By Neland Nobel

Written by Neland Nobel

Suppose you’ve been following our ongoing stock market commentary. In that case, you’re probably aware that we expected the S&P to drop to the 5,000 level. We said it had to hold there, or an additional break downward to 4,200 was probable.

Thankfully, the market cooperated, so we didn’t look like fools. It double tested the 5,000 level and launched off of it with impressive breadth, even generating a rare Zweig thrust.

However, we took the additional risk of looking foolish by projecting that the market would rebound to around 5,700. We suggested that if the recent decline was too painful for you, reducing exposure in the 5,700 rebound might be appropriate. We are now very close to the target and could reach it, maybe even exceed it, in the next several days.

On Friday, May 2, 2025, the S&P closed at 5,686.76, which is quite close to our target!  It has done so with an incredibly rare rally of nine upside days in a row, which, according to analyst David Rosenberg, has occurred on .25% of the time in stock market history.

Many commentators suggest that the market’s low is in, and it will return to bull market action for the rest of the year. The Zweig thrust’s excellent predictive record supports this view, and many believe that soon we will sign some trade deals, the “tariff tantrum” will subside, and we will return to smoother sailing in the markets.

We admire analysts who are willing to share their opinions about something as difficult to predict as the markets.  It’s so easy to be wrong and retreat into your shell after being humbled.  To avoid embarrassment, many analysts either refrain from giving an opinion or present so many possibilities within their predictions that it is like trying to find a lost ball in tall weeds.  This leaves the opportunity to always point to something that proved correct. But an advisor who is too fearful or too slick to advise is of not much help, is he? We would rather someone state their opinion clearly, along with the reasons why, and then let the reader take that in and make their own decision.  We understand no one can accurately predict the future.

We hope you will take our comments in the same vein.  This column is not your financial advisor.  We are just sharing our market opinions and their reasoning, hoping it will help you assess your situation and have something to discuss with your advisor.

The chart above shows the S&P 500 for the twelve months. We had a sharp market decline, down about 20%, in early April, which we tested twice. Now, we’re in rally mode. We suggested 5,700 as a probable target because it lies within three chart data points: the 200-day moving average and a 0.381 Fibonacci retracement. There is also an old high at 5,764 from late March. We should reach the circled area (shown in blue), maybe even above.

Despite all the negative articles we read in the Wall Street Journal (boy, have they turned anti-Trumper), the market began and ended the month of April at about the same level.  While the decline sure got space in the WSJ, the subsequent recovery has been barely mentioned. 

If the recent drop wasn’t traumatic for you, you should do nothing but continue holding your longer-term positions.  However, if the decline blindsided you, take the opportunity to remove some risk from the portfolio so you can sleep well at night if market problems continue.

Although it has been a raucous round trip, the market is back to where it was on the day of the Trump tariff plans. But before you get too overjoyed, remember the market had made multiple tops after the elections and was drifting downward when the tariff news hit. There were reasons for that, and those reasons have not gone away.

The market has moved from a deeply oversold condition to a neutral area. It will likely back up and fill this area for a while before something moves it one way or the other into a new trading range.

Sentiment has also moved back to neutral.  The CNN Fear and Greed gauge fell to 4 but is now back up to around 43, just outside a neutral reading.

Some macro issues remain unresolved. As the chart above suggests, consumers are getting into trouble. The tariff kerfuffle has yet to result in concrete trade deals. Consequently, uncertainty affects decision-making in the boardroom and among money managers. That alone can slow the economy. Federal spending must be reduced, which can slow an economy addicted to fiscal stimulation and government hiring.

Significant uncertainty remains about the tax bill. If Republicans in Congress fail, a massive tax hike will follow, which would not be a positive development.

Insider selling of stocks continues, and there was no significant expansion of insider buying at the recent lows.  Instead, we saw massive inflows to ETFs as the public “bought the dip.” The FED is still keeping rates on the high side.

Equity markets are still expensive based on most metrics.  The commercial real estate market remains in turmoil, and the residential housing market is struggling.  Unsold inventory in some states, such as Florida and Texas, looks alarming.  Home builders have more unsold inventory than at any time since 2009. Credit card defaults are rising, junk auto debt looks shaky, and consumers are pulling back some.

Because of the mixed bag of economic data and the uncertainty over policy, we would not be surprised to see the market begin to run into resistance above 5,700 and consolidate a bit more.

The markets could surprise us on the upside, especially if we get trade deals and possibly a peace treaty in Ukraine, but we don’t think they will break out to new highs anytime soon.  The multiple tops formed between December and March were made before the current doubt entered the market, so we think they will provide quite a bit of resistance for a while.

In summary, we have had a low and retraced dramatically to resistance. Now we must wait for the resolution of the charts and some macro factors that have been dogging the market.

Another notable feature of market action in the past month or so is the sharp decline in the value of the US dollar.  Since the peak just after the turn of the year, it has declined by around 11%, a significant drop for a currency in such a short period.  The moving averages have all turned downward, including the longer-term 200-day moving average.  The dollar is oversold and due for a bounce, but unlike the stock market, it has suffered significant damage to its charts.  The point and figure charts we keep have also given a sell signal.

If the dollar enters a more prolonged bear market, that would significantly change the macroeconomic background for markets and market leadership. Dollar weakness has led to higher interest rates, better commodity performance, and better relative performance for foreign markets.  A weaker dollar does help US export competitiveness and makes imports more expensive.

Oil looks pretty cheap below $60, but we will wait for a definitive turn in its price action.  Right now, oil prices suggest we are headed for a recession and a worldwide drop in demand.  If we fall into the $50s, Trump will likely refill the depleted strategic oil reserve.  If a global recession does not appear, oil is poised to move upward.

We still recommend having more cash than usual and a lower exposure to stocks than you might typically have, especially if you are an older investor.

We still like gold, but we believe it has been overbought in the short term, and we could retrace some of its recent gains.  This might occur if the dollar rallies, but if the dollar enters a genuine bear market, gold will have plenty of room to the upside.  If gold cooperates by giving us a dip towards $3,000, we would take advantage of that.

Right now, patience and alertness will be a virtue.

*****

Stock and dollar chart courtesy of Stockcharts.com, created by the author

 

 

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