Should We Trust This Bounce?
The S&P rallied back 2.45% on the week breaking a five week losing streak.
Price could not close above the daily 200 or 20 SMA though, so still a counter trend rally in the context of a developed downtrend.
Admittedly, the Thursday rally had more strength than what was expected after a gap down, partially due to the Iran / Oman framework talks to reopen the Strait of Hormuz.
Still looks more like a short covering rally without strong buyers, but more on this later…
The Clock Is Ticking
The multi billion dollar question right now is does the Strait of Hormuz meaningfully open up before mid April?
Around April 19, the cushion runs out. Strategic reserve releases, exempted Russian supply, rerouted cargo… it all expires around then.
BCA Research estimates daily supply losses start doubling from there. TD Securities puts the total damage near 1 billion barrels by month end.
Fundamentally, and technically we can see that the picture for crude prices is not improving. WTI crude has been spending more and more time over $100/barrel.
What is interesting however, is the break in negative correlation on Thursday.
Note how even though crude futures saw the sharpest rally of the week and made new highs the S&P 500 futures (dark blue line) only saw a marginal dip and moved right back to the local high.
If the correlation is broken, markets likely start focusing on if real economy stocks will start to tell us if the energy shock will actually translate to inflation.
As we head into earnings season, start listening for emphasis on costs rather than demand. That would be a bearish signal.
Right News, Wrong Day
Friday morning’s nonfarm payroll was a true blowout higher. Estimates were 65k and the market was surprised with 178k. A massive beat.
Unemployment ticked lower from 4.4% to 4.3% and the JOLTs number from earlier in the week reinforced a low hire but low fire environment.
The problem is that markets were closed for Good Friday and the headline wasn’t digested fully via price. Speculation likely just resumes that with a strong labor print, Powell can stay higher for longer on rates.
Thursday’s FOMC rate path in green is even flatter than mid March projections in orange.
The Fed is stuck. They can’t cut into an oil shock without risking a repeat of the “transitory” mistake. They can’t hike into a slowing global economy without ushering in a recession.
So expect pause and more Fed commentary to remain, “data dependent.”
Speaking of data… CPI comes on Friday which will include data collected since the start of the war.
Consensus is 3.1% YoY against February’s 2.4%. If it prints at or above that, the no cut outlook is locked in through at least the summer.
In the above graphic, the red bar for March 2026 suggests CPI swaps are pricing more of a 3.55% and inflation climbing even higher than that.
A peak of 3.9% is being priced before inflation starts to come back down in the back half of 2026, but still nowhere near the unaffected inflation rate prior to the war.
The 10-year settled at 4.345% after the NFP print Friday… A yield breakout above 4.40 and the bounce in equities gets unwound in a hurry.
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Broad Market Analysis
SPY – Monthly
The March close left a lower wick and the sequence of monthly higher lows is intact. The monthly trend remains up over previous left side peak and 20 SMA.
610 is still the key support level, but we never got there in an extended capitulation move. Because of that, I am watching for an overshoot scenario. If 610 breaks, the next reference is the unfilled weekly gap at 570 to 575. Not a near term target, just the map if conditions deteriorate further.
SPY – Weekly
The weekly bar was structurally bullish. Sellers pushed for a new low, buyers stepped up, price closed in the upper third of the range back above the weekly 50 SMA. Credit where it is due.
The weekly trend is still down though. The close landed right on the Fib 38.2, which qualifies as bare flag consolidation. Resistance zone above is 675, with confluence of the weekly 20 SMA, the Fib 61.8 from all-time high to the recent low, and the anchored VWAP cluster. A weekly close back above 675 changes my tone or a higher low after a rally attempt. Until then, this is a lower high attempt.
SPY – Daily
Still below the 20, the 200, and the 50 SMA. Thursday was better than expected but does not clear the structural damage or qualify for any trend change.
Lose 653 and the setup reverts to bearish breakdown, targeting 642.85 and then equal lows. If we rally first, I am more open to a look above and fail on the 200 SMA and 662.5 as a short than a breakout buy.
Follow through day watch:
Monday is day four of the rally attempt, the first eligible session. Criteria: up 1.25-1.5% from prior close on higher volume. A close above 662.50 is roughly the neighborhood.
SPY – Hourly
Thursday’s spike came on Iran and Oman Strait of Hormuz framework headlines. The action looks more like short squeeze to me than convicted buyers. However, stronger sellers really should have fought for a gap and go lower, even a gap fill reversal. Anything to keep price away from Wednesday’s range. Didn’t happen.
653 is the line in the sand. Above it, mildly neutral. Below it, thin structure opens to 642.85 and back to the bears. First thought on rallies to 662.5 is look above and fail there as a short. If price accepts above, will have to start thinking about weekly lower high at 675, but in the mean time daily early stage trend reversal.
Market Internals – NYSE
Weak across the board on Thursday specifically in the TICK which has no regard for prior day close… short squeeze much more so than strong buyers.
Market Profile
P-shape. Near perfect response off of single print closure from Tuesday on Friday’s low. Short term traders in control. The OTF participant as Dalton would say did not show up.
Note the mechanical nature of Tuesday’s hi, single prints in ‘c’ and VAL from Friday. If this level at ~6585 is broken, I would lean into the thin structure narrative below for shorts. (This is the same idea as a SPY break of 653.)
/ES Friday Morning
Futures markets had the morning session open to respond to the labor report… and it wasn’t great. The initial reaction was a quick spike higher that faded almost immediately.
The labor report came in much better than expected, and thus, Powell has more ammunition to remain, ‘higher for longer.’ The headline risk into Sunday night futures will remain elevated.
Semiconductors (SMH)
The chart that matters most for the bull case. Neckline held on retest, daily 20 SMA reclaimed, 50 SMA in striking distance. The head and shoulders is essentially recovered. Give it respect.
New leadership emerging in Marvell and ARM, not just Nvidia, Broadcom, AMD.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
Inflation Data – As noted above, if the markets going to move from caring directly about the price of crude, to determining if inflation metrics are actually going to move, this is the week. PCE and CPI.
Top watches: DAL, lets see what they have to say about jet fuel prices.
Swing Stock Scans
As the S&P 500 breaks deliberately lower, swing trading long only will become increasingly difficult. Once a follow through day emerges, we’ll be looking to position in the strongest themes as and if a market recovery begins.
AA – Daily
Bullish 3 bar play over the highs of the range. Looking for followthrough over the two day high, or on pullbacks that set higher lows over 67.
APD – Daily / Monthly
Ascending triangle holding over the MA stack with monthly inside bar testing highs. Don’t love the Friday bar, but its in the right chemicals theme to move as crude also moves higher. Not the most linear history, but worth eyes over this 297 / 300 round figure.
BWXT – Daily
Huge weekly flag setting up at the all time high. Over 220 has nothing but blue sky above. Great higher lows and recovery over the 20/50 MA combo on Wednesday Thursday. Decent relative strength overall to the market as well.
RKLB – Daily
With the SpaceX IPO hype, many rocket names are starting to recatch a bid. Would be worth watching the entire basket via UFO ETF. This in particular has a look below and fail starting to emerge at the low end of rage near 65.5. Confident recaptures or even breaks through range high might set this up for a move back to 100.
RKLB, ASTS, PL, LUNR, FLY, SATS, VSAT, GSAT