Equity markets don’t usually enjoy drama, especially now with all the underlying crosscurrents and headline risk. Case in point: Last week’s sell-off and yesterday’s rally. Respect the recent bullish tape action but be aware of ongoing crosscurrents and headline risks.

S&P 500, NDX, and DJIA Advance-Decline Lines hit new highs (bullish) before Monday’s moonshot.  The NYSE A/D Line (all issues only) fractionally did so yesterday. Equities remain emotionally driven and highly subject to news. Sentiment isn’t 100% complacent but is getting close.

Despite a headline-driven environment, the fear factor took a breather and the bulls took charge. Now what? Consolidation? Pullback? More upside? With four recent breadth thrusts, I’m happy with any of these. Regardless, with overhead resistance, more work must be done.

Following one of the biggest short squeezes in recent memory (4.9.25) and within the confines of the S&P 500’s pattern of lower price peaks and lower price troughs, I expect upside and downside volatility to continue despite the recent tariff news. What are we now watching?

After the S&P 500 (SPX) broke the twin support lows of 5500 to 5488 (discussed last week), a cascade of selling quickly followed. The associated selling pressure exceeded early March levels. Thus, the Low-Rally Retest bottoming sequence coupled with breadth thrusts begins anew.  

Bitcoin, the poster child for risk-on versus risk-off, continues to stress risk-off. Let’s revisit the S&P 500’s short-term Low-Rally-Retest bottoming sequence, including what could occur going forward and what we do and don’t want to see.

Following the domestic equity market’s heart attack-inducing decline, it needs a slow, methodical rehab to repair the chart damage. Friday started the process, but more is needed.

Although we set our clocks ahead over the weekend, stock prices fell back as macro risk and political headline fatigue weighs heavily on Wall Street’s psyche. An oversold rally is due (Figure 1). If it doesn’t occur soon, it will be bearish.

Many finally became aware of the unwinding speculative stock market activity in the Index Movers, Quantum stocks, crypto, IPO proxy, and penny stocks that had run up on above-average volume.

Last week, I stated that I’d like new highs to see what selling arises. I also said we would soon know if any topside breakouts were false and full of hot air. We immediately got an answer to both scenarios.

I want equity market proxies to break topside and see 1) what selling pressure arises, if any, 2) if internal measuring tools (Advance-Decline figures, New Highs, sector participation, equal versus cap weight, etc.) confirm or diverge (again), and 3) sentiment readings. 

Last Friday, news of lower unemployment and rising hourly earnings heightened inflation expectations, while ongoing tariff concerns added to market volatility. As a result, equity market proxies pulled back, reflecting continued selling pressure around resistance levels.

Between early December 2024 and early 2025, we highlighted a negative Advance-Decline Line non-confirmation and expected price volatility to continue. We still feel the same. Equity market price volatility will continue deeper into Q1, at a minimum.

Internal measuring tools have moved to be supportive, yet resistance stands, and a negative Advance-Decline Line condition remains. Meanwhile, the Catastrophic Stop Loss model and U.S. High Yield Index OAS-Credit Spreads support the S&P 500’s uptrend.

Stocks bounced sharply higher once support was tested and held, further supported by oversold conditions and relatively favorable inflation reports. Internal measuring tools moved sharply in the right direction. Broader participation and follow-through are now needed.

Worries over fiscal discipline, immigration policies, the recent strong employment report, and several other issues drove the 10-year U.S. Treasury yield above 4.80%. When the Fed started lowering interest rates on 9.18.24, the 10-year yield stood at 3.70%. Who’s missing what?

The oft-discussed price volatility, in both directions, came to the forefront as 2024 ended and 2025 began. With the ongoing global and domestic political backdrop, “tariffs, taxes, inflation,” negative non-confirmations, and interest rates, the odds favor it continues.  

With the Catastrophic Stop Loss Model still favorably positioned (when it reverses and recommends increasing cash, we will follow) and favorable seasonals into year-end, the S&P 500’s price trend remains intact. However, many internal measuring tools are vulnerable.

During Q324, with the S&P 500 near 5700, we highlighted 5900 and 6100 price targets. SPX printed 6099.97 last week. The Catastrophic Stop model remains bullish, but resistance, negative A/D Line divergences again, and a lot of bullishness suggest volatility in the next few weeks.

In November, domestic equity market indices—including capitalization, equal-weight, small, mid-, large cap, value, and growth—closed higher. With complacency (excessive optimism) building and a potentially sloppy start to 2025, price momentum is supportive until the month’s end.