The S&P 500 is trading up 34 points to 7001, edging above the previous record set January 28.
That’s an impressive gain in just 11 trading days since the March 30 low.
It begs the question: Was there a tell at the bottom.
In terms of fundamentals, if we go back to the start of the rally on March 31 and read the news recap from that day, it’s hard to see anything remotely close to a ‘buy everything’ headline.
Trump was telling other countries to deal with Hormuz themselves and Iran’s President was repeating lines about being prepared to end the war with guarantees. The bull case at the time was that Trump would walk away and Europe/China would have to deal with Hormuz.
The one hint was from an Axios report that China had got involved in talks. That’s not something that’s been widely discussed since but China is surely playing a role here and — as the buyer of much of Iran’s oil — it absolutely has leverage. Could that have been the trigger?
Within that China report there was also a note that had also been a tweet earlier and said:
In a brief phone call with Axios, Trump said “the negotiations with Iran are going well.”
That was a tidbit the bulls latched onto.
Equally important was positioning and sentiment. I highlighted the Extreme Fear in the Fear & Greed Index at the time of the bottom and cited a Goldman Sachs note that said this:
Systematic positioning is now approaching washed-out levels.
Our CTA estimates show positioning has flipped to outright short in US
equities, which has historically been associated with more supportive
near-term price action.
Finally, there was talk about repositioning and rebalancing into the March 31 quarter end that’s also important. That initial squeeze surely had some of that and I wrote about it but also added this.
Now if I remember back to March 2020, there was a
similar sentiment then are big bids came in at the end of what had been
the worst month for equities in many years. Plenty of people were
convinced to fade that strength but it didn’t stop in April and
continued through 2022. Oftentimes, once the psychology of the market
flips back to ‘buy the dips’, there is simply no fighting it.
So
while some cautious is warranted and the oil market needs to be watched
closely, there is room for optimism. We will be watching very carefully
tomorrow
Obviously, stocks continued higher the next day and haven’t stopped since. Much of that was Trump TACOs but there are some good lessons here:
- Watch for sentiment to get washed out
- The news doesn’t really need to get better, it just needs to stop getting worse
- The Presidency is a powerful thing and it became somewhat clear that Trump wanted the war to end the next day
I would not say (at all) that this was an easy episode to trade. Trump is so full of threats and over-the-top claims that it’s tough to see what’s true. There were also non-stop leaks and rumors, along with abundant fears of insider trading.
Finally, I wouldn’t underestimate the impact of Claude’s latest Mythos model, which was also leaked just before the bottom. That helped to put a bottom in tech shares and restore the AI enthusiasm from 2025.
This article was written by Adam Button at investinglive.com.
