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It’s Wednesday, and markets rose sharply as President Trump walked back his comments on removing Fed Chair Jerome Powell and Treasury Secretary Bessent admitted that the trade war with China may not be sustainable.
Like most investors, you’re probably wondering: Is the market chaos starting to settle down, or am I walking into the jaws of another bear trap?
Short of reliable fundamentals amid an onslaught of unpredictable geopolitical volleys, it’s probably best to examine the technical data. Turning to the Market Summary page, I scrolled down to the Breadth window to see which indices or markets are trading above their 20-day exponential moving average (EMA), as it might reveal which ones are recovering.
NOTE: All Market Summary screenshots were taken on Wednesday at the time of writing.
Breadth Snapshot: A Mixed Signal
FIGURE 1. MARKET SUMMARY BREADTH WINDOW. Are we seeing a recovery here?
You can see that over 45% of stocks in the S&P 500 ($SPX) and the NYSE Composite Index ($NYA) are trading above their 20-day EMA. The NASDAQ Composite ($COMPQ) has an even higher percentage, with over half of its stocks trading above that level.
As the color code indicates, this isn’t bullish. It’s neutral. But are we seeing early signs of a turnaround? If so, you, like most investors, probably want to catch it early. But it may also be a false signal. To get an additional breadth angle, look at the Bullish Percent Index (BPI) window to see how many stocks within the broader market and exchanges generate Point & Figure Buy Signals (see below).
Bullish Percent Index: The S&P 500 Leads the Pack
FIGURE 2. MARKET SUMMARY BPI. The S&P 500 is the most bullish among the indices and exchange groups.
The NASDAQ has the most bearish reading, but the tech-heavy Nasdaq 100 is just a few points away from bullish. The S&P 500 is flashing the most bullish signal, with 60% of stocks in the index signaling P&F buy alerts.
So far, the outlook seems cautiously optimistic at best — we might be climbing out of the woods. But to get a fuller picture, it helps to examine another set of critical angles: market sentiment and money flows.
- Can we get a data-driven measurement of investor bullishness vs. bearishness?
- And just as important, how does that sentiment translate into actual money movement? Are investors, especially institutions, putting capital into the markets or pulling it out?
To answer these, let’s analyze the AAII Bulls – Bears sentiment indicator alongside a weekly chart of the S&P 500. Let’s also apply the Chaikin Money Flow (CMF) indicator to provide a longer-term view of buying and selling pressure in the market.
This chart is available on the Market Summary Sentiment window. However, I modified this weekly chart a bit, and you can see this below.
Sentiment Check: Bearish Underpinnings
FIGURE 3. WEEKLY CHART OF THE S&P FEATURING THE AAII BULLS – BEARS INDICATOR. Subtracting the bullish from bearish forecasts, you get net negative sentiment.
A couple of foreboding signs: the S&P is well below its 40-week simple moving average (the equivalent of a 200-day moving average), and the net AAII Bull-Bear sentiment (bottom end of the indicator pair) reads net bearish.
As for the first, you’re aware of the saying that nothing good happens under the 200-day moving average. Just look at the S&P 500’s price action in 2022. Is the current market about to undergo a similarly prolonged period of volatile declines?
As for the second sign, the AAII Bulls-Bears, it’s overwhelmingly bearish. Here’s something to think about: this indicator is based on a weekly sentiment survey of its members. While the group has around 160,000 member investors, the weekly responses usually fall between 100 and 350. It’s a voluntary survey, so the participation rate can vary quite a bit, often skewing the results. Still, it’s a closely watched barometer of retail sentiment.
Money Flow: Caution at the Zero Line
Aside from sentiment, what does the longer-term money flow picture look like?
Take a look at the CMF indicator plotted below the chart. The blue circle highlights the CMF hovering right at the zero line.
On a weekly scale, this suggests that buying pressure has cooled, but the CMF hasn’t crossed into clear-cut selling pressure territory yet. That raises the question: Is this a pause before a rebound, or a warning of more downside to come?
The CMF doesn’t distinguish retail from institutional capital. However, institutional investors operate on longer timeframes. Given the current geopolitical uncertainty, what we’re seeing may reflect a pause or outright indecision. Either way, it’s likely some catalyst will eventually trigger a move, and when it does, any institutional response could last for weeks, if not longer.
Euphoria or Exhaustion?
Despite the April rallies, markets seem to be reacting more to political theater than fundamentals. Vague remarks from officials like Treasury Secretary Bessent have fueled optimism, yet there’s little real progress on trade or economic policy to back it up. With corporate layoffs rising, port activity collapsing, and U.S. reliance on Chinese imports deepening, the structural cracks appear to be widening.
Meanwhile, markets dance to headlines — often without substance — as if investors are being nudged along by said headlines. Is this euphoria? If it is, this euphoria may not signal strength but rather a dangerous calm before a deeper decline.
At the Close: Tread Carefully!
The Market Summary offers a clear starting point for gauging the surface and penetrating beyond it. By watching key indicators like breadth, sentiment, and money flow, you can better assess whether we’re seeing the start of a true recovery or just another bear trap. Stay cautious. Don’t trade on news, but analyze how markets react to news. In other words, follow the data and wait for real evidence before leaning into any rally.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.