Thursday Charts: What Markets Are Telling Us

04/25/2025 | Unsubscribe

Good Morning!

Here are some important charts and ideas capturing the latest trends in US markets to help you understand what is happening from multiple different perspectives:

Danny Dayan is talking about this weeks changes to U.S. trade negotiations and tariff policy. He calls this decision a "pivot/cave," meaning he thinks the government backed off or softened its stance - which could lead to worse outcomes (we agree with this sentiment judging by the available information at this time).

Here’s what he’s worried about:

1. High Tariffs Stay in Place: Even after this change, the U.S. still has tariffs (taxes on imports) at a high rate, around 15% or more. This makes things more expensive for everyone because companies pass those costs to consumers.

2. Weak Negotiating Power: Danny thinks the U.S. lost its ability to push other countries to make deals that benefit the U.S. because of this decision.

3. Economic Problems: He mentions "stagflation," which is when prices go up (inflation) but the economy doesn’t grow (stagnation). This is bad because people pay more for things, but there aren’t more jobs or money to go around. He also says inflation expectations are "unanchored," meaning people are starting to think prices will keep rising, which can make inflation worse.

4. No Good Outcome: Danny doesn’t see any positive results coming from this situation. He thinks the U.S. economy is stuck in a bad spot.

His final advice, "Cash and wait," means he’s choosing to hold onto his money and not invest right now (excessively at least) because he thinks the market situation is too risky and is likely to continue trending down over time. In our view this is a practical suggestion for self directed investors - especially with short time horizons.

🟢 What's Interesting in These Charts

Across all four charts — XLK (Tech), XLC (Comms), SPY (S&P 500), and QQQ (Nasdaq 100) — the price action just:

• Pulled back to prior breakout levels (grey zones marked with red arrows),

• Held support, and

• Bounced off those levels (green arrows).

That’s a classic retest of prior resistance turning into support, a bullish signal IF it holds (we do not think it will hold).

📈 What This Implies

• Higher highs and higher lows are the textbook definition of an uptrend.

• Even though we’ve seen a sharp correction, the fact that buyers stepped in at key technical support suggests this may be a healthy pullback in a still-functioning bull market, not a breakdown.

• This could mark a “reset” moment where the market shakes out weak hands before resuming higher.

Even though the charts are flashing bullish technicals, it’s smart to step back and consider what could go wrong or why this bounce might not stick. Here are some credible counterpoints to keep you grounded:

🔁 Technical Caution

• “Successful” retests can fail on the next attempt, especially in choppy or uncertain markets.

• This could be a bear market rally, not the start of a new leg higher (what we think).

📉 Macro Risks

• Rising 10-year term premium suggests investors are nervous about long-term risks (debt, inflation, Fed policy).

• Recent data shows slowing services and weak business investment (CapEx) — not signs of a strong economy.

• Sticky inflation could force the Fed to stay tighter for longer, hurting growth stocks.

💰 Valuation Pressure

• S&P 500 and Nasdaq P/E ratios are still well above long-term averages.

• High valuations + slowing earnings = lower return potential and more fragility to shocks.

📈 What This Chart Shows

The Redbook Retail Sales Index, which tracks same-store sales at major retailers, just jumped to +7.4% year-over-year — the strongest weekly growth since late 2022. This suggests U.S. consumers are spending more, and doing so even after adjusting for inflation (real terms).

🔍 Quick Take in 3 Lines:

• Retail spending surges, showing consumer demand remains resilient despite higher interest rates.

• This supports the economy and corporate earnings, especially for retail and discretionary sectors in the short term.

• Long-term, sustained strength could delay Fed rate cuts if it keeps inflationary pressure alive.

✅ What This Chart Shows

It tracks insider buying vs. selling — what company executives and insiders are actually doing with their own money. As of April 11, 2025, the Vickers Insider Sell/Buy ratio has dropped sharply, signaling a surge in insider buying.

📊 Why This Matters

• Insiders tend to buy when they believe their company stock is undervalued, and sell when they think it's fully priced or overvalued.

• Right now, insiders buy at a level rarely seen outside significant market bottoms (e.g., 2009, 2020).

• This behavior often precedes strong future returns, even when public sentiment is bearish.

🧠 Balanced View: Smart Questions to Ask Even When Insiders Are Buying

• They may see long-term value, but stocks can still fall further in the short term due to macro pressures or sentiment shocks.

• Sticky inflation, rising term premiums, and weak capex all point to economic headwinds that could outweigh insider optimism.

• Past buying spikes (2008, 2020) occurred during deep market crashes, meaning more pain often came before the payoff (time horizon matters - the longer the better for potential future gain).

📉 What This Chart Shows

The red line shows the current S&P 500 drawdown from its recent peak (as of April 22, 2025), compared to past bear markets since 1950. While the drawdown is notable, it hasn't yet reached the severity or duration of a full-blown bear market, many of which extend 200+ trading days with much deeper declines.

🟢 Key Takeaway: We're Not in a Bear Market... Yet

• The current drawdown (about 10–12%) is still within correction territory, not a technical bear market (which typically begins at -20%).

• But this chart reminds us that bear markets can last a while and go deeper than expected if they evolve into one.

🔍 Looking Deeper: Counterpoints & Perspectives to Consider

• 🟠 Bear market odds rising? Multiple indicators (insider buying, weak momentum, economic slowdown) suggest a risk-off environment, but not full panic.

• 🟡 False alarms are common. Many corrections bounce before hitting -20% — don't assume every dip becomes a bear.

• 🟣 Context matters. Past bear markets came during different rate cycles, inflation regimes, and valuations — history rhymes, but doesn’t repeat exactly.

🏠 What This Chart Shows

The number of unsold completed single-family homes for sale has risen to 119,000 as of March 2025 — the highest since July 2009, during the last housing bust. This means more homes are built but sitting on the market unsold, a sign of growing slack in new construction.

🔍 Quick Take in 3 Lines:

• A rising number of finished homes that builders can’t sell signals slower buyer demand.

• Short-term, this could pressure home prices and force builders to offer more incentives or cut prices.

• A cooling housing market may ease inflation and slow construction jobs and economic growth in the long term.

📉 What This Chart Shows

• The light blue line is the Atlanta Fed’s Business Inflation Expectations (BIE) Sales Diffusion Index, which measures whether companies think current sales are above or below normal (0 = normal).

• The dark blue line is the U.S. unemployment rate.

As of April 2025, firms say sales are well below normal (index at -28), the worst since August 2020. This kind of drop in sales expectations has historically preceded a rise in unemployment.

🧠 Why It Matters

• Weakening sales outlook = businesses may cut hiring or start layoffs.

• Unemployment typically lags behind sales and demand, so this could be an early warning for the labor market.

That’s it for today!

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Best Regards,

Ultimate Alerts Team

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