Inside Markets — Reflex Rally

The reflex rally off last week’s low has carried the SPX into strong technical resistance in the 5396-5650 range. Reflex rallies are counter trend moves that usually follow a spike in implied volatility (VIX). While elevated volatility acts as a headwind for rally attempts, a sudden spike in the VIX tends to generate a reflex rally in the week that follows. Barring a surprise trade deal framework with a G7 country (think Japan), we expect the index will pullback from this area and eventually retests the lows near 4830. US equities should have an opportunity to form a more lasting bottom after the retest.