S&P 500 Eyes Breakout Even As Nasdaq 100 Acts Weak And Russell 2000 Lies In Between

Major US equity indices are diverging. The S&P 500 is itching to once again break out, even as the Nasdaq 100 acts tentative. Tech has suffered technical damage, and without the sector’s participation, it is hard to imagine the S&P 500 continuing its run.

The S&P 500 could be itching to break out. It has essentially gone sideways at 3950s the last six weeks. On February 16, the large cap index retreated after printing 3950.43. It then dropped 5.7 percent intraday over 13 sessions, closing below the 50-day for one session. Selling stopped at 3720s (Chart 1).

The rally from that low surpassed the prior high on March 17 as the index tagged 3983.87. Then in seven sessions intraday, it shed 3.3 percent. Last Thursday, the average was once again breached but the only intraday. In the last couple of months, this was the third time the 50-day was used as an opportunity to buy.

From last Thursday’s low, the S&P 500 (3974.54) already rallied 3.2 percent – slightly past 3950s. The March 17th high is just a stone’s throw away. A rising trend line from last March has been defended – again. Friday finished strong – for a daily marubozu.

That trend line on the Nasdaq 100 has been breached, however. It was lost over a month ago. As did the S&P 500, the tech-heavy index peaked on February 16 at 13879.77. Then, through the March 5th low, it quickly dropped 12 percent – below the trend line as well as the 50-day. The rally since – unlike the S&P 500 – was unable to recapture the 50-day, forget rising to a new high.

From bulls’ perspective, the good thing is that the highs from last September-October – between 12200s and 12430s – has been defended. But the index (12979.12) remains under the 50-day and does not quite act healthy. One can sense this comparing Chart 2 with Chart 1.

Similarly, the Russell 2000 has lost a rising channel from last October-November. The small-cap index (2221.48) has come a long way since last March when it bottomed at 966.22 (Chart 3). But the channel in question probably holds more significance in small-caps’ case.

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