Published March 21, 2025
Stocks are attempting to rebound from a very difficult four-week period that has pushed the market indexes into a full-blown correction. How long and how deep the correction is the question. For now, we are seeing the market attempt an oversold bounce. The chart below shows the oversold condition of the market in the bottom panel (red circle) while the top panel displays the S&P 500 index level and where the support has potentially become resistance (blue shaded line and accompanying arrows).
Market analyst Larry Thompson calls this week’s attempt “baby steps” as described below.
“The first steps are Baby Steps.
Baby steps are small, sporadic, and rarely predictable.
That’s exactly where we are in the bottoming of the S&P 500.
It’s taking baby steps.
Look at the S&P 500 since the start of this “correction.”
We were in a sell-the-rip market against the 5-day moving average.
Every rally got sold, no questions asked.
Now?
We’re seeing a shift in character.
Bulls are bringing the fight to the 5-day and closing above it.
Baby steps.
RSI is crawling out of the bearish range, getting over 50.
Baby steps.
This isn’t a high-probability setup.
Not yet.
But repair has to start somewhere.”
Market Update
Stocks kicked off the week continuing to rebound from a notable market downswing since mid-February. Stocks rose +0.6% Monday with investors awaiting the Federal Reserve meeting mid-week. Those gains were reversed Tuesday with tech stocks suffering a -1.7% drop perhaps on investor concerns that the Fed would be less accommodative than originally thought. The Fed indeed posted a more negative economic outlook Wednesday, keeping interest rates steady while reducing their outlook for economic growth and increasing their expectations for inflation – the so-called “stagflation” scenario. However, for Wednesday at least, those apparent negative inputs were warmly received by investors. Stocks moved higher by +1. Indexes gave back -0.2% Thursday as investors continued to hope that stocks have put an end to their month-long correction. Friday brought options expiration and some volatility around that. Stocks struggled throughout the session as investors digested news overnight from Nike that margins would be hurt by U.S. tariffs. The company was one of the first to specifically outline the impact of the tariffs on their business. The company’s shares opened -6% lower and, shockingly, trade very near their covid lows. Investors have seen sharp pullbacks in retail stocks this month as companies in the space – e.g. Walmart, Costco – have pointed to slowing demand and financial challenges among their customers.
Stock indexes managed a small halt to recent selling this week with the S&P 500 (SPY) posting a slim +0.21% rebound. The Nasdaq 100 (QQQ) was flat on the week. Small-cap stocks (IWM) bounced +0.67%.
Warm wishes and until next week.