Markets have begun the process of bottoming out following a steep 10-15% decline from all-time highs by SPX and QQQ, respectively. While it’s extraordinarily difficult to make the case for a market bottom given the lack of sufficient structural progress off the lows, there have been increasing signs of bearishness leading to fear in ways that normally suggest a bottom should be imminent. Furthermore, evidence of defensive weakness creeping back into the market has been present in recent days, combined with VIX backwardation and a strong Advance/Decline reading in volume on Friday. Overall, while it’s hard to rule out a possible retest of lows early next week, I view the risk/reward scenario as being excellent at current levels and don’t mind being long, looking to buy dips if given the chance early next week. The downside should be limited to roughly 3%, while the upside back to new all-time highs should get underway to carry SPX up more than 9% initially.
SPX neared the key 5500 area as it took out Tuesday’s lows in trading on Thursday. (As discussed in prior reports, SPX-5500 has importance due to the confluence of the Fibonacci-based 61.8% level of the rally from last August into February 2025, the 23.6% Fibonacci level of the entire intermediate-term uptrend from 2022 lows into this past February, and an alternate projection wave based on it being double the length of the first move down from December peaks into early January.)
As shown below, SPX managed to rally right to resistance into Friday’s close that was mentioned in the intra-day “FlashInsights” which is offered by Fundstrat/FSI Insight on the downloadable App for intra-day updates.
This looks to be a short-term area of importance heading into early next week. Given this downward sloping Ichimoku cloud, it’s still hard to declare that the downtrend has been broken and prices will head immediately higher. However, it’s clear to me technically based on the degree of near-term improvement in momentum and breadth seen in Friday’s session that a bottoming process is underway.
S&P 500 Index
Five bullish developments that suggest stock indices should be bottoming:
- Consumer Staples sold off sharply most of the week. Seeing a defensive sector like this losing ground despite the market still struggling to bottom is normally a key sign that a low to the decline could be near.
- Equity Put/call ratio finally pushed above 0.90. I had discussed this in Thursday’s note which failed to include the results from Thursday’s close, but Equity Put/call ratio did indeed spike up above 0.90 which is roughly in-line with levels that have marked Stock market lows over the last year.
- Advance/Decline in volume spiked to show more than 80% of the volume on the upside in Friday’s session.
- VIX, the CBOE Implied Volatility index, closed down on the week despite SPX also closing down.
- My cycles composite suggested a low to this decline might happen Friday, 3/14/25.
In addition to these new factors, I’ll list the previous positives, which I feel are important reasons why a low stock market should be imminent. The initial list published this past Tuesday, 3/11/25, is as follows:
QQQ could very well have bottomed; Long positions are commended with 3-5 month timeframe and dips early next week will make this even more attractive
As shown below, QQQ finally produced some important DeMark-based exhaustion on its 240-minute chart, a timeframe which I often utilize along with the daily chart to help pinpoint highs and lows using counter-trend analysis.
As shown below, TD Sequential “13 Exhaustion” signals happened on Friday and were confirmed by the close. While Friday’s rally was strong enough to cancel the TD Buy Setup count, which might have appeared on daily charts, the 240-minute is often also worth monitoring.
As shown below, QQQ peaked in December when TD Combo 240-min “13 Countdown” exhaustion “Sells” were present along with February “Sells.” It’s important that QQQ has now confirmed a “buy” using a 240-minute timeframe.
QQQ rallied back to the level of its prior uptrend line from 2022 that had been broken earlier in the week, making this a minor break of this important intermediate-term uptrend on a daily basis only, and not on a weekly basis.
Nasdaq QQQ Invesco ETF – QQQ
Equity Put/call ratio has now hit extremes
I’m republishing this chart, which I showed last night because it managed to trigger a reading over 0.90 for the first time since the January 2025 equity bottom.
My chart last night was provided as of mid-day on Thursday, but has now joined other readings such as the term structure inversion in VIX from earlier this week to suggest a low should be imminent.
While no official capitulation happened to volume on the downside, I don’t think this is necessary for SPX to bottom.
To repeat my conclusion from last night for those who missed Thursday’s report, this Equity Put/call ratio has now gotten to near a level where an equal number of puts were bought compared to call options.
The last three major SPX swing lows all occurred with abnormally high Equity Put/call readings: January 2025, August 2024, and April 2024. I expect that this recent negative sentiment has now morphed into levels of fear that normally occur near stock market lows.
CBOE Equity Put/Call Ratio
Advance/Decline in Volume eclipsed 80% of volume into Advancing issues by Friday’s close
Another important gauge I find helpful is when the volume on sharp gains following a sharp period of market decline eclipses 80% on the upside.
In other words, more than three-quarters of the volume of NYSE issues was found in advancing issues vs. declining.
While not an official 90% “UP” day, it is important to see strong volume days when the market experiences 1%+ rallies off a low, which largely has been lacking in recent weeks.
Coinciding with the other positives mentioned above, this looks to be a bullish omen for stock indices to be in a bottoming process, which should lift prices back to highs.
The chart below is a daily chart of the plurality of Advancing minus Declining issues, which managed to hit the highest levels in more than a month. I find this encouraging.
New York Stock Exchange Advancing Stocks Minus Declining Stocks
