It was an interesting day in the market, with significant price swings, soaring expectations, rising rates, and even the moving higher. The US-UK trade doesn’t look particularly exciting to me; if that was the best deal, it will certainly be interesting to see what the next couple of deals look like. Although Lutnick made it pretty clear that 10% is the best rate anybody is getting.
In any case, the market rose sharply as Trump was speaking. As noted in the intraday update for subscribers, this appeared like a volatility crush, based on the mechanical rise in the and the corresponding decline in the .
Of course, as one would expect, that volatility crush ended around noon, and the rally stalled along with it. Although we managed to finish the day higher, we were up as much as roughly 1.5%, which shrank to about 60 bps.
I think yesterday’s price action again confirms that this area seems ideal for a reversal. The index is at the 61.8% retracement level, at the July 2024 highs, and just below the 200-day moving average. Additionally, the S&P 500 may have formed a 2B top—a technical pattern occurring when the index attempts to surpass the previous high but then closes below the prior high’s close, as we saw yesterday compared to May 2. Of course, we’ll need to see further declines to confirm this pattern.
I’d say the scenario for the could actually be a bit worse in some ways, as it also has a 2B top pattern in place, has stalled precisely at the 61.8% retracement level, and faces resistance from the March highs.
However, probably the most important feature on this chart is that the NASDAQ 100 has now failed to surpass its 200-day moving average on four separate attempts.
The closest comparable example I could find occurred from February to April 2022.
What’s interesting about this comparison is how closely yesterday’s NASDAQ 100 is trading to the pattern we saw in early 2022, which we now know was a bear market. My analysis during 2022 showed that the market behavior at the time closely resembled prior bear markets. This suggests we might very well be in a bear market environment right now; it’s just that we haven’t reached that particular stage of the cycle yet.
In the meantime, one and 2-year inflation swaps rose yesterday and are now very close to breaking out and moving sharply higher, which will be something to watch.
It also looks like the broke out yesterday, too.
Only time will tell, of course.
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