🍔What Happened to the Rebound?

Almost at the breaking point...

It was an ugly week for equities as tariff uncertainty, stagflation risk, and earnings downgrades hit all at once. The news headlines were relentless and confusing for investors. We need this uncertainty to die down before stocks can find firmer footing.

There was generally a low understanding of who was selling or why. All kinds of reasons were given for the selloff this week, but it largely coalesced around:

• Technical factors (200-day moving average setting overhead resistance)

• Weak economic data (more on this later)

• 25% auto import tariffs, plus anguish over April 2 retaliation deadline

• Negative headlines around tech/AI (Nvidia hit by import restrictions; Alibaba CEO said AI data centers overbuilt; Microsoft pulling back data center spend again)

SPX (and QQQ) broke down from a bear flag pattern. It looks to want to retest the March 13 lows at 5500. Double bottoms are not uncommon in major market selloffs. However, if we see a decisive break of the 5500 bottom (preferably a daily close under support) we will sell our positions and look for a new low.

SPX retesting March low

As for who was selling this week, it was retail investors and hedge funds (2 charts below). US stocks experienced the largest weekly outflow, driven by domestic investors. The good news is, investors have now reduced leverage and did not add much exposure on the bounce. So there is less need for forced de-leveraging into further selloffs. The positioning data is showing that funds are in net short position now.

US stocks sold by hedge funds

Retail investors selling after buying frenzy