Stocks Walk a Tight Rope as Bond Traders Fret About Everything

Plus a conditional insurance trade just in case things get worse.

The bond market had a big tantrum on 5/21/25 sending stocks decidedly lower. And while this is certainly concerning, there are several things to keep in mind:

• Stocks rebounded, recovering most of their losses after the initial tariff scare;

• Market sentiment went from extreme fear to extreme greed in a short period of time;

• This created an overbought scenario for stocks as bond yields quietly rose;

• The Federal Reserve remains non-committal about lowering interest rates despite some signs of a slowing economy, especially in the housing and energy sectors;

• The combination of diverse variables is confusing traders who are only thinking of the Fed’s next move in the wave of a hugely uncertain macro environment

Market Update

The stock market is certainly vulnerable to a further pullback. The New York Stock Exchange Advance Decline line (NYAD) is on course to test the support of its 20-day moving average after breaking below short term trend line support. The RSI is headed for a test of the 50 area. If NYAD breaks below the 20-day and RSI 50 decisively, it’s likely that the selling will pick up speed.

The S&P 500 (SPX) is testing support at 5850. A decisive break below 5850 is likely to take the index back to the 200-day moving average. Watch what happens at 5850 and then at the 200-day, especially the RSI, if it doesn’t hold at 50.

The U.S. Ten Year Note yield (TNX) is flirting with the 4.6% yield area. But the RSI is rolling over suggesting that the upside momentum is fading and barring extraordinary developments, we may be close to the top in the short term. Things can still change in a hurry, though, so vigilance is paramount.

I am recommending setting up a hedge trade just in case things get worse. You can review it directly below with a subscription to the service.

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