Your Weekly Roadmap with Jay Woods, CMT
1/ T-Day (Take Two)
2/ A Manic Monday?
3/ VIX Over 40
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1/
T-Day (Take Two)
UNCERTAINTY…
No, this isn’t last week’s newsletter – it just rings louder today. Only this time it screams from a valley that is 10% lower than where we mentioned it last week.
“Liberation Day” came and went and it turned into more of a “Liquidation Day” as the tariffs implemented were far worse than had been projected.
The market spoke and didn’t like what it heard out of Washington. I discussed that immediate reaction on Thursday with NYSE TV Live here and here on CNBC last Friday.
Now we wait again after suffering back-to-back days of historical losses in the S&P 500. The only other times, going back to the inception of the current S&P 500 in the early 1950’s, the index lost over -10.3% or more over two consecutive trading days were in 2020 (Covid), 2008 (Great Financial Crisis) and 1987 (Stock Market Crash).
Traders will be watching the newswire and social media feeds for headlines all week. Let’s see what comes of the next tariff deadline when things are to be implemented on April 9th.
T-Day (Take Two). Let’s try this again. Last week we hoped the event on April 2nd would give the market and its participants clarity. What we got were deeper and more widespread tariffs than anyone expected and, as a result, thrown right into a major trade war.
The numbers shocked even the most pessimistic among us as they were far worse than anything anticipated. Questions about the math behind it still linger and confuse most top economists.
Will things get walked back? Will this lead to fruitful negotiations among those on the list?
So far China has reciprocated with tariffs of their own and Vietnam wants to negotiate. It feels like a game of chicken and the American investor is the passenger on this crazy car ride.
2/
A Manic Monday?
Manic Monday? When you look at market history and other crises, none have been more avoidable and self-inflicted as this current crisis.
The markets closed on the lows over the last two days leaving us susceptible to a far greater panic if nothing is resolved or at least tempered by Monday’s opening. Traders will be monitoring circuit breaker levels to watch for potential thresholds that may cause a halt in trading.
I will post those levels to my Twitter page on Monday morning for those that want exact numbers. We have yet to see a 7% threshold breached since Covid when they triggered four times at the 7% level.
If we hit a circuit breaker of 7% and 13% we pause trading for 15 minutes. If we hit the 20% threshold then we close immediately. After 3:25, only a 20% drawdown will stop trading.
If you want to win a bet with someone, bet them that we will never see the likes of October 16th, 1987’s Black Monday again. That day the S&P 500 fell -20.4% and given the rules of today we stop at -20%. The Dow, however, fell -22.6% (507.99 points) and could surpass that given that index of 30 stocks is not involved in the circuit breaker.
3/
VIX Over 40
VIX over 40! The VIX is also known as the fear index. When it hits historical extremes it is generally a sign of near capitulation and a potential market bottom. Let’s look at some instances where the VIX traded over 40*.
October 2008 – Global Financial Crisis
VIX Peak: 89.53 on October 24, 2008
S&P 500 Bottom: Not until March 2009, but…mini bottom. After the October VIX spike, markets bounced short-term. Capitulation waves occurred multiple times.
Nota Bene – VIX remained elevated above 40 for months during the crisis. It wasn’t a single spike event.
August 2011 – U.S. Debt Ceiling / Europe Debt Crisis
VIX Peak: 48.00 on August 8, 2011
S&P 500 Capitulation: Around 1,100, followed by a bottoming process into October.
Context: S&P downgraded U.S. credit rating. Sharp drop in equities led to VIX surging. Markets stabilized in the following weeks.
February 2018 – Trump tariffs / China / Eagles Super Bowl Victory
VIX Spike: 50.30 on February 6, 2018
S&P 500 Drop: 10% correction, bottomed near 2,530
VIX spike marked the exact low.
March 2020 – COVID Crash.
VIX Peak: 82.69 on March 16, 2020
S&P 500 Bottom: 2,237 on March 23, 2020
Context: Pandemic fears, economic shutdowns. The spike in the VIX came just before the final flush lower in stocks. Markets began recovering shortly after.
August 2024 – Japan Yen Carry Trade
VIX Spike: 65.73 on August 5th, 2024
S&P 500 dropped -9.8%, S&P bottomed at 5119.26
Spike coincided with a noticeable near-term low only to be broken last Friday
*Credit – Bloomberg data and Freedom Capital Markets research
Currently this is quite similar to 2018 headline-wise. We shall see how it shakes out and history deems it.
The reality of current market action is that some of the biggest rallies one can experience are with a high VIX and stocks trading below their 200-day moving averages. That set-up is in place for a quick rip-your-face-off rally. The question is – can one catch this falling knife? If one does, the quick snap back rally could be quite rewarding.
Continue Reading on Freedom Capital Markets…
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Originally posted 8th of April 2025
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