Market Rotation Sends Mixed Signals

There was an apparent rotation in the market today, with the Nasdaq falling by approximately 90 basis points, while the equal-weight S&P 500 (RSP) rose by 1.2%. This divergence has put the RSP on the verge of becoming overbought itself, with an RSI at 69.1 and trading above its upper Bollinger Band.

The move higher in the RSP caused the SPY-to-RSP ratio to fall today. As previously noted, the ratio is now in a range associated with past pullbacks in the S&P 500—specifically, July 2024, December 2024, and February 2025. If these dates sound familiar, there’s good reason. I’d say this is one ratio worth keeping a close eye on.

While I was eating some carrots earlier, with my dogs hovering nearby, I glanced at this chart of the S&P 500 and wondered if a rising wedge with a throw-over pattern might have formed during the past couple of days. After plotting it out, it seems it could indeed be a valid rising wedge with a throw-over.

There are two touches on the lower trendline and three on the upper trendline, making it plausible. Of course, we can’t be certain just yet—the only definitive way to rule it out is if the market continues higher from here. However, if we do break lower, confirming the pattern, it would provide an estimated target down around 5,660.

Anyway, the 21-day realized volatility has likely declined about as much as it’s going to for now, unless trading becomes extremely quiet—something like less than 50 basis points per day. Given that we have the jobs report on Thursday and the tariff deadline next week, the calendar doesn’t seem particularly supportive of such calm trading conditions.

-Mike

Terms by ChatGPT

Throw-over pattern:

Definition: A brief, false breakout above the upper boundary of a wedge or similar technical pattern, often signaling an upcoming reversal.
Rising Wedge:

Definition: A bearish chart pattern characterized by converging upward-sloping trendlines. It suggests weakening momentum and a potential price reversal lower when the price breaks below the lower trendline.

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