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Inside Markets — Consolidation


June 26, 2024

The SPX is consolidating recent gains after moving into a cluster of technical resistance levels between 5415-5490. The SPX is overbought and due for a period of consolidation. The last pullback to oversold territory occurred in mid-April and the last major consolidation hasn’t occurred since last August-October. In our opinion, signs of improved market breadth that occurred late last week were the byproduct of quarter-end portfolio rebalancing. And bull markets characterized by narrow breadth and thin leadership are more vulnerable to shock and disappointment. A pullback to oversold levels (usually 2-3 weeks) would be a welcome development given the pace of the recent advance and could open a window for broader equity participation during CQ2 earnings season (mid-July).

The bullish trend in the SPX remains intact above ~5290. A break below ~5290 opens the door to a change in trend that would accelerate on a sustained close below 5180.

Earnings estimate revisions determine stock price performance. CQ2 earnings season (kicks off on July 12) is especially important because this is when analysts tend to make the largest revisions to out-year estimates and portfolio managers all ‘turn the page’ simultaneously.

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