Sell-Off Continuation vs. Recovery of Critical Levels
Despite the extreme bearish sentiment last weekend, I anticipated that a bounce was coming, citing a high likelihood of a relief rally, “as the $SPDR S&P 500 ETF Trust(SPY)$ $Invesco QQQ(QQQ)$ $iShares Russell 2000 ETF(IWM)$ $SPDR Dow Jones Industrial Average ETF Trust(DIA)$ were showing potential for a trend reversal.”
Pessimism was as high as it was in April 2025, but staying focused on technical indicators is essential, regardless of the noise.
Markets closed the first week of April with their first weekly gain since the Iran conflict began. The $S&P 500(.SPX)$ rose 3.4%, the $Dow Jones(.DJI)$ added nearly 3%, IWM rallied 3.4%, and the $NASDAQ 100(NDX)$ surged 4%.
In addition, other bullish setups were anticipated by this publication last Saturday: $Amazon.com(AMZN)$ (bouncing 5.2% during the week) and $Netflix(NFLX)$ (5.6%). A consolidation for $Exxon Mobil(XOM)$ was expected, and on Monday, I highlighted the bearish reversal setup that initiated the -6% selloff seen this week.
The Week Ahead:
The question for the week ahead is not whether volatility will continue, it likely will. The real question is how oil prices, the Dollar Index, and the $Cboe Volatility Index(VIX)$ will behave. The geopolitical escalations we saw late this week carry enough weight to significantly dampen sentiment, and every rally must recover the Central Weekly and Monthly Levels posted here to prove its sustainability.
Bearish Sentiment is High:
Over the last 30 years, we have seen this level of bearish sentiment only a few times, as highlighted in the chart below using the current 55% bearish sentiment leve as a reference.
Given this week’s bounce from those extreme conditions, we must now monitor if this move will last two or three weeks (as typically seen even during bear market rallies) or if it will be short-lived, similar to 2025 when the market saw only a one-week relief before resuming the Tariff Crash. The full analysis is below.
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