Day 3
Day 3 of this rally attempt. What's next? Detailed analysis below...
Welcome to Day 3 of the current market rally, with the S&P 500 closing above its 21 EMA for the first time since March 25th.
Unlike the failed rally attempt on March 25th, the bullish backdrop today is significantly stronger, supported by key technicals, positioning shifts, and improving market sentiment.
Key Market Developments
One of the most important charts to watch since the S&P 500 lows on 4/7 has been this one below:
Source: Live Betting Market Polymarket, the world’s largest prediction market.
Notice the peak in Polymarket recession odds in the chart above (~67% on 4/7). This day (4/7) also coincided with the lows in the S&P 500 AND the peak in the VIX.
The S&P 500 bottomed on the morning of April 7th when we got the initial fake report about a 90-day tariff pause. We ended up getting the official 90-day tariff pause news that Wednesday (2 days later), but the SPX never revisited Monday’s lows.
The VIX also peaked on the morning of April 7th at 60.13.
The VIX now appears to have formed a clear topping pattern, in my view. This signals a major decline in market fear.
As I highlighted at the time, this was the likely to be the moment of peak fear/peak recessionary fear. Polymarket odds confirm this fact, as fears of a recession have since dropped (to now 53% odds).
At the time, we were also seeing clear signs of capitulation selling. Total positioning reached -2.5z, (essentially nearing 15-year lows), as Hedge Funds dumped stocks at a record pace.
My earlier view was: with the VIX & recession fears peaking, alongside positioning potentially bottoming, it is a favorable technical setup for a market bottom beginning to form.
Positioning has now become a big tailwind, as it appears to have most likely bottomed at -2.5z (near 15yr lows). Systematic funds and CTAs are now turning into buyers from a completely washed out level.