Market Update -- Plus: Why Stocks and Treasuries are Selling Off Together

I've seen a lot of speculation about why Treasuries are selling off in tandem with the market sell-off, and the reasons may be simpler than some of the conspiratorial stuff I've heard -- so let's see if I can help readers understand this at least a bit better:

Yes, a big sell-off in stocks would normally send investors into Treasuries, BUT the unique nature of this conflict led to a bond sell-off instead. One reason may be that traders anticipated higher inflation and deficits from tariffs, and possibly reprisals from China, undermining the appeal of bonds. Thus, the trade war news caused both Wall Street stock losses and a surge in bond yields in tandem.

Which is really bad news for... well, everything.

Further, China’s status as America’s second-largest creditor means it has a “nuclear option” in theory: dump U.S. bonds and push U.S. borrowing costs sharply higher. While China has not executed a sudden large-scale dump (yet), it has been quietly reducing its holdings and could slow-roll its participation in new Treasury auctions. Even this prospect has a psychological impact on markets. U.S. officials are acutely aware that a major foreign seller could destabilize the $29 trillion Treasury market. 

Thus each escalatory move in the trade war comes with an undercurrent of “Will China sell U.S. bonds?” -- and the FEAR of this may be enough to keep Treasury yields elevated, as investors demand higher yields to compensate for this potential risk.

There’s also a structural linkage: a trade war that reduces China’s exports to the U.S. will naturally reduce the flow of dollars into China. Under the pre-trade-war status quo, China’s large trade surplus with the U.S. meant it accumulated lots of U.S. dollars, which it recycled into U.S. Treasuries (part of how China amassed such huge holdings). If tariffs curtail China’s exports, then China earns fewer dollars and thus has less need (or ability) to invest in U.S. debt.

In short, the trade war directly saps demand for U.S. bonds over time, putting upward pressure on yields.

The Chinese yuan is also weakening, and there may be a simple explanation for that, as well:  By allowing the yuan to weaken, China can cushion the blow of U.S. tariffs (since a cheaper yuan makes Chinese goods cheaper globally, offsetting some tariff costs). The timing seems telling -- as the tariff battle heats up, the yuan has been sliding to record lows​.

So... something has to give here.

Today calls for some big picture perspective, so that's what we'll focus on.  

First is the updated SPX chart:

Next is COMPQ, with one "worst case" shown in blue.  Note the confluence of support just below current prices -- that's a key zone:

In conclusion, red iv could become more complex (I tend to suspect it will -- but it doesn't need to) here, leading to another wave up.  Longer-term, bulls are going to need to try to hold the zone near long-term support, or it will become harder for them to justify being in the market, which could lead to the first-stage capitulation.  Trade safe.

SPX, COMPQ, TRAN, BKX: We NEED to Understand the Difference Between "Cause" and "Catalyst"

So, we all know the stock market was in a historic bubble -- in fact, that was the point of the chart I posted in August of last year, showing that SPX had roughly tripled in a parabolic move that began in 2020.

Then again, maybe I shouldn’t say “we all know,” because apparently a lot of people don’t — because you hear it echoed everywhere now: “Tariffs caused the crash!”  This is one of those statements that sounds right, but is fundamentally wrong.  

Let me offer a better frame:

Imagine someone driving blindfolded, at high speed, through a winding canyon road. You're a passenger. You sneeze. Startled, they jerk the wheel -- and plunge off a cliff.

Now imagine them blaming your sneeze for the crash.

That’s how people are treating the market’s latest collapse.

It wasn’t the sneeze -- or tariffs -- that caused the crash.  It was the fact that the system had already eliminated any tolerance for external disturbance. When you're recklessly overextended, any catalyst will do.

If the sneeze hadn’t triggered the crash, the next curve would have.

Or the next gust of wind. Or a rock in the road. The setup was already fatal.

In market terms: tariffs were the catalyst, not the cause.

The root cause was structural:

• A market propped up by unprecedented liquidity.
• Speculation unmoored from fundamentals.
• A collective hallucination that risk had been eliminated.

We’ve seen this before. 2000. 2008. 2020. And now again.

Each time, the script is the same:

• The Fed floods the system with cheap money.
• Asset prices detach from value.
• When reality reasserts itself, we search for scapegoats.

And every time, we “learn nothing” — because we never blame the right thing.

Now, in the case of both my sneeze and Trump's tariffs, you could correctly say they were each the catalyst for the crash.  But they were not the root cause -- and I can back that up with today's charts.

Starting with this one:

For exhibit 2 (or exhibit 3, if we count the very first chart), we have BKX.  Which showed an impulsive decline from its 2022 peak, which I labeled as wave 1/A — meaning further downside (3/C) was still pending. This wasn’t guesswork. It was visible -- the charts already knew.  In fact, in April of last year -- long before tariffs -- I reminded everyone of the lingering 35+/- target for red 3/C down.

Long time readers know I'm allergic to BS from any side of the political aisle.  I try to align, first and foremost, with truth -- even, and especially, when it's uncomfortable.  This isn’t about tribal politics.  It’s about one thing:

We need to learn these lessons once and for all.  

Because every time we blame the wrong thing -- and we always do -- we learn nothing.  Just like we learned nothing in 2020.  And in 2008.  And in 2000.  And basically every year since the Fed took it upon itself to act as a market participant.

The lesson here isn’t about politics. It’s about pattern recognition:

• The Fed can't suspend gravity forever.
• Markets distorted by constant intervention cease to be markets.
• Debt cannot scale indefinitely.

If we refuse to learn these truths, then we guarantee our ignorance will recycle, again and again.

That’s not just a policy failure; it’s civilizational.  Markets aren’t random.  They're mirrors -- reflecting our collective delusions, until they break.

Let’s stop blaming the sneeze, because then we learn nothing.

And learning nothing would mean we'll repeat the same mistakes yet again (as we always have).  Let's instead internalize the fundamental lessons:

• The Fed cannot perpetually create liquidity from thin air.
• Free markets should remain free.  
• Endless debt (and/or money printing) is unsustainable.

So it is to the benefit of all of us -- and to all future generations -- if we resist the urge to behave tribally and instead behave rationally and ethically.

Even if your instinct is to blame Trump, as many do, I urge you to please resist joining the chorus of uninformed pundits.  Instead, argue for the truth as often as you can.  

Blaming "the other tribe" is easy. Telling the truth is hard, especially when it's unpopular. 

But only one of those prevents us from repeating these errors forever.

Now let’s get to the remaining charts.  COMPQ has just about reached its first target/inflection zone (this zone is plus/minus a bit, as they all usually are).  The question is whether the first "?" generates a bounce, or if the market falls right through this.  

Keep in mind that if this is (in TRAN and BKX) WAVE 3 of a SUPERCYCLE DECLINE -- then it could very well turn into a historic crash.  So whether these support zones will do anything at all is an open question, and bulls are running out of chances to stick save this thing.

Let's look at an even longer term chart of COMPQ.  This is one of the charts that kept me bullish during the 2020 Covid crash (the annotations from that time are still on the chart, in fact):

Finally, let's end this with SPX:

In conclusion, if bulls can't get anything going soon and this is indeed the start of a Supercycle decline (Primary/Cycle wave 3/c down in TRAN and BKX and Primary 1 down in SPX, INDU, etc.), then this is only the beginning and we're years away from the bottom.  This is a very dangerous market right now.  I keep looking for "long term bull options" and there are still some stragglers -- for now -- but bulls do need to get something going to keep any hope alive whatsoever.  The lower the market goes, the deeper the technical damage.  Trade safe. 

SPX, INDU, COMPQ, NYA: The Good, the Bad, and the Ugly

So what do you want to look at first here?  The ugliest thing?  Or the best-case scenario?  Let's start with the ugly, I guess.

Here's the ugly, via a chart I called attention to back in August of 2024, specifically because it was so ugly:

But let us ask:  Could the ugly become uglier?  (i.e.- could the market ultimately keep rallying? ("ultimately" meaning after the current wave runs itself out, not immediately.))

And the answer is, perhaps surprisingly, YES.  It could -- if we were to make the assumption that the 2020 low was the start of wave 5 and the wave from 2022 to present is actually wave 3 of 5 and not 5 of 5.  That seems less likely based on other long-term counts -- but it's not impossible.  So let's look at one way that could play out:

This chart discusses all this from a slightly different perspective:

The above chart seems to think we should still be looking lower either way -- but why does it think that?  Well, the obvious answer can be found in INDU.  It's pretty hard to see the decline from the black bull 3/C label as anything other than three waves.  Which means it's incomplete (it requires 5 waves).  The short-term bull stick save would be to turn yesterday's low into a b-wave, then rally back up to snag the old T2, THEN decline again.  But it's hard to see how the decline ends here, either way.

The next chart returns us to SPX, where we see a similar situation:

Now we move on to COMPQ, where we find similar options (COMPQ could get away with one long wave down to the first red "?" to mark its corrective decline, *if* it were forming a corrective decline):

Finally, we end with NYA, which shows a similar "near-term bearish, still intermediate bullish" possibility.  For NYA, if we were trying to find a bull count, the black a/1 would be W and bull Y would reach c = a parity roughly where the label is -- to complete a double zigzag.  (An extension of c would put Y down near the blue bear (3) label.)

Amazingly, that WXY count is NOT as far-fetched as it might seem -- if you'll recall, there was some question a few months back as to whether the black ending diagonal might actually be a b-wave.  The WXY would reconcile it as a b-wave.

In conclusion, to make things as clear as possible:  There appear to be low odds that the market will escape without more downside from here, so bears are probably in the clear for the time being.  But -- once we get that downside, bulls will have a "last call" chance to flip everything back to their favor.  

While that currently "seems" less likely, given the direction everything appears to be headed, directions can change -- and the current patterns could allow it -- so we'll keep it in mind and watch carefully when those inflection zones arrive.  Trade safe.  

SPX and INDU: Ape Roll Begins

Yesterday was the first day of Ape Roll, which is always challenging, since you have to hope someone who's part of a small group asks you what month it is, just so you can give the traditional reply, "It's April, fools!"  (If only one person asks, you can say, "It's April, fool!" but you're violating tradition.)

We're just going to look at two charts today, to narrow the focus, starting with INDU.  INDU has shown relative strength over the past couple sessions.  The chart notes the next important levels:

Next is SPX, which broke its prior low, but did not sustain trade (or closes, obviously) below that zone:

In conclusion, be aware that if bears can stall this bounce and reverse back below the recent lows, we could be in for an ugly decline in the wake of that.  The bullish near-term option might see SPX make another run at black... which could even open up more bullish options were that to occur.  But the big key now seems to be for bulls to hold those recent lows long enough to get a bounce going.  Trade safe.

SPX, INDU, COMPQ, NYA: Important Test

A lot of charts again today, so we'll let those do the talking.  (Note there's a page break you have to click.)

Gray 3/C is looking more difficult for bulls by the day, though their best hope might be a complex move that revisits the low and then rallies back up:

COMPQ at a few different time frames:

SPX, INDU, COMPQ: The Battle Lines Have Now Been Drawn

Last update noted that most markets had reached their first upside targets/inflection zones and the market has since stalled.  We'll start with INDU, which captured dead-center of its first target zone:

SPX next, which remains stalled at its red resistance line:

And finally, two looks at COMPQ, staring with the near-term, where we can see another wave down would make for five waves down:

And then COMPQ's bigger picture, which suggests lower prices would break the long-term uptrend:

In conclusion, if bears can sustain trade and closes below this month's low, it would suggest two main options:

1. --As seen on COMPQ, that new low could be a fifth wave, which (in its most bullish form) wouldn't be devastating, just scary (see blue (5)).  If it were to extend, it could be devastating.
2. --In SPX, the new low (if it occurs) could be either a small fifth, or the start of a LARGER DEGREE third wave.  If it were the latter, it could, again, be quite devastating.
3. --So, the moral of the story is, bulls should be VERY CAUTIOUS in the event of sustained trade and closes below the monthly low.  Yes, it could bounce shortly thereafter (in the event of the fifth wave mentioned at the start)... but it would have the potential to become a relentless decline, in the event of the third wave or extended fifth.

All that said, the first thing bears need to do is BREAK that low.  And while that's looking "possible" right now, it's absolutely not a given yet.  So: the flip side of the coin is that bears should be very cautious in the event that the market sustains trade north of this week's high.  

Trade safe.

p.s.-- I'm continuing to aggregate -- and add new material -- at Substack:

(This one was pretty popular upon original release. If you remember it from its original 2013 release, then you're officially an "old timer" 'round these here parts.)

The Psychology of Discouragement: How Traders (and Everyone Else!) Sabotage Themselves

Three psychological traps that quietly sabotage everyone -- and how to break free before they break you.

SPX, NYA, INDU: First Upside Targets Captured

Since last update, the market has performed exactly as expected, with INDU and SPX both reaching their first target zones:

INDU:

INDU's slightly larger chart still suggests possible problems for bears, who will need to break the March low to get themselves back in the game:

Finally, NYA (pronounced "enya" or "nyaaah," depending on whether you're north or south of the Mason Dixon line) continues to look like three large waves down:

In conclusion, as we can see most clearly on that final chart, if bears can't break below the March lows, then the structure favors this year's dual legs down as being an ABC.  That said, in the event that bears DID break below the March lows from here, particularly on accelerating momentum, then look out below, as we could be dealing with a large bear nest.  But for now, bullls have held things together right where they needed to.  Trade safe.