The next report will be on Thursday, March 27th.
Report/Video Headlines
- Bearish Until Proven Otherwise
- Zweig Breadth Thrust Indicators Set Up
- S&P 500 Breadth is Net Bearish
- QQQ Downtrend, NDX Breadth Holds Up
- RSP Downtrend and S&P 1500 Breadth Bearish
- Yield Spreads Widen and Show Stress
- Short-term Yields Point to a Dovish Fed
- IEF Consolidates after Breakout Surge
Bearish Until Proven Otherwise
The weight of the evidence turned bearish on March 12th, 2025. First, SPY, QQQ and RSP reversed their long-term uptrends as they broke their lower Bollinger Bands in the first half of March. Second, six of the nine breadth indicators also triggered bearish. Third, yield spreads show stress in the credit markets as they surged to multi-month highs. These developments mean the market entered a bearish phase. At best, we are not in a bull market and stock risk is above average.
With the weight of the evidence bearish, I am now focused on what would prove this stance wrong (otherwise). First, I am watching the Zweig Breadth Thrust indicators, which are setting up as they became oversold on March 13th. They need to surge above 23% by March 27th for a Zweig Breadth Thrust to trigger. See this report for updated charts [1]. Second, I will watch for improvements in the breadth indicators, especially the percentage of stocks above their 200-day SMA indicators. Moves above 60% would show broadening participation on the upside and put the vast majority of stocks into long-term uptrends. This would improve our odds of success.
Bull markets are a time for risk-on and beta capture. Running with the bulls. Stock traders want to be long stocks and in leading names. Bear markets are a time for risk-off and higher cash levels. Hibernation. Stock traders want to look for alternatives, such as bonds and commodities, and preserve capital for the next bull cycle. Long-term success comes from capturing outsized profits during bull runs and limiting losses during bear markets.
S&P 500 Breadth is Net Bearish
SPY moved into a long-term downtrend as it broke the lower Bollinger Band (125,1) on March 10th. Two S&P 500 breadth indicators followed with a rapid deterioration and bearish signals. The percentage of S&P 500 stocks above their 200-day SMA ($SPXA200) plunged below 40% on March 12th, while the percentage of stocks above their 150-day SMA ($SPXA150) plunged below 30% on March 13th. This means two of the three breadth indicators triggered bearish and the group is net bearish (two of three). S&P 500 High-Low% ($SPXHLP) has yet to exceed -10% and trigger bearish.
About the Major index ETFs and Breadth Signals
The top window on each breadth chart shows the corresponding major index ETF with Bollinger Bands (125,1). An uptrend signals when the ETF breaks above the upper Bollinger Band and a downtrend signals with a break below the lower band. The index ETFs are the S&P 500 SPDR (SPY), the Nasdaq 100 ETF (QQQ) and the S&P 500 EW ETF (RSP).
Each index has three breadth indicators. SPY uses S&P 500 breadth, QQQ uses Nasdaq 100 breadth and RSP uses S&P 1500 breadth. The percentage of stocks above the 200-day SMA triggers bullish with a move above 60% and bearish with a move below 40%. The percentage of stocks above their 150-day SMAs triggers bullish with a move above 70% and bearish with a move below 30%. High-Low Percent triggers bullish with a move above +10% and bearish with a move below -10%. High-Low Percent is the percentage of stocks making 52-week highs less the percentage making 52-week lows.
These bullish/bearish signal thresholds are designed to identify significant changes in the stock market (bull market or bear market). As trend-following signals, they will lag and there will be whipsaws. Long-term, these signals keep us on the right side of the market. The idea is to be invested during bull markets (risk-on) and in cash during bear markets (risk-off).
QQQ Downtrend and NDX Breadth Mixed
Two indicators remain bullish, but one turned bearish in March and QQQ reversed its uptrend. QQQ moved into a long-term downtrend as it broke the lower Bollinger Band (125,1) on March 10th. This signal reverses the bullish signal triggered on November 10th, 2023 (15 months). The percentage of Nasdaq 100 stocks above their 200-day SMA ($NDXA200) plunged below 40% to trigger bearish and hit its lowest level since November 2022. However, the other two indicators have yet to trigger. The percentage of stocks above their 150-day SMA ($SPXA150) plunged to its lowest level since November 2022, but did not break below 30% to trigger bearish. NDX High-Low% ($NDXHLP) has been mostly negative in March, but has yet to break below -10% and trigger bearish.
RSP in Downtrend and S&P 1500 Breadth Bearish
The weight of the evidence is clearly bearish for RSP and S&P 1500 stocks. The S&P 500 EW ETF (RSP) moved into a long-term downtrend as it broke the lower Bollinger Band (125,1) on March 4th. New lows also expanded as S&P 1500 High-Low% ($SUPHLP) crossed below -10% to trigger bearish on March 4th. Breadth continued its deterioration into mid March as the percentage of S&P 1500 stocks above their 200-day SMA ($SUPA200) plunged below 40% for the first time since November 2023 and triggered bearish on March 11th. The percentage of stocks above their 150-day SMA ($SUPA150) plunged below 30% for the first time since November 2023 and also triggered bearish on March 11th.
Yield Spreads Widen to Multi-month Highs (stress)
The chart below shows SPY, the Junk Bond Spread ($$HYIOAS) and the BBB Bond Spread ($$BBBOAS). Both spreads fell back as the stock market bounced, but the widening remains and we need to see further narrowing to show a return to confidence. Moves back below the 200-day SMAs would show further narrowing and be positive. For now. these spreads widened (rose) to multi-month highs in March and broke above their 200-day SMAs. This shows increasing stress in the credit markets and I view this as negative for stocks. Bond traders are demanding a higher risk-premium to hold junk and BBB bonds. This means they are more concerned with the economy and the issuer’s ability to repay its obligation.
The yield spread is the difference between the Junk Bond Yield or BBB Bond Yield and a comparable Treasury Bond Yield. Junk and BBB bonds represent risk assets, while Treasuries represent relative safe-havens. The spread is the risk premium for holding the riskier assets. Narrow/narrowing spreads show confidence and this is bullish for stocks. Wide/widening spreads show stress and this is negative for stocks.
Short-term Yields Point to a Dovish Fed
The top window shows the 3-month Treasury Yield ($UST3M) falling from July to December and then moving sideways in 2025. This key short-term rate has yet to turn up and remains in a downtrend, which points to a dovish Fed. A downturn from here would suggest an even more dovish Fed. Conversely, an upturn and breakout would point to a hawkish Fed. The assumption here is that the bond market and short-term rates lead the Fed and foreshadow policy.
The middle window shows the Fed Funds Target Rate ($$FEDTGT) falling from September to December as the Fed cut rates (dovish). This Fed Funds target rate flattened this year, but has yet to turn up, which means the Fed has yet to raise rates (officially change their stance).
Several factors influence short-term Treasury yields, but they are still closely aligned with Fed policy and often lead the Fed. This means the yield often peaks (troughs) and turns down (up) before the Fed starts to lower (raise) rates. We use the 3-month Treasury yield to identify current Fed policy and anticipate the next Fed move
IEF Consolidates after Breakout Surge
Despite some very noisy price action over the last four trading days, the 10-yr Treasury Yield ($TNX) remains in a downtrend since the mid February breakdown. $TNX fell to 42 (4.2%) and appeared to be breaking down after last week’s Fed meeting. It then surged to 43 on Monday morning as the “selective” tariff news hit the markets. Despite this whipsaw, the overall picture remains the same. $TNX is in a downtrend and the March bounce looks like a small wedge, which is a bearish continuation pattern. A break below the mid March low would signal a continuation lower. I am marking resistance at 45 (4.5%) and a breakout here would reverse the bigger downtrend.
The bottom window shows the 7-10 Yr Treasury Bond ETF (IEF) in an uptrend after the mid February breakout. We are also seeing noisy price action here, but the overall picture remains the same. IEF became overbought after the surge to 95.5 in early March and then consolidated with a pennant in March. Pennants are short-term consolidations within the trend, which makes this one a bullish continuation pattern. A breakout at 95.5 would be bullish here.
Several factors influence long-term Treasury yields, including growth expectations, inflation expectations and government debt levels. The 10-yr Treasury Yield typically falls when the economic outlook dims and/or inflation expectations rise. Conversely, the yield typically rises when the economic outlook is bright and/or inflation expectation fall.