Updated Models & Spotlight Chart 4/6/2025

Stocks Collapsed But Is Bounce Coming Soon?

A lot to unpack in today’s note. The S&P 500 is now down -17% with smaller cap stocks seeing a greater decline, Micros off by -27%. 63% of large cap stocks are down by 20+% or more and 47% have “oversold” momentum. On Friday we had a second gap down and 77% of stocks made a new 20-day low. Sentiment for the S&P 500 hit 10% bullish on Friday and is single digits for the Nasdaq 100 (more on this in Monday’s Sentiment note).

I’ve spent most of this year (and end of last year) writing about the concerns for the stock market, mostly related to the weak breadth landscape and heavy reliance on the Mag 7. I then highlighted the heightened risk of the VIX spiking, while spot VIX was still under 15 (now it’s above 45). Shifting now to today, I think we are near a place that could produce a tradable low. That could be a counter-trend rally or something more durable. We’ll only know after-the-fact. My guess would be that it won’t be as simple as a rocket ship in price back to new all-time highs. There’s still a lot for this market to digest and could send us lower in the intermediate term. Time frame is important!

I share charts and commentary below that look at why the VIX is stretched and likely exhausted as well as 5 Spotlight Charts that breakdown why I think we could see a move higher in the S&P 500 soon. This includes:

-A look at the Bottom Fisher indicator.
-The new breadth environment.
-The unique price pattern the market just experienced.
-How fast we fell by 10%.
-A review of prior counter-trend rallies.

This doesn’t come without its challenges. The decline in the market while setup by the bearish breadth environment, the spark was lit by Trump’s tariff announcements. This opens the door for more news-driven price action and whipsawing. For example, the EU announced they’ll be releasing their retaliatory tariffs on Monday and vote on them on Wednesday. This will continue from other countries and regions throughout the week as will “breaking news” tweets (or whatever they’re called on Truth Social) from the President.

With such a quick decline at the end of last week, it’s likely we see some continued downside pressure at the start of this week… forced selling by risk managers, margin calls, and systematic selling. With that said, markets are stretched in the short-term and signals are being produced that have often occurred at or new turning points. It should be an interesting week nonetheless!

Summary of Models

Index & Sector Performance Summary

Volatility Risk Trigger

VIX has continued to rocket higher, breaching 45 on Friday. VRT is still at zero, having reset from the prior signal.

Volatility Top & Environment

VIX remains in a High Volatility Environment. The VIX Top Composite has risen to +3, the Aggressive and Conservative Signals are seeking a minor drop in vol to confirm and produce signals.

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Volatility Curve

Massive spike in vol, sending 9-day up to 57, a nearly 28-point premium to 12-month vol.

5 Sigma Spike

The spike in volatility has resulted in a 5-sigma move based on the 3-day change in spot VIX. Below we can see with red arrows prior 5 sigma events, each marking a peek in the VIX.

Stretched VIX

Looking at the VIX compared to its 10-day moving average, it’s now 21 points above. It’s only been this far above three prior times in the last 18 years… 2015, 2018, 2020 (blue circles). Being just 15% (green arrows) has been stretched enough to send vol higher, much less being nearly 22 pts!

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Maestro Model

This may surprise some, but the Maestro Model improved by Friday, rising to -8. This is a result of sentiment falling and vol rising to capitulatory type levels as well as momentum inputs being stretched and trend showing short-term exhaustion to the downside. By Friday’s close there was an Aggressive Bullish Signal. This occurs when the Model diverges from the market. We can see several of them occurred during the 2022 bear market, producing counter-trend rallies. The Capitulation Guage also rose, hitting +3 on Friday.