Yesterday’s bloodbath, although uncomfortable, was welcomed, asserts Bill Baruch, president of

The S&P 500 (SPX) fell 7% from Thursday’s high to Monday’s low and there were some signs of panic before rebounding into Monday’s close. It was yesterday’s failed rally and bludgeoning in which real panic took place. Amid indiscriminate selling, the S&P lost 2% and the NQ 3.1% in just the final hour, before finishing the electronic session on the low. Capitulatory environments are born from panic. Panic selling into a low, or a short squeeze and panic buying from the fear of missing out at a high. We strongly believe in supply-demand technicals; if everyone has already bought, who is left to buy, and if everyone has already sold, who is left to sell.

To reiterate our voice here yesterday, it is a fool’s errand to call a bottom. Judging several factors, including the measured downside and panic (excessive negativity), it is a fair assessment to believe a bottoming process is underway. A beginning to an end of the selling, if you will.

Earnings from tech giants Microsoft (MSFT) and Alphabet (GOGL) were released at yesterday’s close and the uncertainties provided played a role in such late indiscriminate selling. Microsoft beat both top and bottom-line expectations, but the stock initially lost as much as 3% before rebounding to gain as much as 6% after hours. It has settled in and points to a positive open of 3.5%. The company’s cloud business crushed expectations and there was double-digit growth across many products.

It was Alphabet’s miss of both top and bottom-line estimates that weighed on the tape. The company’s advertising revenues took a hit, in part due to TikTok. The stock is down more than 4% ahead of the opening bell and its narrative is weighing on Meta Platforms (FB), which is down 3.5% and reports after the bell. Boeing (BA) is not helping sentiment this morning, losing 2.75 per share when a loss of 0.19 was expected. Its revenues also fell short.

Price action chewed through rare major four-star support late in the session and after being bottled up for the prior 24 hours, a break of such significant support opened the door to a windfall of selling. From here, two things happened that are important to understand.

First, yesterday’s settlement in the S&P was 4170.50; this was not a new low settlement below 4160.50-4163.50. The post-settlement breakdown held our major three-star support at 4129.50-4138.75 perfectly. This is a level we had established in March, aligning it with the March eight and 15 low. It also now aligns with a backtest of a trend line from the January fourth high that we broke out above on March 16-17. Today, we will look for rejection of this 4129.50-4138.75 level and construction out above 4160.50-4163.50.

Learn more about Bill Baruch at Blue Line Futures.