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Introduction

The market continues to follow a now-familiar pattern: early-week optimism driven by hopes of de-escalation, only to deteriorate into disorder as the weekend approaches. This rhythm has persisted for several weeks, reinforcing the fragility of sentiment beneath the surface.

Coming into Monday, we anticipated a tactical bounce—and that’s exactly what played out. However, the move quickly lost momentum by midweek following a more hawkish-than-expected tone from Powell at the March FOMC. Once again, the market was reminded that the path forward for policy—and by extension, risk assets—is far from benign.

Our tactical bias and “do less” approach continue to serve us well. In an environment where markets are actively repricing risk, preserving capital and selectively deploying it at extremes remains paramount. This discipline has kept our readers out of harm’s way while still generating alpha. For now, the reality remains unchanged: markets are still largely hostage to developments surrounding Iran.

Let’s unpack the price action. The bounce we outlined materialized—but was fleeting. As we’ve emphasized, this is a market best approached by trading the extremes, not chasing momentum. The SPX gapped higher to start the week, only to fully reverse course and break to fresh lows by Friday. A textbook example of a market lacking structural support, where rallies are sold and conviction remains scarce.

In the process, the major indices have now surrendered a key technical milestone—the 200-day moving average. Since the Covid crash low, there have been four instances where the SPX has broken below this level. The January 2022 violation occurred within the context of a broader bear market and led to sustained downside. However, the other instances proved far more transient, with price quickly reclaiming the 200-day and resuming higher.

While an n=2 is hardly statistically significant, it underscores a more important point: regime and context matter far more than the signal itself. In tightening cycles, breaks below the 200-day tend to confirm sustained downside trends. In contrast, within liquidity-driven regimes, they are often a function of forced de-risking—frequently followed by strong forward returns over the subsequent 1–3 months. The takeaway is clear: the signal in isolation is far less important than the macro and positioning backdrop in which it occurs.

This is precisely the conundrum the market is now grappling with. Powell reintroduced the possibility of rate hikes—something that was clearly not priced in (see below). While his rhetoric has shifted incrementally more hawkish, we do not view the current environment as a fully restrictive regime. Instead, the market appears to be navigating a transitional phase—characterized by policy uncertainty and unstable positioning.

Historically, breaks of the 200-day in this type of environment have been less about structural deterioration and more about positioning resets. In other words, forced de-risking rather than a durable breakdown—leaving the door open for tactical upside once positioning clears.

This is where technicals matter.

Why? Because the instruments we track provide real-time insight into when markets are mispricing risk. They help us identify when key inputs—rates, liquidity, positioning—are moving ahead of consensus understanding.

In early March, our work was already pointing to higher rates—well before the narrative caught up. At the time, many struggled to explain the breakout in yields. We didn’t need to. We don’t trade the why—we trade the what. And what we saw was clear: rates were breaking out, and that alone warranted a more cautious stance on equities.

We wrote in our March 4th report:

This is effectively what played out.

The escalation surrounding Iran has forced a shift in the Fed’s tone—away from rate cuts and toward the reintroduction of potential hikes, something that seemed unfathomable at the start of the year.

Technicals didn’t just help—they led.

Since publishing that report:

1) The 2-year Treasury yield—a key proxy for policy expectations—has risen ~40bps

2) Fed Funds futures have repriced meaningfully, now reflecting a greater probability of additional tightening through June 2027.

3) The SPX and Nasdaq have declined approximately 5% over the same period.

That represents meaningful alpha generated over a three-week period—again.

That said, we remain hostage to developments surrounding Iran. We cannot say with confidence that de-escalation is imminent, that oil prices will recede, or that the inflation backdrop will improve in the near term. A significant portion of what is currently being priced into markets hinges on those unknowns.

This is precisely why technicals matter. They provide a real-time lens into the market’s discounting mechanism—helping to identify when risk is being mispriced and when expectations have moved too far in either direction. That remains the foundation of our process, and the reason we are able to navigate environments like this with a clear, disciplined edge.

The weekend news cycle is unlikely to offer any reprieve—in fact, it continues to deteriorate. Threats of direct attacks on oil infrastructure are escalating, while Trump’s ultimatum to Iran has materially raised the stakes around the Strait of Hormuz.

This leaves the market in an increasingly fragile state, where any incremental escalation could trigger a swift, cathartic move lower. That is not only a risk—but a scenario we would welcome and continue to plan for.

Time to check the charts.