Technical Damage Has Been Done, but Have We Passed Peak Fear in Markets?

Jeffrey Buchbinder (00:00):

Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here back after a week off with my friend and colleague, Adam Turnquist. Adam, you're battling some snow over there, I hear.

Adam Turnquist (00:15):

To say the least. We've got probably about two feet of snow a week ago today. We were close to 70, the golf courses were packed, and now the snowblowers going full steam. I had to get back out there and start snow blowing after this, probably, just so we can get out of our driveway. So, wow, pretty windy, snowy day here in the Midwest.

Jeffrey Buchbinder (00:36):

Yeah, Boston's hopefully done with it. Snow. We're just getting a lot of rain right now, but it has warmed up thankfully. So hopefully the weather's okay where you are. I know it's pretty stormy in the southeast too. So I want to thank Tom and Christian for doing the podcast last week. Appreciate them filling in. I was able to listen to them over the weekend. They did a really nice job summing up the Iran situation. We'll of course talk about that. How can you not? But I think the chart talk is priority number one. So glad to have you on Adam, to tell us about technical damage that has been done. I know we have stayed above the 200 day moving average on the S&P 500, which is great to see.

Jeffrey Buchbinder (01:27):

But internals certainly a little bit weaker than they were a couple weeks ago, no doubt. It is Monday, March 16th, 2026. As we're recording this, here is our agenda. We are going to do a quick recap of the market action. Last week there was economic data that was meaningful, but mainly the story, of course, is the Iran war chart. Check with Adam next. Then we will preview the weekly market commentary, which is about oil. And then finish up with the preview of the week ahead. And I think the Fed meeting is probably, other than following the headlines out of the Middle East, the biggest news of the week, we'll be out of the Fed. Alright, so here you go market recap. The S&P 500 was down last week. Not a surprise, given the headlines right down 1.6%. The I mean, the pullback is not yet five, I think it's, I think that it was in the neighborhood of like 4.6% off of the all time highs in the S&P 500. So this is right in line with the historical geopolitical market reaction. I think that has to be reassuring, especially since we're bouncing as we're recording this on Monday. So Adam, I mean, I know the Middle East is a big story, but what's your take on how the markets reacted last week? Did anything surprise you?

Adam Turnquist (03:04):

I would say relatively well, when you consider what's going on in the globe with WTI and Brent getting to one 20 a barrel implied volatility in oil surging rates moving higher, the Fed rate cut expectations winding down a little bit last week. So the fact that we're not even technically at a 5% pullback threshold is we'll call that a win for the market, even though there has been some technical damage and then it's been pretty orderly as we've drifted lower here on the S&P 500. It hasn't been that volatile considering what's going on in some of the cross asset volatility. Even though the VIX is elevated, it's kind of your classic risk off playbook. You can see that at the sector level last week, energy, no surprise, continuing to outperform on the back of commodity strength utilities, a traditional safe haven up half a percent, but really nowhere to hide beyond those sectors.

Adam Turnquist (03:57):

And there's been some notable damage, for example, in the financials. That's a little bit of a concern when you see the financial sector starting to break. Its uptrend, it's 200 day very weak breath. It's not just a few names that are starting to roll over. So we're watching that one carefully this week, especially if we get any type of rebound, our financials actually going to participate. Of course, in a bull market, that's what you want to see. They're not only a key indicator for the strength of a bull market, but also a proxy for the economy. When you think about the banking space, of course, some of that tied into not only this stagflation fear that's really been boiling up in light of higher oil, but also private credit concerns. It seems like there's more and more headlines surrounding withdrawal limits and some issues in the private credit market weighing on the alternative at asset managers. So a key sector to watch this week, I think.

Jeffrey Buchbinder (04:52):

Yeah, we remain neutral on financials. Certainly the recent behavior is discouraging there. I also highlight industrials real quick. So airlines are very, of course, oil price sensitive and they have been weak. I think, I mean, you hit the nail on the head, Adam, the areas that are oil price sensitive are lagging. So I mean, you're even seeing some of that in Asia. They're of course big importers of crude through the straight rem which remains a largely closed we'll say, although Iran is letting some ships through certainly their own heading to China. But also reports are that they are letting ships through to head to India and Pakistan and I think a couple other countries. So there is progress there and that's helping oil prices come off the boil just a bit today, which is encouraging.

Jeffrey Buchbinder (05:47):

But I think if you just look at recent performance if you're hurt by higher oil, like consumer discretionary for example, you're weaker if you benefit from it. Of course, energy materials also certainly benefiting during this relative to other areas of the market. So moving on to the bond side and currencies and commodities. I mean, if you think the stock market's held up relatively well during the conflict, I think you have to say that the bond market yields have held up relatively well too. We've come off recent highs there as well on the 10 year yield, Adam.

Adam Turnquist (06:29):

Right? Some decent moves, but not any material damage. The es the 10 year treasury, for example, did break above. Its 200 day moving average last week, but there's pretty good resistance around 4 31 for yields gold coming lower. I think some of the momentum unwind there is due to the higher dollar. You can see that the dollar index is getting close to a hundred and some key resistance right around that level. Still range bound, but near the upper end of that range. So another chart to watch this week. If we get a break above a hundred 0.4 on the dollar index, that would validate a move higher for the dollar. And then obviously we'll talk more about the oil market, but that's really in the driver's seat, I think for Rick's risk sentiment. What's the exit plan here for the U.S. and then of course, what's the likelihood of the straight of Horus reopening? It's played out not only in oil, but you can see in some of the other commodities like wheat. We don't have corn and soybeans on here, but those have been moving higher. I think a third of the seaborn fertilizer has been stopped in terms of supply as it goes through the straight of Horus. So that's impacting the egg space and then of course feeding into inflation fears as well.

Jeffrey Buchbinder (07:44):

Yeah, we're going to continue to hear stories about sort of aftershocks here. I mean, it's not just about oil and LNG, it's not even just about fertilizer, right? As a ran attack, some of its neighbors. You'll, I've even seen a story today about disruptions to chip semiconductor productions, semi supply chain. So the, with each passing day, the pressure gets greater and greater on the U.S. and President Trump and the White House to find an off ramp. We don’t know where when that's coming or what it looks like, but the pressure is rising no doubt. And as we've said repeatedly with all that we've written on this over the last couple of weeks the midterms certainly are in the back of Republican's minds. So we'll continue to follow that of course. But right now we're just watching for the ships to get through and for a an off-ramp scenario to emerge. It's going to be very messy. So let's go to the charts, Adam. That's the main reason why you are here. because You're the best we have certainly in terms of interpreting the charts. So you titled your section assessing the technical damage sounds kind of negative, so I hope you mix in some good news here as you walk through these.

Adam Turnquist (09:10):

We'll mix in some good news. We'll start with the bad news and that is the bulls seem to be losing their grip here on the S&P 500. We've been range bound basically since October, capped by resistance around 7,000 in support around 67, 75. That's the low end of the range. We broke below the low end of that range last week. We also took out the December lows at 67 21. Now, historically, when you break below the December lows in the first quarter, it's a pretty ominous sign for full year returns on the S&P 500 for example, over the last 75 years, the market's traded basically flat when it breaks below the December lows and higher only about 55% of the time. Now, of course, seasonal data is only one thing. It doesn't guarantee future returns. And when you have a war thrown in and this kind of binary event of an off ramp, the straight of horse moves opening, I think it pushes back against the seasonal tendencies here.

Adam Turnquist (10:09):

We saw that last year a similar binary event with the market breaking below its December lows. In Q1 we had the tariff liberation day pause, and then we had a pretty, actually a really strong return for the S&P 500. So history doesn't always repeat important to note here. And when we look at other support levels now that we took out a few, there's the rising 200 day moving average right around, I think we got it at 6,600. If you break that, there's some additional support around 65 21. That's the November lows. If we start taking out the 200 day and then November lows, the conversation starts to change then about this bull market. How healthy is it if we can't hold those key support levels? But for now, I would say the trend is still higher. And turning to the positives here, we're getting to some oversold conditions within the index last week, about 16% of the index registered oversold readings based on the relative strength index.

Adam Turnquist (11:06):

That's pretty close to what we witnessed in the November pullback timeframe around 14, 15% at that period. So oversold into a major support level. Don't be surprised if we get a little bit of a bounce or a relief rally would like to see the index get at least back into that range. So above 67, 75 for this week, I think that would be considered a win given all that's going on on the other momentum gauge we shared on the bottom panel here, that's the directional movement index. I won't go too far into the details, but when the red line is above the green line, that's indicative of a bearish trend and we measure trend strength using the A DX line. And when that's above 20 or 25, that means it's meaningful. And that's where we're at right now. So this negative trend is starting to gain strength. A little bit concerning here, but most importantly, we're holding above that 200 day moving average. The futures market is, well today and last night on the S&P 500 holding the 200 day for the second time, the NASDAQ 100 futures is well holding that 200 day moving average. So for now, until those trends and support levels are broken, I think it's a little bit too early to throw in the towel here on this bull market.

Jeffrey Buchbinder (12:19):

Yeah, the test isn't over, but I think it's fair to say that would be a reasonable place for this to end right at the, at the 200 A also, just quick clarification, Adam, A DX, that's advanced decline line in the form of an index, is that right?

Adam Turnquist (12:35):

That's the average directional index. So it's a average directional. Okay. It's derived from the DMI indicator <laugh> without getting too far into it.

Jeffrey Buchbinder (12:44):

That's deep dive.

Adam Turnquist (12:45):

Uses it. Yeah, so think trend direction with the DMI, the red and the green lines trend strength with the black line.

Jeffrey Buchbinder (12:53):

Very good. Hey, I learned something new on this podcast most weeks and there you go. This one included. Okay internal damage is mounting. I referenced this. So this is a look at the breadth.

Adam Turnquist (13:07):

Right? So we're looking at participation via trend. We have a trend model that uses short term intermediate and longer term moving averages. How those are all aligned with each other. We bucket these various trends and if you look at just the confirmed uptrends developing uptrends potential uptrends, you add all those up, we're less than 50. And that's really been the first time since really the summer and a little bit of a concern there with more and more stocks entering downtrends, you can see that consumer discretionary tech, financials comm services have the highest percentage of downtrends. So we're going to need to see some repair in those mega cap oriented sectors. I think for this market to get back into the range and for us to start talking about any type of breakout above 7,000, we're going to certainly need to see a shift in some of these internal trends within the index.

Jeffrey Buchbinder (14:00):

Yeah, we always talk about how we need tech to make big moves higher. Probably need a little bit of help from financials too, I would imagine. So that'll be something to watch going forward. All right, next chart is, if I can get to it, there we go. Mega caps remain a drag on the index. The mega caps texts have been shown a little bit of life here lately, Adam. So maybe here's where you can mix in a little bit of good news. I mean, I guess I'll count Oracle in the mix market, really liked their results the last week. And we've got big NVIDIA meeting this week. The software names bottomed. What are you seeing here in the mega caps?

Adam Turnquist (14:43):

So for the mega caps, they're also holding the line. Importantly, I think when you think about the weighting, you take the five largest stocks in the S&P 500, that's about 25% weight of the index. Now, to offset that at the sector level, you need real estate materials, utilities, energy, staples, and industrials. All of those collectively counter the five mega caps. And I think this chart really paints the picture of this year where the equal weight index is higher by about it, it's outperforming by about 3% over the cap weighted. And you can see all of those smaller weighted sectors. The dots represent the year to date performance and the size of the dot represents the weight of each stock within the index. There's a lot of small dots on the right half of this screen above the zero line. That's where the out performance is.

Adam Turnquist (15:35):

And you look to the left, you have your big tech and your mega cap names, those big dots below the zero line. And that's really been the drag on the broader market with the Meg seven names all lower on the year, but to your point, on a near term basis here, they have been more of a safe haven play. They're not breaking down, especially names like Nvidia, still range bound. We're seeing even some moves in the software space, to your point with Oracle and that sector or sub-sector holding up relatively well. But I think for the market to make material progress, we'll call it through 7,000 this year, we're going to need to see those mega cap names start to participate and move higher. And we're, I guess we'll call it early innings of that right now. I think a lot of investors, when you look at positioning our offsides very underweight the tech sector, they've been selling software and even on the individual name basis there hasn't been a lot of ownership in some of those names. So the pain trade, I think could be higher. We're not quite there yet to call that technically, but as Jeff, when the pain trade is obvious, it seems to fully kick in gear. And maybe that's what we're starting to see here. Even today, you have tech outperforming the tape by a pretty good margin.

Jeffrey Buchbinder (16:50):

Yeah we talk about what's going to lead on the other side of this. Will we go back into an AI fear regime or will we move maybe toward a, hey tariffs aren't an issue, AI's back to being a positive eventually no more war in the Middle East. Maybe tech can lead out of that. So we're not ready to make that call yet, but certainly tech remains on our shopping list and it's probably as good a about as any to be a winner. When we get to the other side.

Adam Turnquist (17:22):

I did see a headline today on CNBC talking about is AI a bubble? And I actually viewed that as a good sign. We're going back <laugh> maybe, maybe to that conversation verse, the war I think it's maybe premature with what's going on, but I thought that was interesting because we haven't talked about the AI bubble for a while given the start of the Iran war in late February.

Jeffrey Buchbinder (17:47):

Yeah, the, I actually am writing about earnings right now, so there's another topic that nobody really seems to care about <laugh> at the moment. But it will eventually we just don't know exactly when. So next we've talked a lot about volatility. Of course we're getting more of it not just in the VIX with the equities, but also the oil VIX, which I mean I guess the charts look very similar. These are massive spikes. So maybe here I can get some good news from you. Again, is volatility high enough now that you would say it might be a contrarian BI signal? Is that too big?

Adam Turnquist (18:27):

I think you can lean that way. It's not, again all clear that we're past peak fear, but there's growing evidence that supports that. I think if you look at just recent price action, the VIX Sunday night, Monday morning last I guess last week, trade as high as 35 and then backed off that level and importantly got through the October highs at 29. I think if we can hold below 29, that's a step in the right direction. And then also the VIX futures curve. So when the spot price is trading at a premium to longer data contracts, it goes into what's called backwardation. That only happens about 20% of the time. And when it does, it's usually these event driven type sell offs in the market that are really indicative of investors coming in. They want hedging and downside protection right now.

Adam Turnquist (19:16):

They're willing to pay a premium for those front month contracts. And that's what's really played out over the last couple weeks. The degree of backwardation is another thing we look at. It's not extreme, but we're really looking for that VIX futures curve to move back to what's called contango or its normal upward sloping shape. We're not there yet. So I think to sum it up, if we can back off a little bit at the absolute level on the VIX and hold below 29, and then we see the VIX futures curve move back to contango, I think that would be additional evidence here that we're likely at a peak fear is behind us. We're not quite there yet with the curve still inverted as you can see in that middle panel, but we'll call it we're off the highs moving in the right direction.

Jeffrey Buchbinder (20:01):

Yeah, I mean, historically we know that buying into these geopolitical conflicts after the pullback has been profitable. Almost always. I mean, well it always has been, depending on how long you wait. Most of them have been pretty short. I think the same thing, you could say the same thing about the VIX. If you're buying into a VIX at 35 evidence shows you've got a very high likelihood of a profitable trade over the coming weeks or maybe the coming months. It just depends. And this all ties to whether you have a recession or not. So we still don't think we're going to have a recession this year. Jeff Roach, our chief economist would tell you, we got to stay above one 40 for at least a period of several months <affirmative> before you would introduce high probability of recession. So we'll see. We hope we don't go that far. But that's really the key. How long does this last and how long does oil stay high? Alright, more on the VIX.

Adam Turnquist (21:05):

Right? So more on the VIX. We know a high VIX as you talked about, it often overlaps with maybe a market bottom or a capitulation point. So we try to quantify it to understand what level really matters the most on the VIX and what you'll see on an intraday basis, it's the VIX highs of the day that really matter the most. It's not so much the closing basis because there's a lot of volatility when you have these major events in the VIX. Huge ranges. So we use the high watermark of the VIX intraday highs going back to 1992. We then decile ranked them, so the highest VIX readings to the lowest, you can see that top decile group one that's a VIX above 30 to get in that top decile. And then we timestamped those occurrences and looked at forward performance for the S&P 500 across one to 12 months.

Adam Turnquist (21:55):

And you can see on the bars, when you compare it to the other decile groups, you get above average returns by a pretty good margin across all of those short to, we'll call it longer term performance metrics. The 12 month really stands out at a 20% type average return, but even the shorter term one to three months, you're higher by 2.3% I think we have highlighted. And then about 5% three months later. So that's the qualifier to check the box for a meaningful VIX. Of course, we checked that box last Monday with a 35 reading on an intraday high basis. So I guess more signs here that peak fear could be in the rear view mirror.

Jeffrey Buchbinder (22:37):

Yeah, it'd be nice to get visibility into what the off ramp looks like, even if we don't get the actual off ramp. That might be your go trigger. But I agree it's just too early to say to wave the all clear Adam. So here's the chart oil, and this is the chart of course that everybody's watching. It's probably the, what does Kristen call it? The chart of truth, the most important chart in the market. I saw the IEA call this the biggest energy spike ever in history. So that tells you what we're dealing with here.

Adam Turnquist (23:13):

Right? And I think they also called it, I don’t know if it was the IEA, I believe it was the largest energy supply shock in history when you think about the straight being closed down, taking 20% of global oil out of the market. And I'd feel more comfortable about waving the all clear, especially with peak fear. If we started to see oil back up here and also implied volatility of oil, what's really stood out. Even last week you had oil, this is WTI that we're looking at West Texas intermediate spike to almost one 20 and then drop back below a hundred a barrel. But implied volatility in the bottom panel, think of that as the VIX for the oil market. So what's the market pricing in for movements over the next 30 days? It never wavered. It was stubbornly high, it remains stubbornly high. Would like to see that, we'll call it normalize or stabilize a little bit here along with oil breaking below some support. The levels that we're watching, technically $95 on WTI that goes back to the 2023 highs and then $88 that goes to the 2024 highs. Think about this week, I'd say if we get back below 88, we'll call that a win, especially if it's accompanied by a pullback in implied volatility. So I guess we'll call it the chart of truth for this week as well.

Jeffrey Buchbinder (24:34):

Yeah, I think futures are saying that 70 is where we'll settle or somewhere in the seventies. Certainly would happily take that if we can get there. All right, next, you've compared the price of oil to 2022, right? When the Russia, Ukraine War broke out. What is this telling us?

Adam Turnquist (24:54):

So we look back at similar occurrences. The most recent, of course, going into 2022. We had Russia putting troops on the Ukraine bro border, the U.S. warning, look, there's going to be ramifications if you attack Ukraine oil as that was building oil prices. This is Brent now. So we're looking at the global benchmark started moving higher. Of course, they attacked Ukraine oil shot higher over the next couple weeks, but we never had a higher high in oil after kind of the initial onset of the war, even though there was talks about oil moving materially higher and this big supply shock oil was volatile, but eventually started to move lower. Not saying history is going to repeat, but you look at this chart, it's followed a very similar profile of what we witnessed in 2022 with fear building into the market about a potential strike on Iran.

Adam Turnquist (25:46):

We got that strike oil prices shot higher. Now we did make a little bit of a higher high here, but if we're lined up with the 2022 analog, maybe this suggests look for more volatility, but maybe not materially higher oil from here. The caveat, though, of course, Jeff, as we're talking about Russia supply shock versus the Persian Gulf and Middle Eastern supply shock that flows through the store straight of Hormuz. A much different fundamentally different supply story here with a lot more risk. But I guess if you're looking for a positive here, I think you can look at this chart and say, well, if psychology is being a part of this story, maybe we're getting close to that peak oil price or we've already hit it.

Jeffrey Buchbinder (26:32):

I sure hope so. That's that is reassurance. All right, so good stuff, Adam. Really important charts we'll continue to watch oil. Speaking of oil, that's the topic of the weekly market commentary. So before we get to the preview of the week ahead, I'll just show you one chart from Jeff Roach's weekly. It's available on lpl.com under the research tab, as it always is, every Monday or Tuesday after a holiday. This is a chart showing energy independence in the U.S., right? We are a net exporter of petroleum products. That has not always been the case. That was certainly not the case in the 1970s. So while you hear the term stagflation in the news, this is a very different US economy that actually all else equal benefits from higher oil and gas prices. Now, all else isn't equal, but we are an exporter and frankly we make more money as a country when we can export oil at higher prices and l.

Jeffrey Buchbinder (27:40):

So this is why the U.S. is more resilient to this crisis. This is why you're seeing Europe and Asia struggle a little bit more managing this. And this is why we continue to believe that the pullback in the S&P 500 will be manageable, right? You're seeing energy offset some of the losses and you're seeing the market comfortable with the outlook for us relatively for the outlook for US economic growth and corporate profits. So really important point great job by Jeff to just put this into context that this is not the 1970s. We are not as dependent on oil and we are exporting it. We're certainly not bringing it in from the Gulf of for the straight for news rather. So here's the week ahead preview, Adam. I think the Fed is kind of a foregone conclusion, but maybe you think there'll be something interesting there. What are you looking for this week that could potentially move markets besides the news out of the Middle East?

Adam Turnquist (28:47):

So certainly the Fed will get an updated summary of economic projections from the Fed, will get updated commentary on their views about the labor market. If you flash back to January in the commentary they provided, there was this idea the labor market was maybe reaching a turning point. There was some stability that they had witnessed in the data, interested to see what they have to say. Now. I think you could still make that case, but you also had a negative non-farm payroll payrolls report last month. Of course, we're going to look at what they price in for rate cuts in the December summary of economic projections. They had one and there was a lot of disparity among voting members about that rate cut for this year by December. So that's going to be another interesting one. And then we also have a lot of other central banks on the calendar.

Adam Turnquist (29:35):

I think the ECB or European Central Bank is up, I think, I believe the Bank of Japan is up. We have, I'm just looking at my notes, Canada, great Britain, and several of those central banks are at least the market is pricing in rate hikes. So you have this disparity between what's happening in the U.S. and other major central banks. That tends to be a catalyst for volatility when you have these changing views of market expectations. We'll see what the Fed has to say. And then of course, I think the other big one will be the producer price index. The wholesale inflation data will take on a little bit more meaning even though it is in February pre-war certainly will feed into any type of inflation fear if we get an upside print there.

Jeffrey Buchbinder (30:23):

Yeah, you want to start at a lower base before you get your shock. Yeah, so we'll see what that holds. I agree the inflation data is going to take on more importance given what we've seen with oil prices. And then I mentioned the Nvidia meeting this week, which will be interesting. But yeah, it's going to be all Middle East and mix in some Fed the Fed's in a tricky spot. We still think we're going to get two cuts, but that suggests that this conflict is over in a month or maybe six weeks, something like that. If it drags on, you're going to have a tougher time getting the disinflation fast enough to facilitate the two cuts. I mean, Warsh might help assuming he can get confirmed. We think he will <laugh> by the July meeting, but you might have to wait until Q4 cuts. We'll just have to wait and see. There's just a lot of uncertainty. So those are the things to watch this week. It'll be another interesting one. Markets are a little more interesting than we would like Adam, but <laugh> you play the hand. You got better to say

Adam Turnquist (31:32):

Yeah.

Jeffrey Buchbinder (31:33):

As they say. So we'll wrap there. Thanks Adam. Great insights not just on the charts, but broadly on the markets and the economy here. Again, weekly market commentary on lpl.com about how the U.S. economy is not as oil price sensitive as you might think. It's a great job by Jeff Roach on that one. And I'll have a blog on earnings out today. So check that out on lpl.com as well, today being Tuesday as you're listening to this. So thanks everybody for joining LPL Market Signals. We'll be back with you next week. See you then. Thanks.