Before the May Day holiday, we briefly highlighted some potential leading signals in the market. Among them, crude oil’s subsequent trend showed clear weakness, while several other assets experienced volatility or continued modest rallies. As the time cycle progresses, this week and the next are very likely to mark the rebound peaks for most asset classes. This implies that conservative traders could choose to lock in profits by closing long positions, whereas more aggressive traders might seek opportunities to initiate shorts.
U.S. Stock Market Outlook
Starting with U.S. stock indices, they have now entered what can be described as a rebound “danger zone.” Taking the S&P 500 as a reference, the market has retraced 61.8% of its prior decline, but it is already very close to the previous high-volume trading zone and neckline level at 5809. If last week’s area just above 5700 was considered a safe zone to close longs, then surpassing 5800 definitely becomes a zone with a favorable risk/reward profile for shorting.
From a weekly chart perspective, the level below 6200 forms a triple top pattern. Both fundamentally and technically, the possibility of a short-term new high is quite limited. Historically, so-called “news-driven bottoms” tend to break lower or get retested before a true market bottom forms. Thus, if there is any good news that helps the market push higher again this week or next, it would be a good opportunity to consider short positions.
Cryptocurrency Market Dynamics
The cryptocurrency market, which has recently shown a high positive correlation with U.S. stocks, reflects a similar pattern. Although Bitcoin (BTC) hit a rebound high last week, it is clearly nearing exhaustion. The fact that Bitcoin’s isolated strength cannot lead the sector’s performance suggests that the leading asset’s upward momentum and room are running out. Similarly, any minor new highs in this rebound should be taken as a sell and short signal, as the market faces the risk of retesting major lows.
A point worth noting is that, in the current cycle and price levels, if Ethereum (ETH) experiences a catch-up rally, such as breaking above 1900 or even 2000, this could be a more valid signal. Historically, sudden and relatively independent strong catch-ups often mark a phase top or rebound high. From both fundamental and narrative perspectives, the crypto market has shown signs of topic exhaustion over the past two years. Without new catalysts, the crypto market for a long period is likely to behave like a futures product with amplified volatility, making it difficult to generate alpha returns easily.
Silver Market Observation
Another market to watch for opportunities is silver. Compared to gold’s strength and complexity, silver remains relatively weak. After a previous rapid sell-off, the market has seen several rebounds recently, but last week’s weekly candlestick formed a bearish engulfing pattern again, implying a high risk of renewed declines. From a risk/reward standpoint, a comfort zone might only be above 33.5. However, in actual trading, one might consider building a foundational position above 33 and then gradually increase short exposure as rebounds occur.
An alternative strategy is to wait for a trading day when silver outperforms gold significantly or when silver rallies modestly while gold declines sharply-recalling previous episodes. In such cases, adopting a hedged position by going long gold and short silver could be advantageous.
Conclusion
Overall, after about a month of rebound rallies, the chance of topping out and correction remains substantial. Considering both trend and risk/reward factors, the next approximately ten trading days look promising and worth focusing on for potential trades.
$E-mini Nasdaq 100 - main 2506(NQmain)$ $E-mini Dow Jones - main 2506(YMmain)$ $E-mini S&P 500 - main 2506(ESmain)$ $WTI Crude Oil - main 2506(CLmain)$ $Gold - main 2506(GCmain)$
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