Transcription
[music] Hey folks, welcome to verified investing.com. My name is Gareth Soloway, chief market strategist here.
Now, in today's video, we're going to look at the imposed 10% tariffs on eight European countries and what are the charts saying here as the 10-year yield is breaking out. Is this the start of a bigger stock market decline? We'll be looking at the NASDAQ, the S&P, and the 10-year yield to decipher if investors need to run for the hills. All right, let's dive right in.
But before we do that, just again to reiterate, 10% tariffs uh placed on eight European countries to try to force the sale of Greenland. Those tariffs will go up to 25% per June 1st if no deal is reached. The president is trying to essentially strongarm the European Union into accepting a deal to give Greenland to the United States.
Now, again, we know the stock market per the charts has been borderline hanging off a cliff near a breakdown. We knew we had a bull flag on the 10-year yield. And again, on Friday, we saw a breakout occur. This could be the start of something much bigger for the stock market. Let's get right into it here.
Here's the S&P 500. Friday, we saw a little bit of a down move. All right. Overall, we've been chopping just underneath all-time highs. The biggest factor here remains the factor that I have revealed to you literally months ago that told me the markets were going to have struggles up in this range. And again, if we just look at this, we can see that this parallel. So, these lines are perfectly parallel. Look at this guys. You can bring it down to the this right here. You extend it right out to the bull market high. And look at what you get. You got our high here. And now we're right underneath it. This again tells me that the S&P while it could inch up a little bit, the odds favor a bigger move to the downside as we saw in 2021. Potentially as big as 20% plus downside like we saw again at the bull market peak of 2021 and the bare market of 2022.
Notice again this parallel is an amazing one because it starts in 2020 of March at the COVID lows connects through the low of the bare market in 2022 and each subsequent low thereafter and the liberation tariff sell off in April 2025 bottomed out right there. The high is taken to the bull market high year in 2021. And we see again that the markets are right there. And what we can tell from this when we use technical analysis, which is logic based approach, is that off of the low line we get the big up moves and then off the top line we get the big down moves, right? And again up and then down and then up and down and back and forth ultimately just left and right. Essentially the markets getting capped triggering a sell-off. That's the idea here that the markets again could be setting up for a bigger sell-off.
Now, one of the things that I'm watching to see if this triggers and it may trigger Monday, excuse me, on Tuesday, right? Since the markets are closed on Monday. So, this may trigger on Tuesday. We take this low from the liberation selloff lows. We drag it right up here. And what do we have? Look at this, guys. This trend line connects through these lows and we're right on that line. And so ultimately on Tuesday when we see the markets reopen, are we below this level? Do we close below? Do we confirm? Or is there a walk back on the tariff situation? Is there a resolution?
And by the way, it's not a coincidence that these type of tariffs were levied essentially as soon as the weekend began of a 3-day weekend. All right. The Trump administration is very smart on this. Whenever they're going to release bad news that they think the stock market will take negatively, what do they do? They put it on a weekend and they do it as soon as the weekend starts to let the markets adapt and kind of grasp it. So it's not an immediate emotional reaction, right? So if you do it on a, you know, a Wednesday at 9:30 when the stock market's open and you release this news, panic selling ensues, right? But if you do it on a Friday night or Saturday morning, the market has the max time, especially on a three-day holiday weekend for the stock market to relax and kind of figure it out and see again, is this really hugely negative or maybe just a minor negative? And maybe there's a resolution here. We'll have to see and watch. All right, but again, I think that's very important to understand.
So, quickly looking at this chart on the S&P again, is it going to break here? This would be the break point where we would expect a bigger decline. Again, you got to understand that these type of moves and look at this guys as well. If we take a look at this trend line and this you could see very clearly right here going back to the October 2023 low to this low in 2024 August we hit it here. Notice when you broke this trend line look at how big this sell-off was. And so here you have another trend line. It's even more vertical. So this implies a sharper sell-off. And again that's kind of scary considering what we saw with the liberation selloff. And the question is what's the trigger? Is it more tariffs? Is it the economy? Is it the currency markets? Is it the bond markets? The bond markets to me could be the most kind of ones here because of the 10-year breaking out and what we've seen on the Japanese 10-year yield.
Now, let's go to the bond market. Let's take a look at the 10-year yield. We'll look at the NASDAQ in just a second. But here, this consolidation pattern is a bull flag. All right. In technical analysis, when you have an up move like this and you start to go in a tight little net here, that essentially is a consolidation phase before the trend resumes. And in this case, the up move consolidation right here, right? And then the trend should be continuing. So in other words, I've been saying this is a bullish pattern. We're finally seeing the breakout on this. And again, this is not good for the stock market. All right.
Now, listen, a little move up like we saw on Friday to 4.22, 22. Not the end of the world. If it continues, first of all, borrowing costs dramatically increase for the US, which is already paying on their debt, $1.2 trillion of interest a year. Okay? But then think about mortgages. Think about the cost. Think about the the give and take. You have a stock market that's expensive historically, and all of a sudden rates start to go up where people can pull money out of the market and say, "You know what? I'll play it safer and put it into, let's say, at the bond market or into the T bills or whatever it is, paying a much higher interest rate.
Now, some of you may say, well, what about the Fed? The Fed says they're going to lower rates and plus Jerome Powell's on his way out. Trump is going to be appointing a new Fed chair. But the kicker is, remember, folks, the Fed only controls the short end, not the long end. They control the short yields, the one-year, the monthly, the monthly interest rates, etc. those type of things, the Fed funds rate, while the stock market, the bond market, investors, the globe essentially control the long end, the 10-year, the 20, the 30-year. What are mortgage rates based off? Basically, off the 10-year, 20-y year, 30-year, right? So, again, understand that that even with the Fed lowering rates, it doesn't guarantee the yields on the 10-year and the mortgages will go down. We'll have to see what happens there. All right.
Now, we have a breakout here. My upside target remains 4.5% on the charts here. Now, going back to the S&P, if we break here, your first big, and I'm going to erase that line, the first big technical support is going to be a retrace to what I call the scene of the crime. And the scene of the crime basically is our former high. So, we had this long move up, right? Long move up, up, up, and then we kind of topped out right here, and then we had our big correction. And so once you break out, the markets have a tendency to want to come back into that major level, right? And the idea is that would be our first big bounce level in the market.
Now listen, are we going to get small bounces along the way? Absolutely. Because markets don't go to in straight lines, right? So you could fall into this little level here, get a small bounce, right? Then into this level right here, you have this little pivot, and then you get a small bounce, and then even into here, you get a small bounce, right? But ultimately, my guess is we make our way down into this level around 6,100 on the S&P. And that's contingent, remember, on this trend line breaking and confirming.
Now, looking at the NASDAQ, the NASDAQ is already has already broken below and closed below. Here's that same trend line. Look at this trend line right here. So, the same trend line is right there. We've now closed below it. Now remember, per technical analysis, per the methodology that I use, just because you close below a trend line doesn't mean it's a breakdown. We must look for confirmation. I've seen the difference between a close below being a real breakdown and a fake out where the markets gets to go right back up. It's about a 5050. If you look at all the times that happens, 50/50. Now, once it confirms, which takes a second day below the line, closing below the previous low, then it all of a sudden jumps to the odds of it being a real breakdown at 75 to 80%. And so, these are the little metrics that I pay attention to because everything I do is logic and and chart analysis based, which ultimately comes down to probabilities.
All right, so again, watching very closely as we come in to Tuesday's trading day. What is going to happen right here after the holiday? What about all this tariff news over the weekend? Where is oil going to open up? Where is natural gas? What about gold and silver? And I'll try to do a video on gold and silver later today to talk about that. I also want to talk a little bit about oil, which had a big breakout on the charts, but has then retraced ultimately this retrace buying opportunity, but we'll go into that in a different video.
As always, folks, if you like this video, share it with friends and family. I will be trading this market next week when we resume with lots of earnings, lots of this uh kind of resolution or lack thereof of these these new tariffs imposed. Um we'll see where the markets go. Thank you so much for tuning in. Please like and subscribe. I'll talk to you soon. Take care.