April sixth, two thousand twenty-five (250331-250406)
This week’s Wrap opens with a comment Sean posted on Deep Planet:
The S&P 500 opened below the lower boundary of the bull-market channel, and at 18 Eastern Time we officially confirmed the end of the bull market.
The market has entered a true risk-off zone. Beyond the macro shock, price action is more a sign that structural fractures are beginning to surface. The Positioning America series has been fully updated, and the market is racing in the direction we expected... The S&P is down 9%, SX5E -9%, NKY -9%; a classic systemic repricing has begun.
First, “Liberation Day” was a head-on bloodbath，But the sell-off was extremely orderly; the market only began to show signs of panic after the 4.4 data. Panic has begun, but it is not enough yet，
On this point, we have a few charts to share with you:
1/ The first chart is from McClellan: the daily volume of QQQ is an excellent contrarian indicator; a surge in its volume usually means traders’ panic is rising.
Chart: QQQ Volume
2/ How severe was Friday’s U.S. stock market decline?
Among the 11,406 trading days since 1980/1, Only 29 days saw a larger decline than Friday.
Chart: daily decline distribution
3/ Contrarian ETF volume (the “dumb money” indicator) needs to surge to 50% for a short-term bottom to be likely. After yesterday’s data update, this ratio reached 43%,Panic is rising, but it is still not quite enough..
Second, we have probably passed the peak of the macro shock, but we should still rationally expect to enter a prolonged period of uncertainty and risk, in line with the expectations of the Positioning America series, If the liquidity trend remains unchanged, a short-term bottom will probably take 9-14 days, while a genuine medium-term rebound trade will probably have to wait until the third quarter.
Liquidity is a major factor.
Starting next week, we will begin updating a new series focused on liquidity issues in U.S. equities and globally.
More fundamentally, the market is increasingly pricing a worsening trade-off between growth and inflation in U.S. equities. Against this broader backdrop, the circumstances facing the middle class are becoming more difficult, and this economic hardship has been reflected and confirmed by market price action:
Chart: U.S. middle-class consumer basket from GS
Further reading: Mapping America (Four): The K-Shaped Economy: Leverage, Illusion, and Paper Prosperity
Meanwhile, The risk of a credit event in the United States has risen to the level seen during the 2023 regional banking crisis. Mr. Market is starting to follow us; this voting machine is now betting that a credit event is coming.
Further reading: Mapping America (Two): Harbingers of Systemic Risk
Further reading: Mapping America (Three): Private Credit and the Fragile Symbiosis with Pensions
Further reading: Positioning America (V) — Path Dependence: QE Is Not Called QE, and Monetary Easing Is Not Called Monetary Easing
Until the news flow reverses, the market will continue seeking downside protection. In this regard, Rich Privorotsky’s view is worth mentioning:“For the market to rise, a credible path to relief must emerge.”
Again, while VIX rising to 45 may be hard to sustain, realized vol will not come down from its elevated level, The market is beginning to enter a typical downward-channel regime, which means the familiar rhythm of gap-downs and gap-ups will emerge. Over the next few weeks, the S&P will probably see wide swings, with “gap-down opens/gap-up opens.”
Although fast-money accounts had already cut their positions considerably over the past few weeks and continued liquidating this week, deleveraging by other groups of investors is only just beginning. In other words, as the market starts to collapse, long-only funds are also joining the selling. Attention should now turn to U.S. households—the largest holders of this asset class—who have not yet begun to reduce their positions materially.
In this context, the net international investment position is also key. Foreign investors still hold large U.S. equity positions, and these participants will drive price action over the next few weeks (the buyback army will not enter until the end of the month).
Finally, as the dollar strengthens again, we are entering the early stages of a “cash is king” liquidity event.
Cash-like assets are the final stage of liquidity liquidation. Keep an eye on gold and copper... Before the higher target prices we can anticipate arrive, there will be a wave of liquidation-driven downside. Protect your positions.
Again, remember to follow the liquidity series that will run on the Planet starting next week.
Image: Let me see who’s catching the falling knife—post it straight to Planet
The weekend is over. Wishing everyone who made it this far a happy life and all the best in the new week!
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Note: All content herein is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.