Discussion
Two things have me on watch for a near-term retest of the June 16 SPX high of 4448.47: volatility market structure has re-pinned SPX, and defensive sector underperformance. Zooming out to the multi-month picture, however, decisive negative divergences between SPX and breadth and HY CDX on multiple time frames says the topping process is very much intact.
Retesting a high if not slightly exceeding it is classic topping process behavior seen at all major market tops, as it is a very necessary condition to clear out the last of the bears (“this market will never go down”) and suck in the last of the bulls (“this market only goes up”).
All that to say, two good quant-oriented FinTwit follows this evening confirmed that the SPX has likely found a local low and should move higher into EOM/BOM. The composition of the retest rally should provide key clues as to its durability as we head into the showdown between earnings season and liquidity drainage.