Markets Report: a flat 2 weeks. Big move ahead?

It's been a quiet 2 weeks. Is a big move ahead?

Stocks have been mostly flat over the past 2 weeks, swinging up and down. This pause was to be expected, given the stock market’s big rally since the April 7 bottom.

Notably, the S&P 500 is still where it was in November 2024, making little headway in the past 7 months. In today’s Markets Report I’ll share my outlook for stocks, Bitcoin, commodities, bonds, and currencies.

U.S. Stocks

May is over. While the first half of this month saw strong gains, the second half was relatively quiet, with the S&P 500 swinging up and down.

Momentum

The S&P gained more than +18% over the past 35 trading days (7 weeks). This is a sign of strong momentum, and stocks tend to push higher over the next 6-12 months:

Here are the S&P 500’s max drawdowns from these signal dates:

The S&P 500 gained more than +6.1% in May, which is a large 1 month gain. As another sign of momentum, this usually leads to more gains for stocks over the next 9-12 months:

Options

The $ value of all Call volume - the $ value of all Put volume fell a little:

This is reflected in the S&P 500 options as well:

Breadth

Here are the % of S&P 500 stocks above their 200 and 50 day moving averages.

*These popular breadth indicators closely track the S&P’s distance from its 200 and 50 day moving averages. The logic is simple: the more stocks above the 200-DMA, the more the S&P will be above its 200-DMA. The more stocks below the 200-DMA, the more the S&P will be below its 200-DMA.

Here are the % of NASDAQ 100 stocks above their 200 and 50 day moving averages:

Sentiment Surveys

As the stock market’s rally stalled, sentiment dipped a little. AAII Bulls-Bears fell back below 0:

Investors Intelligence Bulls-Bears also fell a little. In neutral territory right now:

Asset Managers became a little more bullish:

Other Sentiment

The CNN Fear & Greed index turned down a little:

The S&P 500’s Daily Sentiment Index is slightly elevated:

Corporate Insiders

Not much change among corporate insiders:

Same chart, but using a log scale for the Insider Buy/Sell Ratio:

Fund Flow

Flows into the 10 largest stock ETFs (SPY, IVV, VOO, QQQ, etc) are neutral, with inflows offsetting outflows.

The start of this month saw large outflows from stock ETFs while stocks rallied. Is this because “no one believes in this rally and everyone is selling?”

No. If supposedly “everyone is selling” ETFs, then why is the market’s price going up?

1. During a stock market crash, investors sell riskier and more volatile individual stocks (e.g. Tesla, Nvidia) and re-allocate that capital into “relatively safe and less volatile” index ETFs. This is why ETFs see inflows when the stock market crashes. ETF inflows during a stock market crash is risk-off behavior.

2. During a post-crash rally, investors sell their ETF holdings and re-allocate that capital into riskier, high-beta stocks (e.g. Tesla, Nvidia). ETF outflows during a post-crash stock market rally is risk-on behavior. Investors are selling ETFs to buy individual stocks.

This is the same reason why GDX saw non-stop outflows while it rallied from January-April. It wasn’t because “everyone is selling and no one believes in the rally”.

As the rally in gold and gold miners progressed, holders of GDX became very bullish. They sold GDX (a sector ETF) and purchased individual gold mining stocks, in an attempt to find individual gold miners that would outperform GDX.

Every ETF has its own unique set of traders and investors. Their behavior is different, depending on the ETF. Fund flows SHOULD NOT be used as automatic contrarian indicators!

With that being said, BIL is the 1-3 month Treasury Bill ETF. Investors rush into BIL when stocks crash (safe haven), and dump BIL when stocks recover after a crash.

Investors have dumped BIL over the past month as they rush back into stocks:

TQQQ traders are contarian. They buy into crashes (in anticipation of a rally) and sell into rallies (profit taking).

*TQQQ = 3x leveraged long NASDAQ ETF

With stocks flat after a big rally since early-April, TQQQ outflows are slowing down:

Trend

The trend is your friend, until it ends. The past 2 weeks saw stocks swinging sideways.

Why does trend matter? Because at least from a trend following perspective, it’s better to buy when the market is trending Up (e.g. above its 200-DMA) than when the market is trending Down (e.g. below its 200-DMA).

*There is nothing “special” about the 200 day moving average, except the fact that it’s popular. It is not significantly different from the 195, 190, 185, 180, 205, 210, 215, or 220 moving averages.

Long above vs. below the S&P 500’s 200 day moving average:

Long above vs. below the S&P 500’s 50 day moving average:

Long above vs. below the S&P 500’s 20 day moving average:

Earnings & Valuations

Many traders say that valuations and fundamentals are useless, and that “only price matters”. While this is true for day traders (valuations have zero impact on the market’s short term direction), fundamentals matter for traders and investors with longer term horizons.

Valuations for large cap stocks (S&P 500) remain elevated compared to their 10 year average:

Here’s the S&P 500’s forward earnings expectations. In the long run, earnings and stock prices move in the same direction:

My Outlook

Looking at the bigger picture, Risk/Reward favors neither bulls nor bears right now.

The world operates in echo chambers, where bulls and bears only hear opinions that confirm their existing bias. In trading, it’s useful to list out the valid arguments of both sides.

Today is not the start of a massive bull market. There are some key differences between today vs. 2023, 2020, 2016, 2009, etc:

1. Valuations are much higher today than at the start of previous bull markets. While high valuations don’t impact the market’s day-to-day fluctuations, they do limit the potential of rallies to make massive new highs.

2. Government policy today is NOT supportive of equities. Many massive bull rallies since the GFC were accompanied by accommodative government policy, e.g. monetary easing. This is not the case today. Trump’s trade wars are at best a neutral factor for stocks, if not bearish.

3. There is no NEW bullish theme/narrative right now. Big bull markets require new themes/narratives about earnings growth. For example, the 2023-2024 bull rally was driven by the “AI” story. While AI-related earnings are still growing, growth is slowing down and investors are tired of this old story.

4. The economy is slowing down. Housing is a leading sector of the economy, and homebuilders have significantly underperformed the broader stock market. Homebuilders barely bounced while the broader stock market bounced:

On the other hand, what do the bears have?

Sure, there is a Black Swan risk that Trump escalates his trade wars just to prove that he’s not a TACO on tariffs (Trump Always Chickens Out). Trump’s personality is one that likes to project strength when publicly challenged, a common instinct among political “strongmen”, salesmen, etc. (In anything related to marketing, “Image” is what counts).

Bears can point to the fact that the economy is weakening and earnings growth is slowing down. Businesses are rattled by trade-related uncertainty.

But the pain is not disastrous, and nor is it un-fixable. Absent a rapidly escalating trade war that significantly hurts corporate earnings, there is no theme right now that can push stocks massively lower (i.e. re-test the April lows).

Moreover, the all-important tech sector’s earnings are still growing, even if growth is slowing down.

What if 2025 is a year of noise, but little headway?

I expect stocks to trade in a wide and volatile range throughout 2025, swinging Up and Down, with the S&P 500 perhaps making marginal all-time highs.

Even if the stock market trends higher and makes new all-time highs, I expect it to do so in a choppy manner. This IS NOT a year when stocks can rocket higher like 2023.

Dealing with this market

In times like this when neither bulls nor bears have a clear advantage, there are 2 ways to deal with it:

1. Have a bullish bias. On any random day, the stock market slightly favors the bulls over the bears. Time favors the bulls, not the bears.

2. Lighten up on position sizing and hold some cash. Your position sizing should depend on your level of conviction towards a trade. High conviction = large positions, Low conviction = small positions.

It’s important to keep an open mind. I will change my Market Outlook and trading plan as the market develops.

My Portfolio

*Click here to understand how I trade

1. Long SPY (S&P 500 ETF). Still the largest position in my portfolio, but is a medium-sized position.

2. *Bitcoin and U.S. equities move in the same direction.

3. No position in Gold. Gold could correct/consolidate for months to work off the recent excess.

4. Mean-Reversion Position (Non-Core): long energy stocks. Very small position size.

5. Mean-Reversion Position (Non-Core) - Long Indian Equities: Small position size.

6. Mean-Reversion Position (Non-Core) – Long U.S. Treasury Bonds: Small position size.

7. Cash

Markets Report continued….

Bitcoin

Bitcoin is a high-beta, risk-on asset that generally rallies when stocks rally and struggles when stocks fall. While its directional correlation with stocks is clear, its price action is different—less wave-like, more staircase: sharp moves followed by prolonged consolidations.

Bitcoin’s price action this week was a little concerning. When stocks rallied at the start of this week, Bitcoin did not. Was Bitcoin’s new high a false-breakout?

Trend

Bitcoin continues to trend higher for now:

Sentiment

Sentiment is slightly elevated:

Gold

Gold, a safe haven asset, has struggled since stocks decisively bottomed in late-April. I believe that gold’s consolidation/correction could last weeks, if not months. I have no long position.

Trend

Gold is trending sideways:

Options

The $ value of GLD’s Call volume - Put volume rebounded a little:

Sentiment

Sentiment is still elevated:

Fund Flows

GLD’s outflows are slowing down:

Unless you are a day trader, I believe that gold is best avoided for now. I will re-visit this trade later this year.

Energy

Energy stocks made little headway this month.

Commitments of Traders Report (COT Report)

Asset Managers are extremely short energy, while Dealers are extremely long. The last time this happened was during the COVID crash:

Why are Asset Managers so bearish on energy? From Bloomberg:

“OPEC+ is considering accelerating its production increases by discussing a potential hike of more than 411,000 barrels a day for July, according to people familiar with the matter.”

Sentiment

Sentiment remains pessimistic:

XLE Fund Flows

XLE’s outflows have mostly stabilized:

I have a very small long position. The small position size reflects my lack of confidence towards the bullish case. It seems increasingly likely that energy will simply bounce around in a range, offering no clear trend to bulls or bears.

India

I’m bullish on India and believe that this is India’s Century. Trump’s tariffs may bring back some high-end manufacturing to the U.S., but they won’t revive labor-intensive manufacturing. Labor-intensive manufacturing for textiles, electronics etc. will likely move from China to India. India will become a “triple-engined” economy, relying on service exports (office jobs outsourced to India), manufacturing exports, and foreign remittances to grow its economy.

My main concern for India is related to the U.S. Dollar. Indian stocks have been flat over the past 2 weeks, and that’s without a U.S. Dollar bounce. If/when the U.S. Dollar bounces, will that hurt Indian stocks priced in U.S. dollars?

*For non-Indians, the easiest way to gain exposure to India is through U.S.-based ETFs, which are priced in U.S. Dollars.

Trend

Indian stocks have been flat over the past 2 weeks:

Breadth

Here are the % of Nifty 50 stocks above their 200 and 50 day moving averages:

Fund Flows

Indian ETFs are still seeing inflows:

The U.S. and India are close to a trade deal. Perhaps that will be the trigger that pushes Indian equities higher.

Bonds

After hitting the bottom of a 2 year range, bonds bounced this week. I continue to believe that bonds will swing in a wide range, as they’ve done since 2023. I do not expect a significant and powerful breakout in either direction.

The theme for rising interest rates is simple: inflationary tariffs + concerns about U.S. borrowing needs. However, this is not enough of a bearish factor that it would cause rates to soar and bonds to crash. So within this context, continued choppy price action is most likely.

Outside of short-term traders seeking a mean-reversion bounce, I believe that the bond market is best avoided for now. Neither bulls nor bears have an edge here.

Trend

Bonds continue to swing within a multi-year range:

Sentiment

Sentiment remains in neutral territory:

Fund Flows

Inflows into TLT are starting to come down.

*Fund flows aren’t automatically contrarian. It depends on what type of trader is buying/selling and why. Many ETFs—like TLT—are small relative to the underlying market, so fund flows don’t always reflect broad sentiment towards that market.

Jamie Dimon’s opinion on bonds. It’s important to remember that Jamie Dimon has a tendency to be bearish, at least when talking to the media. Perhaps it gives him the Image of a careful and prudent CEO that’s aware of “risks”.

Currencies

The U.S. Dollar’s rally has been difficult. Despite bottoming in late-April, the Dollar has not rallied significantly along with U.S. equities. This is why I usually do not trade currencies—there are far easier markets to trade!

Despite being oversold, the U.S. Dollar’s bounce has been weak:

Trend

The U.S. Dollar tried to trend upwards, but has failed so far:

COT Report

Asset Managers are historically short the Dollar:

Sentiment

Sentiment remains pessimistic:

Despite the Dollar’s extremely weak bounce since late-April, I am bullish on the Dollar (mean-reversion rally). I do not have a currencies position.

Will a U.S. Dollar rally hurt foreign equities (priced in U.S. Dollars)?

Germany:

Brazil:

Final Thoughts

These kinds of markets can be frustrating for those who aren’t day traders. It’s tempting to think that markets are going to soar or crash.

The reality is that sometimes, the best course of action is inaction. Wait patiently for the right setup and avoid the 24/7 media hype: sooner or later the market will start to move again. Have you ever heard the media tell you “sorry guys, nothing happened today, nothing to see here”? Media types and salesmen would be out of a job!

You should do 2 things when Risk/Reward favors neither bulls nor bears:

1. Reduce leverage. How much leverage you use should be based on your level of conviction. If you don’t have strong conviction, DO NOT use leverage and large position sizes.

2. Understand that the stock market in a dynamic economy like the U.S. has a slow upwards bias. So unless you see a very compelling reason to sell, it is better to be long than short. This doesn’t mean that stocks are about to soar and that stocks can’t fall. It simply means that bulls have time on their side, while bears do not.

*Notes: some charts of interest

Nvidia:

Robinhood, the poster child of 2023-2024’s options and crypto speculative boom:

Robinhood’s options data:

Microsoft’s options data:

Palantir:

Palantir’s options data:

Industrials:

Health Care:

This content is for informational purposes only and is not financial or investment advice. I am not a licensed financial advisor. Trading involves risk, and past performance does not guarantee future results. You are responsible for your own financial decisions, and Subu Trade is not liable for your decisions.