August 17, 2022
The fundamental backdrop for equities remains bearish with a 3.50% terminal funds rate and deeply inverted 2/10 yield curve. Bearish sentiment and light positioning provide support, while the magnitude and duration of the recent rally challenges our definition of a reflex rally during a bear market. Last week’s cooler July CPI print resulted in the S&P 500 (SPX) breaking above strong pattern resistance at ~4200 and above the 50% retracement level at 4238. Three more near-term technical resistance levels are just overhead with: 1) 52-week Volume Weighted Average Price (VWAP) on the ETF (SPY) sitting at 4320; 2) the 200-day moving average at 4330 and; 3) the YTD downtrend line at ~4350. The hurdle that matters most is the 200-day moving average as a historically popular trigger for CTA’s. Sustaining levels north of 4330 would likely invite further upside momentum. We recognize how difficult it is to add significant equity exposure based on momentum alone, but we’ve seen upside momentum precede improved fundamentals countless times. Downside support sits at the 4070-4120 level with a break below indicating a loss of momentum.