The Backside is Right here or Quickly Approaching | Buying and selling Locations with Tom Bowley

I take note of technical help ranges as the mixture of worth help/resistance is all the time my major inventory market indicator. We’re in a downtrend and, in my view, the buying and selling vary may be very, very clear on the S&P 500 proper now:

I feel most everybody can agree that a lot of the promoting and concern and panic will be attributed the commerce struggle – a minimum of a lot of the weak point occurred with startling tariff information. So I figured I might check out This fall 2018, which additionally skilled a 2-3 month bear market with the S&P 500 simply barely reaching the prerequisite 20% drop. This is what that regarded like:

The chart sample throughout This fall 2018 was fairly comparable. The VIX greater than tripled from underneath 12 to above 36. The VIX additionally greater than tripled in 2025, after ranging from a a lot greater stage close to 15. In each 2018 and 2025, that preliminary promoting episode noticed a drop of roughly 10% earlier than consolidating. Then the following drop was one other 10% or so. We do not know if the promoting for 2025 has ended, although, as that is the wild card.

This is what we do find out about sentiment. The VIX, with a worth within the 50s, is signaling a possible S&P 500 backside. Traditionally, surges within the VIX to this stage or greater, have coincided both with inventory market bottoms or they a minimum of they recommend that any future promoting within the S&P 500 is prone to be minor. This is a long-term month-to-month chart of the S&P 500 and the VIX, displaying this relationship:

Excessive concern marks bottoms and I consider this can be a nice visible to help this perception. Historical past tells us that when the VIX tops, we have both bottomed or we’re very near bottoming.

Late final week, we noticed each the March Core CPI and March Core PPI are available in nicely under expectations, which was outcome for these hoping for price cuts to start once more later this yr. On Friday, plenty of of us have been speaking very bearish after the College of Michigan client sentiment plummeted to a close to 50-year low. The issue with that bearish line of considering is that sentiment is a contrarian indicator. Bearish readings are usually fairly bullish for shares, whereas bullish readings can mark vital tops. Do not consider me? Try this chart after which present me your finest bearish argument:

The low readings within the green-shaded areas are literally very bullish. You may’t argue with historical past and details. When most of the people is feeling despair, it is the time to purchase shares, not promote. And for individuals who consider this time is totally different, let’s test again in a single yr from now and let’s have a look at the place we’re.

Word another factor. Absolutely the highest client sentiment studying was at the start of 2000, simply earlier than the dot com bubble burst. Everybody felt nice again then and the S&P 500 did not make a significant new all-time excessive for 13 years. So that you inform me, would you somewhat see sentiment energy or weak point?

I do know it sounds terrible to listen to that client sentiment readings are among the many lowest in historical past and it possible makes little sense to many why the inventory market would go greater whereas sentiment is so detrimental. However it’s important to keep in mind that the inventory market appears 6-9 months forward. It isn’t involved with the information popping out now. It is far more involved about what the market surroundings will appear like later this yr.

This is my final level for at the moment. We have begun to see extra bullish rotation amongst sectors and between development and worth. Let me present you one closing chart that highlights the rotation into development because the S&P 500 continues its descent:

Discover the S&P 500 made its closing excessive in February as cash rotated rapidly from development to worth within the two months prior. That was Wall Road exiting the riskier areas of the market, when all the pieces nonetheless regarded nice. It was one of many many the reason why I turned cautious and moved to money in late January. Now the other is happening. The S&P 500 is downtrending and the information simply retains getting worse. In the meantime, Wall Road is fortunately shopping for all of the dangerous shares you’d wish to promote.

Hear, I have been mistaken earlier than and possibly I am mistaken and the S&P 500 continues to say no all through 2025. However I belief my overview of the market and my alerts which have labored so nicely for me up to now. I am completely nice proudly owning shares proper now.

Tomorrow morning, in our free EB Digest e-newsletter, I will be displaying everybody the acute manipulation that is been happening within the inventory market the previous 4 weeks or so. Market makers are stealing (legally) from all of us. I noticed this manipulation again in June 2022, which helped me to go in opposition to the grain and name the market backside then and I am seeing it once more now. To be taught extra, remember to CLICK HERE and join our FREE EB Digest e-newsletter, if you have not already. There is no bank card required and chances are you’ll unsubscribe at any time.

Blissful buying and selling!

Tom