Is Black Friday Incoming?

China's retaliation against the U.S. this morning has driven the S&P 500 Volatility Index above 40. Margin calls are likely coming, and orderly selling from yesterday may turn to capitulation

Good morning:

I wish I were writing this under better circumstances.

China just responded with 34% tariffs on all U.S. imports starting April 10; markets are feeling it.

S&P futures are down 3.5% this morning, and tech is getting crushed.

As you can imagine, I’m sitting here, watching this carnage.

I can’t help but think about all of you this morning…

The purpose of our research centers on risk management.

I’ve complained that publishers won’t take it wider - and allow them to provide this service to their existing readers. The argument goes that people don’t like to buy insurance. Well, they could have just given it away… or linked it… or let people read it to see if they liked it. But this has been the last three years of my life…

So, when all their readers wonder how the publishers didn’t see this event coming…

I’ve stressed the importance of using our Signal as an extreme risk management measure: moving to cash, hedging, and looking to safety. [If you have any stories about using this, please put them in the comments.]

We first went negative on February 21, 2024, and again on March 26, 2024…

We confirmed it with the move above the 20-day moving average by the MicroSectors FANG+ Index -3X Inverse Leveraged ETNs (FNGD), a leveraged ETF that tracks FAANG debt. (I suppose these financialized products have some use…)

Those confirmations came on February 24 and March 27, respectively.

So, we have issued two warnings… and I hope they have served our readers well.

In fact, I first gave away that signal change for free back in February.

As I’ve said, I typically don’t know why our signal has gone red until days or weeks after it happens.

• Silicon Valley Bank imploded in March 2023, a few days after turning red. That was quick… and the Fed responded by supporting the banking system.

• But in August 2022, the British GILT Crisis took weeks to unfold. We would bottom out in early to mid-October 2022, and then central banks took action.

This has been a different event - unlike any since the COVID pandemic.

The problem is that this situation has escalated at every turn…

Now - we are moving into the next phase. And that is terminal velocity.

Yesterday’s selling appears to preview what we can expect next.

That’s the possibility of margin calls and capitulation.

A margin call happens when you borrow money to buy stocks (trading on margin), and your account value drops too low. If your equity falls below the broker’s maintenance margin requirement, the broker demands more cash or securities to restore the minimum balance.

Your broker can sell your assets to cover the shortfall if you don't meet the call. Margin calls protect brokers from losses when investments decline sharply, a key risk of leveraged trading.

Meanwhile, capitulation in the stock market refers to the moment investors give up and sell their holdings, often out of panic, after a prolonged decline. It’s marked by heavy volume, sharp price drops, and widespread fear. This "throwing in the towel" often signals the final stage of a sell-off—potentially the bottom—when pessimism peaks and selling pressure exhausts itself, sometimes leading to a market rebound. It’s emotional, dramatic, and usually driven more by fear than fundamentals.

We are in the thick of this…, and it will take a lot of grit to hold on and stay strong.

We should start to see insider buying activity begin to pick up as the selling reaches the point of broad overreaction. But even then… right now…

Buying remains weak… The blue line is the 22-day moving average of buying activity… The lower the line on the Y-axis… the lower the buying. strength.

This is not the fun part of investing and trading…

There’s no victory lap for the work that we do. We’re watching retail investors get crushed as bubbles deflate after years of stimulus and bad incentives across the financial system.

My entire career, I have watched retail investors be run over by institutions, politicians, and bad media actors. We are witnessing a massive shift in the underlying structure of our system, which will be difficult and scary at times.

We can navigate these markets by measuring momentum and capital flows using the tools we have at our disposal. Let us hope that we find some sanity in the days ahead.

Now… let’s get to our daily analysis of what’s moving this market…