US equity market momentum is eroding, according to George Davis, Chief Technical Strategist at RBC Capital Markets.
Davis says initial resistance at 4,257 would need to be broken to sustain the current uptrend in the S&P 500 (Chart 1), with resistance levels at 4322 and 4402 thereafter. A daily close below 4185, however, would stall the uptrend and expose key levels at 4057 and then 3984, which would initially be part of a corrective phase. Additionally, a divergence is forming on the RSI (lower pane); Davis thinks a break below 40 would point to an erosion in bullish sentiment for US stocks.
Meanwhile, Davis points out that multi-month bullish trendlines have broken down for some key commodities which have started corrective phases (Chart 2).