Good evening, everybody.
Friday's session hit like a freight train rolling downhill with no brakes. The S&P 500 (SPX) closed down almost 110 points. The Nasdaq (QQQ) fell nearly 2%. The Dow dropped 1.73%, and the Russell looked just as rough.
We blew through 6,400 on SPX and closed at 6,368. It capped off a brutal week in a brutal month, and the setup heading into tomorrow looks familiar in all the wrong ways.
(To watch Friday's video replay, tap this link.)
The Pattern That Should Have Your Attention
There is a rhythm traders see over and over again. Ugly Thursday, uglier Friday, and then people freak out over the weekend. Monday opens with a wave of panic selling, and you hit capitulation.
There are reasons to believe that pattern plays out here. SPX and the QQQs look awful. The VIX closed at 31, and VIX futures moved into full backwardation (when the front-month VIX sits above every future behind it). When you see that formation, throw out everything you know. Technicals do not matter. Fundamentals do not matter. The only thing driving price is the psychology of the market. Right now, that psychology screams risk off.
Risk off means selling stocks, selling crypto, and owning dollars. As of Friday, it also means owning gold and maybe some bonds.
On the downside, I have support around 6,212 on SPX. That would mean opening down about 150 points Monday. I think you find a real line in the sand at 6,000 if we blow through that 6,200 level. There is not a lot of support below us holding this market up.
Green Shoots in the Wreckage
Here is something that changed Friday. Bonds and stocks had been selling off together, correlating in a way that gave investors nowhere to hide. Friday, we saw a safety bid creep back into bonds. iShares 7-10 Year Treasury Bond ETF (IEF) managed to close marginally higher. Gold (GLD) rallied 3.5% on a day the market got smoked.
The petrodollar has been killing U.S. bonds. Traders sell stocks or treasuries to raise dollars, then use those dollars to buy oil. United States Oil Fund LP (USO) closed above 125 on Friday, and that pressure has weighed on everything. But we are reaching a point where yields look attractive enough to pull money back into treasuries. Keep an eye on bonds. They are going to rally before the stock market does.
Microsoft (MSFT) dropped another nine bucks Friday and started breaking through its April lows from the tariff tantrums. The stock sits about 12 to 13 dollars from a new 52-week low. Since October, it has shed over 200 points, roughly 40% of its value. When it hits that new low, my ears will perk up. Software will look interesting at some point. The market says not yet.
The other Mag Sevens do not look nearly as bad. Amazon (AMZN) still chugs around 200. Google (GOOGL) gave some back but look at the year it has had. Tons of room.
My stock to watch this week: Super Micro Computer (SMCI). We all know about the scandal. I think you see the company charged with corporate fraud in the coming weeks, and I want to see what blowback that brings on Nvidia (NVDA). Know your customer laws could make things very interesting.
Super Micro is probably going out of business. This company had around $28 billion in sales.
That revenue has to go somewhere, and there will be winners. I will put on a trade in our Special Situations room Monday.
If you are not a member, I encourage you to check out the link here and give it a try.
Your only option,
Mark Sebastian