Inside Markets — Technical Levels

We keep a near-term bullish tactical outlook on the SPX at levels north of 5060 with an upside price objective of 5415.  This implies ~1.9% upside from current levels. In rounded terms, a break below 5000 would make us tactically bearish to support near 4600.  This implies ~13% downside from current levels. While the risk/reward looks relatively unappealing, the US economy is late cycle and equity markets have a history of overshooting to the upside amid late-cycle dynamics.  The small-cap, cyclically sensitive Russell 2000 (RTY) has returned near the upper bound of its 2-year range.  This is the sixth attempt to break above the range defined as ~2140.  In our opinion, the RTY needs lower bond yields to sustain a break above 2140.  The pullback in bond yields over the last week has been the main driver of equity upside.  Unfortunately, bond yields look pretty sticky at these levels and the ‘easy money’ has already been made.  In two-year terms, a break below 4.75% would be an encouraging development with sustained levels below 4.50% the likely catalyst for RTY upside beyond ~2140