What's up, Traders Edge?
March Madness is heating up, and so is the market volatility. As I record this, Villanova is playing (fingers crossed for an all-Wildcat matchup with Arizona), but the real action happened in the markets Friday.
(To watch Friday's video replay, tap this link.)
Friday delivered something we haven't seen in almost a year: a clean, back-to-back break below the 200-day moving average on the S&P 500 (SPX). The last time we saw the 200-day moving average break and hold was back in April 2025. We've gotten used to break-and-bounces in the major averages, but this is a full-on breakdown.
As bad as SPX looks, the Nasdaq 100 (QQQ) looks even worse. The Qs are in full-on free fall, down 53 bucks from the high and going on eight percent. SPX is down about five percent, nothing crazy by comparison.
Where Do These Stop?
The next major support I'm seeing takes us back to that August-September timeframe. That puts the Qs around 557 and SPX around 6360. There's room to run here. We briefly broke below 6500 on Friday, and I think we're going to retest 6400 and maybe those lows from back then.
If things got really ugly, we could see a break below 6000. That's going to take some work, and that would require some significant, extended running in oil.
Looking at oil, there's no point talking technicals here. This is all war. It's all Strait of Hormuz. I will tell you, as soon as that strait opens, oil is going to plummet. Right now, it's pricing itself like it's anticipating weeks, maybe months, of the strait being closed.
If they manage to get that open and ships start flowing through, yes, there'd still be higher oil, but the speed with which United States Oil Fund (USO) will be back in the eighties and nineties will astound you. That will come with a big rip in SPX. We'll probably see SPX, if we did get that opening and some peace, make a significant rally back to at least 6700, maybe even 6800, and probably run all the way into earnings in a couple of weeks.
The real problem with all this is the bond market. When stocks and bonds correlate, which they're doing, that is very problematic. iShares 20+ Year Treasury Bond ETF (TLT) is now at a six-month low, at the lowest level we've seen since September 2025. We're right on the precipice of this thing falling apart. You see it below 84, that's a real problem for markets.
Interest rates are really at the crux here. iShares 7-10 Year Treasury Bond ETF (IEF) tells a similar story, really breaking down to the lowest levels since last August. When you see interest rates expanding, bonds softening, and the market selling off, that is a recipe for some real problems. That is what we are seeing pretty consistently here in the market.
What is a little unique: we're getting some pretty decent selling here, and the VIX has stopped going up. We had that big freak out on the ninth. We've seen it get some strength, but VIX has not been able to really break out and make a move above 30. This tells me that a lot of the VIX movement is more related to the actual price action of SPX than it is actual fear and demand.
When you look at VIX statistics, for how much we were down, VIX only traded about 830,000 contracts. You would've expected a million-contract day, and the largest trade of the day was only 19,000 contracts. I continue to believe that this market is quite hedged, and that's going to stop us from getting these three, four, five percent drops.
Could we see that if there's some crazy escalation? Yeah, we could see things really heat up. But as it stands now, I think the movement downward is going to be half a percent on the low end and maybe one and a half percent, a little bit more than that on the high end on these sell-offs.
This is going to turn things upside down for you, but normally we say the market takes the stairs up and the elevator down. We're taking the stairs down. When there's a deal, that elevator is going to get you from the ground floor to the top of the Sears Tower in seconds. So be ready for that.
I love downside plays, but if you've got downside plays, this is the time to have some upside hedges in there, because we could see a wild move higher if we do take off.
VIX term structure is backward, but you'll notice it's backward really April to May, and then the whole curve flattens up. What does that tell me? We're looking for something probably positive to occur sometime between April and May expiration. That would be where the market is handicapping some sort of calming here. Obviously, who knows? But that's the way the VIX is pricing things out.
The One Stock to Watch
I haven't hit on this yet, but folks, Super Micro Computer (SMCI), I can't believe what I heard when I read that story. The drop on Friday is going to get follow-through.
What shocks me is NVIDIA (NVDA). I believe there is no way for a company to ship two and a half billion dollars worth of chips to China without some sort of willful ignorance, and I think that is what we're talking about here with NVDA.
Keep an eye on NVDA. It's hit this floor a couple of times, and I think there's real risk that there's some government blowback here. I like NVDA short into next week as I think they're going to get wrapped up into this, and logic states that they should.
This is a level, this 170 level, that has held for it, really going all the way back to September. If that breaks, we could see NVDA make a run at 150.
One of the things people ask me all the time: "Mark, with all this selling, I'm starting to see stocks that I like that are on sale. When do I buy?" We've created here at Option Pit a tool for that. It's called SYBL. You're going to really think it's cool. Hannah and Andrew went through this on Thursday: how it works, what it does, and how effective it is. I'd invite you to check out that replay.
I hope you have a wonderful weekend. Enjoy that tournament.
I'm Mark Sebastian. I am your only option.
Have a good one.