On Wednesday, only 4% of the S&P 500’s holdings logged gains — a pretty rare occurrence. Since the start of 2024, this has only happened three other times:

August 5, 2024: The last day of the summer correctionDecember 18, 2024: The Fed’s hawkish cutApril 4, 2025: Tariffs

Let’s recall that major trading lows were etched last August, and again just a few weeks ago in early April. The S&P 500 ($SPX) dropped 10% and 21%, respectively, from its peak to trough both times, with the lows being marked by emphatic capitulation events (April 7 was the real pivot low). The market’s rubber band violently snapped back in the ensuing weeks, both times.

FIGURE 1. PAST LOWS IN THE S&P 500 INDEX. Note the rebounds following the August 5, December 18, and April 4 drops.With the SPX now having gained 20% from the April low, the setup is more like mid-December 2024. The index had just gained 19% from early August through early December and was hovering near 6,100. The FOMC’s actions put a major dent in the calm uptrend.

The S&P 500 didn’t completely crumble after that, spending the next 10 weeks backing and filling. But the market’s character changed, and the cracks eventually gave way to the waterfall decline.

So, what does that tell us about this moment? There’s a clear risk given the one-sided advance the last few weeks, but, with bullish patterns still in play and the $SPX having built up a big cushion, it can afford to back and fill again now. It’s the first gut punch in four weeks, and the market must prove it can absorb it.

Short-Term View of the S&P 500

The drawdown measured from this Monday’s high now stands at -2.4% — most of which happened on Wednesday. Given how small the moves have been over the last few weeks, Wednesday’s big decline hit the 14-period relative strength index (RSI) on the two-hour chart very hard. It’s now at 41, which is very close to the 30-oversold threshold.

Again, we’ve seen the short-term indicator fall to oversold territory several times, even during the market’s upswing from August through December. Seeing that happen again this time wouldn’t be a surprise. If it happens, it will be important to see the ensuing bounce pull the SPX back to overbought territory relatively soon. Remember, we went nearly four months between overbought readings from late January through mid-May.

FIGURE 2. TWO-HOUR CHART OF THE S&P 500 WITH RSI.

S&P 500 Patterns

Despite the sell-off, there was no change in the patterns at work. The two bullish patterns remain in play, with targets of 6,125 and 6,555, respectively. The S&P 500 started Thursday, at about 2.5% above the last breakout zone (5,695).

FIGURE 3. DAILY CHART OF THE S&P 500 WITH BULLISH PATTERNS. Here you see the pattern with a 6,125 target.

FIGURE 4. DAILY CHART OF S&P 500 WITH 6,555 PRICE TARGET.

Monitor the VIX

Not surprisingly, the Cboe Volatility Index ($VIX) gained 15% on Wednesday in response to the market’s sell-off. It remains close to 20, but continues to log higher lows, which has been the trend since late 2024. Indeed, it’s way off spike highs from April, but it’s a trend worth watching.

Let’s recall that the VIX never truly capitulated in 2022, but its trend of higher lows coincided with the equity market’s downtrend. When the SPX logged a true low in October 2022, lower lows in the VIX became evident. This lasted through this past summer.

If the snapback in the SPX turns into a longer, new uptrend, the VIX’s uptrend will morph into a downtrend again.

FIGURE 5. WEEKLY CHART OF THE CBOE VOLATILITY INDEX ($VIX).

Bonds Display Bullish Patterns

The bullish pattern in the weekly 30-Year Treasury yields and 10-Year Treasury yields is crystal clear. An acceleration through the 2023 highs after Wednesday would have an obvious negative effect on stocks.

As discussed before, the equity market has shown it can advance with higher rates, as long as said rates go higher gradually. The intermittent up-moves in rates have been capped for the last two years as well. Thus, stocks have been able to withstand it. That wasn’t the case from January to September 2022, and that’s the potential concern.

FIGURE 6. WEEKLY CHART OF THE 30-YEAR US TRASURY YIELD INDEX.

FIGURE 7. WEEKLY CHART OF THE 10-YEAR US TREASURY YIELD INDEX.

Bitcoin Holding Strong

So far, Bitcoin has maintained noticeable relative strength even as stocks got hit hard on Wednesday. Simply put, continuing to hold above this breakout zone would keep the new measured move target of 142k in play.

FIGURE 8. WEEKLY CHART OF $BTCUSD WITH ITS MEASURED MOVE TARGET.

From another perspective, this move can also be viewed as the fourth wedge breakout since 2023. The prior three times, BTC’s 14-week RSI stayed very overbought for weeks before slowing down. The 14-week RSI is just approaching overbought levels, which suggests it has further to go.

FIGURE 9. WEEKLY CHART OF $BTCUSD WITH WEDGE BREAKOUTS AND RSI.