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“When the long-termers who were formerly skeptical at last capitulate to the trend, then you have a total consensus and the end is nigh for the major multi-month / multi-year move. Nigh, but not necessarily over. At this point one of our sentiment gauges comes into its own. We have to watch market action: the way the markets react in relation to the background and to news events.” – John Percival

Summary: NQ and SPX forming a broadening top, while market internals continue to degrade, specifically concerning negative divergence in LQD/IEF. All while most market commentators are calling this a “healthy correction”. We think markets likely chop around a bit more before breaking down to the downside. However, if risk-on looks like it’ll survive then BTC and ETH offer more attractive setups to play for upside. Macro data pointing to a softening labor market and slowing growth, while UST 2yr notes forming a massive H&S bottom. Buy bonds over stocks as bonds.

Alright, let’s get to it.

1. When everyone agrees on market action, it’s time to fade the crowd.

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2. Broadening top patterns forming in NQ and SPX. Maybe we see a bit more chop and vol before a downside breakout.

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3. Our key market internals continue to degrade, giving weight to our somewhat bearish short-term outlook.

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4. The divergence level in LQD/IEF has fallen to a level that often marks/precedes volatile corrective periods.

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5. @PeterLBrandt: “ETH chart $ETH now can be viewed as a potential 11-month rectangle.”

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6. Crypto getting bid on the ridiculous strategic crypto reserve news. BTCUSD has put in what looks like a bear trap. If general risk on can hold here, then BTC and ETH offer more attractive long setups than equities.

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7. Bond sentiment/positioning check…

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8. Government labor market recession + huge fade in US household wealth effect = slowing growth.

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9. News mentions of layoffs/firings at their highest level since January 2023.

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10. Atlanta Fed GDPNow has fallen off a cliff. While this model is being negatively distorted by the trade data and tariff situation, it still strongly suggests we’ll see weakening data in the months ahead.

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11. And so what I’m really trying to say is: buy bonds…. UST 2-yr Notes are forming a massive 24m+ H&S bottom. Yields will be coming down.

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