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MarketSurge powers the charts in this video.

The Nasdaq 100 (QQQ) tested its 2021 highs and had a big 15% bounce. This is likely a bear market rally from deeply oversold levels and not the beginning of a new trend higher. If QQQ follows through, the next upside targets are its declining 20-day moving average near 465 and its year-to-date volume-weighted-average price around 470.

Trump paused tariff increases for all countries except China. The current tariffs are 10% for everyone and 125% for China. The trade war escalated and now China has also announced 125% tariffs on US products. It is hard to believe that the current bear market will end before there’s an agreement between the two biggest economies in the world.

In the meantime, the new earnings season has begun. JPMorgan beat estimates but warned of a potential recession and financial crisis down the road if the current trade war is not resolved. The silver lining is that despite the warnings, JPM gained 4% – a positive market reaction but the stock remains in an overall downtrend, so nothing has really changed. The market will be paying close attention to earnings in the next few weeks – not so much to what companies report but to what companies expect in the foreseeable future. If enough of them guide lower or even remove guidance due to elevated uncertainty, the market might be spooked and have another leg lower. 

We remain in a bear market environment, which requires nimble trading and frequent profit-taking. It is important to remain open-minded to any scenario and be willing to quickly switch between long and short in a tape that can change direction quickly. There are many moving parts in play. It is not just the stock market. The US Dollar just had one of its fastest declines in the past two months and it is now 10% cheaper year-to-date. Previously, US Treasuries played the role of a safe haven during equity corrections. Not this time. Rates jumped as stocks went lower. This is a major change in intermarket relations that can lead to forced liquidations. The only place to hide was gold.

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MarketSurge powers the charts in this video.

 The Nasdaq 100 (QQQ) is already down 22% from its 52-week highs. It tested its August low from last year. I wouldn’t be surprised if it overshoots to 400 and then rallies to its 20-day moving average. The S&P 500 is down 17% from its 52-week highs. The next area of potential support is around 500-480. The damage in individual stocks is even more pronounced. META is down 31%, AMZN and GOOGL are down about 28%, AAPL -27%, NVDA -38%, TSLA -51%, PLTR -41%, HOOD – 48%, RDDT -53%, APP -58%, CEG -51%, VRT -62%. 

The market is sending a clear message. A tariff war with the rest of the world is likely to lead to a recession. The average drop in SPY during the last ten recession was 31%, though declines ranged from 14% to 57%. A 20% drop in SPY from its 52-week highs would mean testing 490. A 30% drop would mean a decline to 430. 

Powell spoke on Friday and reiterated what he said previously. There is not enough evidence to panic and cut rates now. In other words, the Fed is not going to try to proactively avert a potential crisis because it might break something else. The Fed will show up when there’s clear evidence of unemployment spike. Unemployment is a lagging indicator; therefore the Fed is likely to get involved after most of the correction is over.

We finally saw clear signs of panic selling last week. Even the groups that had held well recently, came under distribution – energy, gold miners, utilities, China. Such high correlations are typical for forced liquidation when people sell not because they want to but because they must. The silver lining is that such selloffs often precede a strong bounce. Let’s not forget that some of the most powerful rallies happen during bear markets. Nothing goes down in a straight line. The bear markets are full of false breakdowns, so one has to remain nimble and willing to play both sides of the market.

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.

MarketSurge powers the charts in this video.

  QQQ and SPY bounced to their 200-day moving average, which also coincided with their VWAP (volume-weighted-average price) since their all-time highs. Then, Trump announced new tariffs and the market began a new leg lower. Gold and Chinese stocks initially held better than the rest, but even they pulled back on Friday. We might have reached the point of widespread liquidation, where people will just sell to raise cash or hide in Treasuries. The only green stocks on Friday came from the defensive utilities and consumer staples. The market is sending a clear message. A trade war with the rest of the world is likely to lead to an economic slowdown which is not priced yet. Even if that recession doesn’t happen, the market is going to overshoot and discount it anyway.

The next potential support level for QQQ is 450; for SPY is 540. I think they will test them next week and then we could see a more sizable bounce towards their 20-day moving averages. Nothing goes straight down. The market is especially choppy during corrections and bear markets. Obvious breakdowns are often followed by sharp snap-back rallies to declining 20, 50, or 200-day moving averages. I don’t know if the indexes are in a bear market or if this is just another typical 15-20% correction we see every year. Bear markets are often clear only in hindsight. My definition of a bear market is a prolonged stay under a declining 200-day moving average. The most recent example is 2022. I don’t know if we are due for another one so soon but I will remain open-minded to the possibility of it. I have been through enough market cycles to truly believe that no price is too low during a bear market drop and no price is too high during a bull market. 

China and gold have held much better than the rest of the market during the correction in the past six weeks but even they are vulnerable to forced and panic selling. I still think Chinese-related ADRs are likely to be among the leaders when the indexes have their next multi-day bounce but prepare for some market volatility before that.

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice. Read my full disclaimer here.