“The generally accepted theory is that financial markets tend towards equilibrium, and on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly because they do not merely discount the future; they help to shape it.” George Soros
Markets rallied early Tuesday but lost steam..
The SPX carved out an NR 7 Day.
In fact it was the narrowest range in April.
It occurred following Monday’s Minus One/Plus Two sell setup.
Monday was the 4th Minus One/Plus Two sell setup since the Feb 19 all-time high.
While the first such signal did not produce much of a reversal, the second -1/+2 on March 25th produced a waterfall decline.
The waterfall accelerated following the 3rd Minus One/Plus Two sell setup on April 3rd.
Like Tuesday, March 25th was an NR 7 Day.
An NR 7 Day is the narrowest range in 7 trading days. These contractions in volatility typically produce an expansion in volatility in the next few days.
On March 25th the SPX stalled out after a Pinocchio of its 20 day moving average.
Yesterday the SPX stalled out just below its 20 DMA.
The declining 20 dma is well-defined resistance with the last two sessions tailing off just below a 50% retrace at 5490.
After the bell, NVDA weighed heavily on sentiment, with shares dropping more than 65 after-hours.
The decline followed news that the chip giant would take a 45.5 billion quarterly charge related to restrictions on exporting its H20 graphics processing units to China and other countries.
The impact of the news was immediately reflected in after hours futures which turned sharply lower.
In sum the above daily SPX shapes up like the SPX has completed a Wave 4 countertrend rally and is embarking on a 5th wave which will undercut the April 7th 4835 low.
Interestingly in the 4 days since the April 9th massive Squeeze Play, the SPX has been unable to build upon it and extend.
From my perspective the April 9th 500 point SPX surge was orchestrated in order to torch the shorts and keep them from leaning on the market.
Yesterday Treasury Secretary Bessent stated he and Fed Chair Powell have lunch once a week.
He went on to say that neither of them saw what was going on as a break the glass moment.
Was last weeks flame torch aimed at the shorts cooked up at the Bessent/Powell lunch following a flambee dessert?
The SPX has been riding the 20 hour moving average since April 9th.
Given the action in the overnight futes, the SPX is going to gap with authority below its 20 dma this morning
The 50 hour ma at 5275 may try to ‘catch’ the sell-off. Below that opens the door to a 50% retrace of the rally off the April 7th low at 5158.
Given the structure of the SPX, the likelihood is a test/undercut of the 4835 is on deck.
That would satisfy a Wave 5 low underpinning an impulsive wave 5 decline off the high and producing move evidence we are in the midst of a Bear market.