Trump’s tariff retreat coincided with record drops in the VIX along with a record number of points gained for DJIA on Wednesday. While it was difficult to try to call “the bottom” into Wednesday given the basis trade unwind in a very volatile market that had been trending down, there had been multiple technical factors that suggested a low was approaching and could be in place within a week. Following today, it’s likely, at a minimum, that market breadth has bottomed, and there is an increasing likelihood that Stock indices have made a low of importance. Treasuries rallied after the news along with a successful afternoon auction Wednesday, and seem to have calmed following the early day uproar over the tightening in swap spreads. Overall, I don’t mind being long here and looking to buy dips on either minor pullbacks or evidence of SPX regaining 5500. It’s right to say that the extent of the volume dispersion and range in Wednesday’s session helps to provide a bit more confidence in this rally than a normal bounce might given. However, given that prices are now nearing the most important area of the decline from a structural perspective, the next few days will be important in exceeding SPX 5500, QQQ-466.43, and DJIA-40,661 to give even more confidence. As discussed yesterday, the bounce into June-August will say much about whether a larger correction and/or recession can be avoided.
Wednesday’s about-face was impressive in its breadth and volume, not to mention its low to high range. SPX, DJIA and QQQ are all now nearing the prior March lows which are crucial to exceed to have more confidence about this rally extending.
As touched on briefly yesterday, I believe the combination of capitulatory volume in recent days coupled with high TRIN readings, high Equity Put/call readings, and severe oversold conditions in breadth and momentum gave some ample clues that an above-average rally might be around the corner.
As can be seen below, it appears that SPX did hold the 50% retracement level of its 2022-2025 advance at SPX-4800, and the resulting rally is now threatening a very big area of importance, which lies near mid-March lows that were broken. The ability to get back over these levels would be very encouraging, as the lows are in place, and a rally of magnitude has gotten underway, which could push back to new all-time highs.
Unfortunately, momentum remains downward sloping, and the trend remains bearish from February’s peaks. Additionally, the price has nearly reached the most important area of resistance to this decline, structurally. However, the good news is that nearly all the volume flowed into Advancing issues on Wednesday, with a ratio of around 60/1, causing the TRIN to drop to .17. The NYSE Advance/Decline registered around a 6/1 ratio, which is very strong on a move of this sort.
Thus, at a minimum, I expect that lows will be in for breadth this spring. Even on a backing and filling, I suspect that should provide buying opportunities. However, it’s still not completely right to trust this rally purely based on price structure until SPX gets above 5500.
S&P 500 Index
Negatives that never were addressed and what failed to happen ahead of the bounce
As mentioned earlier this week, the following still looked to need to happen ahead of Wednesday:
-Elliott-wave structure normally says multiple downside gaps rarely form the basis for a low, given my interpretation, as those normally represent “Wave 3” type declines.
–Daily DeMark exhaustion was never present on either QQQ (In forming a proper TD Buy Setup) or in TD Sequential registering “13 Countdown” buys for SPY or QQQ on daily charts (however, the weekly charts both showed TD Buy Setups, which normally are important).
However, in the bigger scheme of things, the degree of extreme downside volume last week, followed by upside volume earlier this week, along with Wednesday, certainly helps to give some confidence. Furthermore, as my ratio chart showed last night, Technology had pulled back to an area of attractive support relative to RSP 1.22% and had signaled DeMark exhaustion.
Magnificent 7 achieved its greatest percentage gain ever on Wednesday
As shown below, following a successful retest of August 2024 lows within 1.2%, the Roundhill Magnificent 7 ETF (MAGS -0.16% ) made its largest percentage gain ever today.
TD Sequential buy signals were confirmed on Wednesday’s close above $43.94, and the price now lies near the key downtrend from February, which likely will be an important area to watch carefully over the balance of this week. (Note: this lies at approximately $47.00.)
The ability to exceed $47 in MAGS should help to carry this to $50 initially, as part of a new trend which likely carries MAGS back to new all-time highs.
Pullbacks from resistance, which looks to be quite close to where MAGS closed on Wednesday, likely found strong support near $42.84-$43.75 before pushing higher. While not expected, any decline back under $41.93 would be problematic towards allowing an immediate continuation move higher.
The Magnificent Seven ETF – MAGS
10’s-2’s Spread remains trending up despite Wednesday’s flattening
The chart below shows the steepening of the yield curve, which was exacerbated given the basis trade unwinding in recent days.
Technically, it’s still hard to make the case for a big rollover just yet. However, the auction results for Wednesday were about as good as could have been hoped for. This seemed to be good news, suggesting non-US accounts might not be in a buyer’s strike as had been thought possible given the rapid backing up in yields in recent days.
Overall, the path for yields will likely remain choppy in the weeks ahead, ahead of another pullback down towards lows into late Summer.
At present, the 10’s-2’s curve remains in steepening mode, but it will need to be watched for evidence of flattening enough to break the current uptrend.
Market Matrix US Sell
Healthcare looks washed out following a sharp decline
There are a lot of reasons to avoid getting too negative on Healthcare, given the sharp decline in recent weeks, which was followed by a gigantic rally on Wednesday back to multi-day highs. As can be seen below, this sector remains under substantial pressure given the violation of $29 in RYH,(Invesco equal-weighted Healthcare ETF). That level represented trendline support going back since 2023.
However, Wednesday’s rally was quite positive for this sector, despite the possible tariff implications for the Pharmaceutical sector (however, with a +4.34% gain, Healthcare still lagged the move in the broader market)
A couple of important points are worth mentioning:
-Healthcare, the third biggest S&P sector by Market capitalization, is expected to post the best first-quarter earnings growth by far at over 36%, and so far has posted some of the best guidance, according to Bloomberg.
Despite the absolute damage of late, Healthcare remains an outperformer to SPX thus far, and has outperformed even the Equal-weighted S&P 500 by over 200 b.p. so far this year (-3.21% for RSPH, vs -5.75% for RSP)
Thus, I find Healthcare attractive for a bigger than average bounce in the months ahead. If/when the relative picture of Healthcare starts to deteriorate, then I’ll adjust my sector weightings. For now, Healthcare is an overweight.
S&P 500 EW Health Care Invesco ETF – RSPH
