Stock Market Commentary
We closed out March and Q1 with a wild day of trading. As captured in a headline from Yahoo Finance, “Wall Street closes out worst quarter since 2022,” sentiment was deeply negative. Headlines about tariffs, economic troubles, and Coinbase’s (COIN) worst quarter since the FTX collapse added to the sense of dread. Yet, despite the gloom, the opening session suggested a potential turning point. The market gapped down sharply, raising the question: did the stock market finally reach capitulation? Buyers certainly jumped in right at the open, and price action throughout the day showed encouraging signs.
So, while sellers panicked at the open, buyers were ready. By the end of the day, the stock market pulled off solid intraday recoveries. Still, it is important to keep in mind: the stock market remains in a bear market, and all rallies are temporary as a result.
A fresh Goldman Sachs (GS) market downgrade also coincides with a potential capitulation day. Goldman cuts its target on the S&P 500 for the second time this year. Per Yahoo Finance, Goldman lowered “targets for the benchmark index’s return to -5% in the coming three months and 6% over 12 months, down from 0% and 16% respectively. This forecast includes the potential for a negative year-over-year performance. The S&P 500 opened the year at 5,881 while Goldman implies a range between 5,300 and 5,900 over the next year. A prediction for a negative year is about as close as prominent analysts come to capitulation!
The Stock Market Indices
S&P 500 (SPY)
The S&P 500 gapped down at the open, touching the earlier March low and even dipping toward September levels. From there, buyers stepped in, triggering a steady recovery through the session. The index remains stuck in what I call the “bear market area of agitation” – churning between this recent low and resistance formed by the November 2024 election day close, the 200-day moving average (DMA) (blue line), and a now-declining 50DMA (red line).
The intraday signal was compelling: after a rough first 15 minutes, the index climbed steadily for the rest of the day. The ability to close with a gain provided a strong confirmation of a capitulation open. While I cannot call today’s low the final bottom – bear markets provide no support – this low may be as sustainable as the earlier March low. Still, I decided to open a fresh hedge against an extended sell-off by buying an SPY July $520/$500 put spread.
NASDAQ (COMPQ)
The NASDAQ (COMPQ) remains in more serious trouble than the S&P. The tech laden index failed to close the gap and ended the day down marginally. Most notably, the NASDAQ closed at a new low for March.
The key technical level to watch now is that previous March low. If that level becomes new resistance, then tech could drag the rest of the market lower. Risk remains elevated with the November 2021 all-time high as a downside target in a (theoretically) worst case scenario.
The iShares Russell 2000 ETF (IWM)
IWM mirrored the NASDAQ’s pattern. The ETF gapped down below the March low, then saw buying support, but couldn’t close the gap and finished the day down 0.5%. IWM still hovers above the conventional bear market definition – 20% below its all-time high. I continue to expect that level to get retested before the dust settles on the stock market’s bear market. Nonetheless, I added to my IWM call option position as a play on a potential bounce.
The Short-Term Trading Call With Tariff Flexibility
- AT50 (MMFI) = 24.8% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) = 34.9% of stocks are trading above their respective 200-day moving averages
- Short-term Trading Call: cautiously bullish
AT50 (MMFI), the percentage of stocks trading above their respective 50DMAs, closed at 24.8%. My favorite technical indicator dropped as low as 22.6% before rallying. AT50 approached the oversold threshold but avoided touching the March low. This kind of higher low could be the beginning of a sustainable low.
AT200 (MMTH), the percentage of stocks trading above their respective 200DMAs, printed a similar pattern. This measure of longer-term market health gapped down near its earlier March low but held steady. Continued buying would validate this support, setting the stage for a broader recovery.
The volatility index (VIX) gapped higher at the open but faded sharply all day. However, the VIX still closed with a gain. Since the VIX did not gap at least to its previous high, the morning’s open is not as strong a capitulation moment as I would like. A “turnaround Tuesday” with strong follow-through buying would increase my confidence in a capitulation-type low.
The Equities: Bullish Engulfing Provides Signs of Capitulation
Accenture plc (ACN)
Accenture plc (ACN) delivered a bullish outside day or what I interpreted as a textbook bullish engulfing pattern. After gapping below the prior day’s low, the stock surged to close above the previous day’s high. This move may mark the end of a significant downtrend for ACN.
Despite dropping 7.3% on earnings day, ACN has now made a marginal post-earnings high. I expect ACN to continue rebounding toward its 20DMA (the dotted line). If ACN can close that earnings gap, the next resistance will be at the confluence of the 50DMA and 200DMA.
ACN makes my buy list thanks to this bullish setup, backed by a growing generative AI business – even if some exposure to government contracts adds uncertainty.
Apple Inc (AAPL)
Money returned to AAPL. Suddenly, the traditional market darling is outperforming the recent pain in the NASDAQ. AAPL barely gapped down at the open, an early sign of the intraday rally to come. However, AAPL closed right at downtrending 20DMA resistance. (I assume the intraday high is a blip in the data given it occurred in the last few minutes in the chart).
Be careful out there!
Footnotes
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“Above the 50” (AT50) uses the percentage of stocks trading above their respective 50-day moving averages (DMAs) to measure breadth in the stock market. Breadth defines the distribution of participation in a rally or sell-off. As a result, AT50 identifies extremes in market sentiment that are likely to reverse. Above the 50 is my alternative name for “MMFI” which is a symbol TradingView.com and other chart vendors use for this breadth indicator. Learn more about AT50 on my Market Breadth Resource Page. AT200, or MMTH, measures the percentage of stocks trading above their respective 200DMAs.
Active AT50 (MMFI) periods: Day #324 over 20%, Day #2 under 30% (underperiod), Day #21 under 40%, Day #33 under 50%, Day #60 under 60%, Day #161 under 70%
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long IWM calls, long SPY shares and put spread, long GS
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*Charting notes: Stock prices are not adjusted for dividends. Candlestick charts use hollow bodies: open candles indicate a close higher than the open, filled candles indicate an open higher than the close.
* Blog notes: this blog was written based on the heavily edited transcript of the following video that includes a live review of the stock charts featured in this post. I used ChatGPT to process the transcript.