False Bottoms and False Prophets

It looks like Twitter (or "X," with the site having technical issues) is down with the market today, as Friday afternoon's upside reversal on Fed Chair Jay Powell's upbeat remarks about the economy is now falling flat. 

For many years now, the market has given more than the benefit of the doubt to Powell. He always seemed to have the Midas touch, as stocks kept squeezing on higher. 

However, diminishing returns now seem to be setting in, especially as the White House pushes for immediate pain and a "detoxing" to get inflation, debt levels, and rates down. While it remains to be seen how successful they will be with rates and inflation, the market is at least paying attention to Trump and especially Treasury Secretary Bessent for the time being, and reversing the Powell rally with vigor. 

NVDA is one of the big leaders to the downside. I do not think the stock finds much support above $100, and am looking for a further sharp unwind into the low-$90s. 

As for the Friday reversal candles which got bulls excited for a rally this week, the XLY ETF for discretionary stocks, below on the daily chart, illustrates how quickly things can come apart when a reversal candle fails to confirm.

Instead, we immediately gave up Friday's gains, effectively trapping longs. More and more, as we noted with Members, this market has flashed signs of being in a new regime. Bulls assumed it was business as usual. However, with so many trapped bulls and even converted bears into dip-buyers from Friday, I suspect we still have a ways to go on the downside before a truly reflex rally takes hold.