Extent of VIX and High Yield Spread retreat looks comforting

US Equities have remained in a fragile period of choppy consolidation lately, and despite SPX being up 5% from the 4/7 intra-day lows of 4835, it certainly doesn’t feel like stocks have been rising lately. There remains some evidence that 4/7 lows were, in fact, more extreme in creating some volume imbalances and a strong breadth push off the lows to add some credibility to April having created a bottom in stock indices. However, the two-steps forward, one step backward certainly doesn’t feel too comforting for market bulls given no relief in tariffs lately. Moreover, the split in US Dollar trajectory vs. Treasury yields seems to suggest some questioning of the US reserve currency status. I currently view the extreme pullback in VIX over the past couple of weeks and retreat in High Yield Option Adjusted Spread as being positives for risk assets. However, there needs to be some evidence sooner rather than later in Equity indices starting to turn higher, which might accompany a further retreat and/or negotiation on tariffs.  Until then, trends and momentum are negative, but arguably in better shape than a couple of weeks ago. Going forward, SPX 5500, QQQ-466.43 and DJIA-40,661 remain key areas to exceed to have confidence in a rally.

As seen below, the gap down in SPX to kick off the new week certainly wasn’t comforting to the idea of a market bottom having been made two weeks ago. All 11 sectors fell on heavy downside breadth to retrace about 61% of the prior rally from 4/7 lows. 

The positives at this point seem to revolve around three important points:

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