Conclusion, Investment Implications & Strategy

In our view, today’s strong rebound from yesterday’s low in the benchmark S&P 500 (SPX) is not an indication that the market believes the market’s tariff and geopolitical-related problems are over, or have been completely discounted by the market, but rather just a knee-jerk risk/reward-related opportunity for investors/managers to buy the market at a huge discount from where it was just three weeks ago with limited downside risk and much larger upside potential.  It would take a significant improvement in currently extremely weak market internals, however, as would be indicated by a shift back to Positive in the Asbury 6 and a change back to Risk On in the Correction Protection Model (CPM) to help confirm that a more sustainable market bottom is in place.

Conclusion, Investment Implications, Strategy

The chart below plots the benchmark S&P 500 (SPX) daily since April 2023 along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies.   The red numbers show, step by step, what has happened to the broad market over the past several weeks.

  1. SPX breaks major support at its 200-day MA on Mar 10th, suggesting an emerging major bearish trend change.

  2. SPX rebounds to retest its 200-day MA (currently at 5757) as overhead resistance on Mar 25th and fails, giving more credence to the potential for a major bearish trend change.
  3. SPX retests and rebounds from the Mar 13th low of the decline while market internals aggressively improve according to the Asbury 6, which moves back to Positive on Apr 2nd with four green constituent metrics.
  4. Immediately following President Donald Trump’s “Liberation Day” tariff announcement after the market close on Apr 2nd, SPX collapsed by as much as 15% into the Apr 7th (yesterday’s) 4835 low.
  5. SPX 4819, just 16 index points below the Apr 7th low, is the January 2022 benchmark high, a level that we have for the past several weeks been pointing out in our various reports as being major long support.  In addition, the chart shows that even more formidable long-term support at the index’s March 2020 major uptrend line, currently at 4716, is quickly rising to converge and bolster SPX 4819.

S&P 500 (SPX) daily since April 2023

In short, in our view, the current rebound from SPX 4819 to 4716 is not an indication that the market’s tariff and geopolitical-related problems are over, but rather just a risk/reward-related opportunity for investors/managers to buy the market at a huge discount from where it was just three weeks ago with limited downside risk and much larger upside potential.  The upside potential is according to current historical extremes in volatility, market breadth, standard deviation, investor sentiment, and negative price momentum — characteristic of the early stages of selling exhaustion — as we displayed and discussed in our April 4th Keys To This Week report.

What is currently missing — and necessary to turn this technically-driven bounce from major support into a new buying opportunity — is a significant improvement in currently extremely weak market internals, as would be indicated by a shift back to Positive in the Asbury 6 and a change back to Risk On in the Correction Protection Model (CPM).