Is the Bear Market Over?
May 5, 2025
The Markets at a Glance
At the end of the week, from a technical basis, it appeared that the bear market might be over. Both the Nasdaq 100 and the S&P 500 crossed over a down trend line (starting from the all-time highs of earlier this year) and had solid advances for the week. Ten (out of eleven) sectors of the S&P were up. What's to be noticed is that XLE (energy) was the only one down and XLK (technology) and XLI (industrials) led the way up.
Additionally, oil and gold were down and bitcoin was up big.
Such money flow can be viewed as "anti-recessionary" and perhaps a case for emerging bullish market sentiment. However, this market does appear to be seriously "correlated" to headline risk and so conditions could certainly change.
Some items under consideration:
- Is the worst of the chaos and uncertainty of the past few weeks over?
- Have the markets absorbed the worst possible outcomes?
- Is the path of least resistance higher? Will it be "smooth" or "choppy"?
- Should a VIX of 25 be considered a baseline for the markets?
- Is the bond market steady for now?
- Big week for earnings, especially from FANG + T companies.
Some important market profiles are presented below:
The S&P 500 and the Nasdaq 100 faced key tests ahead of earnings. As tech earnings loomed, investors wondered if these indices would break higher or stall? Of all the companies that reported earnings this week, all eyes were on the big four: MSFT, META, AAPL, NFLX and AMZN.
Elsewhere, Treasury yields fell to their lowest level in three weeks while oil sank to its lowest level in two weeks as investors continued to worry about economic growth.
The US administration's tariffs and trade policies remained haphazard and unclear, the US consumer noticeably appeared to be "slowing down" and China continued to deny any ongoing negotiation with the US. While, in general, Beijing appeared to signal its readiness to engage in talks with the Trump administration, analysts cautioned that reaching a comprehensive deal would be a complex and time-consuming task. Most seemed to point to the wildcard of the US administration's apparent unpredictability. It was commonly believed that both sides would settle all details in private first before entering into public negotiation.
Tariffs, tariffs, enforced or cancelled, how big, how small, and when… these questions loomed largest on investor minds as they seemed to drive the markets, often on an hourly basis. The US Treasury Secretary offered little clarity on any progress. At times it definitely appeared that announcements from the White House were in direct contradiction with news from Beijing.
As with the rest of the market, crude oil prices hinged on the ongoing trade talks, or lack of them. Analysts expect the OPEC+ group to extend the rollback on voluntary production cuts for a second month and traders remain cautiously optimistic that a deal can be hashed out.
The week marked the end of the month of April. Markets whipsawed in a wide range. The S&P 500 briefly entered bear market territory on April 7th. It recovered soon after but eyes were on any breakthroughs from key resistance levels.
The question was whether earnings would materially impact markets in either direction. The US markets appeared to be in a policy-induced sell-off and potential recession; perhaps only a policy change could help set a definite course?
Daily Recap
Monday: The S&P inched higher as the markets prepared for a busy week of earnings and economic data. As before, news of progress on negotiations on trade deals appeared to be the primary concern for investors. The S&P struggled to break the downtrend, again losing steam around 5500.
Tuesday: Stocks were treading water for most of the session before US Commerce Secretary Lutnick revealed that a "major trade deal" was going to be announced imminently. Stocks moved higher and gold fell as investor sentiment shifted towards optimism. Bitcoin propelled back up over $95,000.
Wednesday: This was an important day for the stock market in terms of economic and earnings news. First quarter GDP fell and unemployment notched upwards. PCE, the FED's measure of inflation, came in relatively hot. However, continuing commentary about potential trade deals in the works, put investors in a "Buy America" mood. Stocks, bonds and the US dollar all traded higher and gold sank.
Thursday: Nasdaq 100 started May with strong earnings reports from META and MSFT and that propelled the markets higher.
CEO of META said on the earnings call that the business is "well positioned to navigate the macroeconomic uncertainty". The Nasdaq 100 finished April in positive territory; this is remarkable, given that it suffered more than a 10% drawdown in April. This may be the first time this has happened in the history of the financial markets.
Similarly, the MSFT earnings call revealed expectations of increased capital expenditures and accelerating growth, particularly in the AI space.
It was noted that AI and its infrastructure are currently in a steep growth curve and AI maybe a lot less impacted by tariffs and trade wars.
Treasuries rallied quietly and energy markets showed signs of slowing demand.
Weekly jobless claims were above estimates and, with a disappointing GDP report, economic concerns were in focus as well. This kept the market bullishness in check.
Friday: non-farm payrolls and unemployment reports were released. But the markets were mostly responding to earnings releases from the big techs, AMZN and AAPL. Their earnings came out after the bell on Thursday and retail investors had an opportunity to assess the results on Friday. Post-earnings trades can often be opened, now that the news is out and volatility is still relatively high in the early hours of the market open.
Both Amazon and Apple beat consensus earnings estimates. But the CEOs acknowledged concern that the uncertainty with regard to the tariffs and other trade policies results in guidance for future earnings being subject to change.
Strategies to Consider
- SOFI: delivered great earnings that beat expectations by about 50% and, additionally, increased their guidance for the remaining year. This is an inexpensive stock and, if bullish, one might consider the following trade:
Sell the Jun20 15 put. This is synthetically equal to a covered stock position.
Total credit received: $2.20
Buying power deployed: $265
Probability of profit: 50%
Probability of 50% profit: 62% - GOOGL: with possible bullish underpinnings, sell a short-term ratioed strangle in May expiration.
Buy one 167.5 call / Sell two 170 calls / Sell one 150 put
Total credit received: $1.00
Buying power deployed: $2700
Probability of profit: 77%
Probability of 50% profit: 94%
Breakevens around 149 and 173.5 - SPOT: With an apparent support around 550, sell the June put broken wing butterfly.
Buy one 550 put / Sell two 530 puts / Buy one 480 put
Total credit received: $2.60
Buying power deployed: $2700
Probability of profit: 84%
Probability of 50% profit: 89%
No risk to the upside; downside breakeven around 510 (about 15 delta)
Considerations for the Coming Weeks
The earnings season is in full swing. With volatility so high, one could skip earnings positions in individual underlyings and avoid the news risk. The market etfs and commodities provide sufficient choices for premium plays. With the news out of the way, post-earnings positions can provide interesting opportunities (see SPOT above).
In Case You Didn't Already Know This...
Have you heard of getting EU citizenship through investment?
Turns out, it's possible when you put €500k in a regulated fund like Bitizenship and spend seven days a year in Portugal. Bitizenship's fund owns and operates real Portuguese companies with BTC on their balance sheets. Within five years, you could be eligible for EU citizenship. This is not investment advice; be sure to get all the details about compliance and risk from your advisor.
Questions / Comments
We're here to serve IVolatility users and we welcome your questions or feedback about the option strategies discussed in this newsletter. If there is something you would like us to address, we're always open to your suggestions. Use support@ivolatility.com.
Previous issues are located under the News tab on our website.