to four months, and potentially 4- to 6-months from 7/17/24.
• At that point the market will decide which way this consolidation resolves. Throughout this pullback we have said that this consolidation could end up being a significant topping pattern.

• The latest recessionary signal we see: WTI and Brent crude oil prices violating 1.5-year supports, only adding to our prior concerns about a weakening labor market (Sahm rule, SRI triggered)
• We also discussed last week (August 29) how we were expecting the S&P 500, Japan’s TOPIX, and Europe’s EURO STOXX 50 to “roll over near current or marginally higher levels.”
• Ongoing belief (since July 25) is that $ACWI is going through a 1- to 4-month pullback/consolidation that could end up being a topping pattern. All have since reacted lower.