U.S. stocks just took a breather, but technical analysts poured cold water on the rally: Monday's rebound is nothing more than a "dead cat bounce"!

U.S. stocks saw a slight rebound on Monday, but several institutions specializing in technical analysis questioned the sustainability of this round of recovery, warning that the market may be facing a volatile and weak summer season.

Mark Newton, Head of Technical Strategy at independent U.S. market research and consulting firm Fundstrat, stated in a post-market report on Monday that the day’s rise resembled a “dead cat bounce” rather than the establishment of a trend bottom. He cited the S&P 500 cycle synthesis indicator, pointing out that the model shows the market is near a cyclical top and expects weakness to persist at least until late July, with downside risks potentially extending into October.

In terms of specific data, the Nasdaq Composite Index rose 0.9% on Monday, while the S&P 500 edged up 0.3%. However, compared with Friday’s sharp drops of 4.2% and 2.6% respectively, the rebound was clearly insufficient.

Newton noted that the S&P 500 at one point rose around 1% during Monday's session, but later gave back its gains and closed below the opening price. More notably, the number of declining stocks exceeded rising ones, market breadth was negative, and trading volume was much lower than during Friday's sell-off. He stated:

“Both the S&P 500 and Nasdaq 100 ETF (QQQ) closed below their opening prices. This closing formation suggests a high probability the market will test and break below Friday’s lows.”

Cycle Model Signals a Top, Summer May Be Weak and Volatile

Newton’s S&P 500 cycle synthesis indicator is a market model that integrates historical seasonality with calendar trends into a single predictive path. He noted that the model has signaled a top near the current point and has turned negative.

Newton admitted that the cycle model is not infallible—it signals the timing and direction of turning points, not the degree of adjustment. But he emphasized that the broad index cycle has weakened from its predicted high, coupled with Friday’s massive unwinding of growth stocks and stretched market positioning, making a strong case for a weak and volatile summer.

In terms of levels, Newton expects that the S&P 500 may retest 7333 points (mid-May level) in the short term; if the decline broadens, it could further drop to the 7135-7250 range.

Citi Technical Signals Echo Bearish Outlook

Coincidentally, Citi’s technical analyst team issued similar warnings. A report led by Daniel Tobon pointed out that on Friday, the Nasdaq 100, Philadelphia Semiconductor Index, and S&P 500 all formed a “bearish outside week” pattern (the week’s range completely covers the previous week and closes lower, signaling increased selling pressure).

Citi stated that historical data shows when both the Nasdaq 100 and S&P 500 trigger this pattern, there’s a higher probability the market will weaken in the following two weeks. While the specific decline may vary, the overall downward trend is relatively clear.

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