Inside Markets — Retest Scenario

The SPX has rallied ~4.5% from the March 13 low and into the ‘breakdown zone’ between 5765-5910. This area is now technical resistance, and the index needs to clear this range to resume a bullish trend. The SPX triggered bullish momentum divergence signals on March 13-14 without a reversal pattern or basing process. The lack of a reversal pattern adds conviction to our expectation for a retest of the lows. Ideally, the SPX would make a new intraday ‘capitulation low’ (below 5500) before triggering bullish momentum divergences for a second time.

The technical outlook described in the paragraph above fits a sequencing of events that starts with quarter-end pension rebalancing that heavily favors equity over fixed income. The incremental equity demand from the rebalancing will likely be exhausted before the weekend. The April 2 tariff announcement is one of the most well-covered catalysts in recent memory but unlikely to be a clearing event for equity markets in our opinion.

The passing of a catalyst can be a clearing event for stocks when it removes uncertainty, but announced tariff actions to date have not exactly achieved that outcome. Announced tariff actions have been immediately followed by a period of retaliation and escalation before negotiation. Since this process takes time, we expect the uncertainty discount might last longer than market participants currently expect, with some unwinding of the relief rally.

In our opinion, US equities will recover (lift above ~5910) ahead of true trade clarity, as macro conditions remain relatively resilient and the White House agenda is expected to shift to equity-friendly tax cuts and deregulation.