Stock Market Commentary
The stock market resolved one cliffhanger, a hovering just below resistance at 200-day moving averages (DMAs) on the major indices, and moved on to another. A large surge in reaction to a pause in China vs U.S. trade hostilities sent the major indices gapping right over resistance and directly into the overbought threshold for market breadth.
Like many others, I expected very little news to come out of the weekend talks because both countries stubbornly stood at the edge of a complete collapse in trade. The willingness of the U.S. roll back tariffs from 145% to 30% looks like a major concession and admission that the U.S. cannot afford even a short-term collapse in trade. China walked back its 125% tariff rate to 10%. Still, this 90-day pause to facilitate talks will likely just be the first of many pauses given the complexities involved and the ambitious demands from the U.S. Regardless, for now, the market only cares about what could go right in the coming weeks and months.
This 90-day pause delivers a climax of sorts that reinforces a model I have identified as a driving factor that makes trading at extreme work: markets panic → policymakers panic → policymakers act → markets celebrate. In this case, the celebration came in the form of a tariff pause, with the ultimate policy concessions yet to arrive. Accordingly, I expect coming dips on freshly disappointing news to present new buying opportunities.
The market also will get a boost from the GOP budget and tax bill moving through the House of Representatives. Fiscal stimulus will flow into the economy next year in the form of a continuation of tax cuts on top of the ones getting extended. Since consumer spending is about 2/3 of the economy, fiscal stimulus that puts money into people’s pockets (or in some cases keeps it there) will provide another buffer of optimism for the stock market.
In a sense the self-inflicted wounds from March and April with this second cliffhanger right at the overbought threshold. This swift trip from deeply oversold to overbought is 2025’s version of “mission accomplished” (hat tip to Stocktwits for the wry reference!).
The Stock Market Indices
S&P 500 (SPY)
SPY delivered a bullish performance by clearing two critical hurdles on a 3.3% gain: the 200-day moving average (DMA) (the blue line) and resistance established by the election day close from the prior November. In March, when SPY hit that election-level resistance, sellers dominated; they were relieved to get their money back or minimize losses from doing post-election buying. Now that bearish overhang is behind the market, leaving open space to run above.
Pullbacks to the 200DMA or even the 50DMA (red line) would be normal and are likely to be well-supported. The convergence of the uptrending 20DMA (the dotted line) and 50DMA reinforces this support zone.
NASDAQ (COMPQ)
The NASDAQ followed suit, clearing both its 200DMA and its election day resistance on a 4.4% gain. The next likely challenge is resistance from the January lows, but that level will likely not slow the market’s ascent amid current bullish momentum. The NASDAQ is now set to re-test its all-time highs.
iShares Russell 2000 ETF (IWM)
IWM gapped up 3.5%, landing between SPY’s 3.3% and the NASDAQ’s 4.4% gains. Although I was already bullish on IWM’s uptrend line, I missed this latest trade while hoping for a tiny pullback to start the week. IWM is now overextended and trading above its Bollinger Band (BB), indicating a cooling-off period may be near. I plan to buy a return to the uptrend line before, an event I expect before IWM moves on to challenge its 200DMA resistance.
The Short-Term Trading At the Overbought Threshold
- AT50 (MMFI) = 67.7% of stocks are trading above their respective 50-day moving averages
- AT200 (MMTH) = 41.9% 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 50DMAs, nearly hit the 70% overbought threshold, peaking intraday at 69.7%, then retreating. By AT50 trading rules, this pullback from the overbought threshold would initiate a bearish warning, but I am not flipping bearish. I am not even cooling to neutral. The oversold bounce and rally was steep, and a pullback would be a healthy cooling-off period, not a reversal. I do not want to get caught chasing a natural cooling period as a bear. A breach of the S&P 500’s 50DMA support might change my tune.
AT200 (MMTH), the percentage of stocks trading above their 200DMAs, showed promise by exceeding its last high intraday but closed below the high, keeping its downtrend of lower highs and lows intact. While still promising, AT200’s position above its Bollinger Band suggests it is overextended and could see cooling. This positioning naturally tempers some of my bullish sentiment.
Finally, the volatility index (VIX) plunged and fell back below the 20 threshold, ending the recent stretch of elevated volatility. The VIX is now back to levels of market complacency seen before the tariff upheaval. This move supports bullish sentiment but also makes put options attractively priced for portfolio and trading protection.
The Equities: Overbought Threshold
Spotify (SPOT)
SPOT gapped down and sold off 4.2%, despite an analyst upgrade. The drop below its former all-time high raises a yellow flag, though this may still be a buying opportunity for bullish traders.
Invesco CurrencyShares Euro Trust (FXE)
FXE, which tracks the euro versus the U.S. dollar, weakened following the fading of trade-related dollar softness. The euro, via FXE, is testing 50DMA support—a key level to watch.
Robinhood Markets, Inc (HOOD)
I sold HOOD to lock in profits from earlier purchases during the sell-off. This move represents risk-management move; I’m still bullish and will redeploy the cash on pullbacks.
Dollar Tree, Inc (DLTR)
DLTR gapped up 4.1%, pushing into a gap left from last summer. I nearly took profits but held back given its momentum and favorable positioning compared to Dollar General (DG), which surprisingly fell 2.4% on the day.
Micron Technology, Inc (MU)
MU soared 7.5%, stopping just shy of 200DMA resistance; there are many cliffhangers like this one. I have taken profits on the way up using a hedged position with shares short and long call options. Note in the chart below how well the 200DMA has served as stiff resistance repeatedly since last summer. I suspect MU will fall back to test 50DMA support before making its next 200DMA breakout.
Hertz (HTZ)
HTZ was down 5.3% post-earnings and after market at the time of this review. While its April surge was impressive, I remain cautious. I am watching for tomorrow’s reaction to the earnings report. If not for earnings I would have considered buying the small close above 20DMA support.
Shopify, Inc (SHOP)
SHOP surged 13.7%, and I missed a planned entry due to the stock’s Friday close below converged resistance from all three major moving averages. I often aim to buy at a 50% gap retracement, but I failed to get associated limit orders in place.
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 #12 over 20%, Day #10 over 30%, Day #8 under 40%, Day #3 over 50%, Day #1 over 60% (overperiod ending 85 days under 60%), Day #187 under 70%
Source for charts unless otherwise noted: TradingView.com
Full disclosure: long IWM shares, long SPY shares and put spread, long DLTR, short MU shares, long MU calls, short EUR/USD
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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.