Fundstrat says a bottoming process in stocks has begun

S&P 500 posted its best day since May during a two-day bounce, but the index fell 5.1% in March (its worst monthly performance since 2022) and both the Nasdaq and Dow are in correction territory; Dow futures dropped >700 points on Thursday as oil topped $100/bbl. Fundstrat technical strategist Mark Newton says the price action suggests stocks may be bottoming and recommends consolidation into April 5-9 to create a better short-term risk/reward, while warning further volatility is likely and not expecting an immediate move back to prior highs. Rebounds in European and Japanese indices strengthen the technical case for stabilization, implying modest near-term support rather than a decisive market reversal.

Analysis

The recent pause in directional selling has altered the marginal supply/demand calculus: forced sellers have likely worked through much of the near-term liquidity mismatch, so further downside from pure liquidation is less probable absent a fresh macro shock. That shifts the next leg of market moves from deleveraging to sentiment-driven rotation—cash-rich asset owners and CTAs will decide direction, making intramonth windows and flows (quarterly rebalances, fund redemptions) the dominant drivers rather than fundamental revisions.

Energy remains the largest asymmetric risk vector for this regime. A persistent oil rise into the $95–110 range would act like a stealth tightening—compressing earnings across transportation, industrials and select consumer names by multiple hundreds of basis points while simultaneously re-pricing energy capex and yields for E&P equities. Conversely, a meaningful oil pullback will dovetail with rate-duration relief and accelerate a cyclical catch-up trade, amplifying relative performance of small caps and cyclicals.

Catalysts to watch are near-term positioning and event triggers rather than economic datapoints: roll-offs in large options expirations, a geopolitical headline that changes shipping/straits access, or a Fed communication that alters real-rates expectations could flip flows in 48–72 hours. The cleanest way to play this is via defined-risk, flow-sensitive instruments (ETFs and option spreads) sized to capture short windows of mean reversion while preserving optionality for macro shocks.

Key Decisions for Investors

• Tactical defined-risk long on large-cap resilience: buy SPY 6–8 week 10-delta call / sell 30-delta call call-spread (size 1–1.5% NAV). R/R: capped upside ~2–3x premium if equity risk appetite returns; max loss = premium. Entry after a 2–3 day consolidation or intraday pullback to the 20-day moving average.
• Energy convexity play: long PXD and FANG (equal-weight, size 1% NAV each) for 3–6 months with a sell discipline if WTI > $100 for two consecutive weeks (take 30–50% profits). R/R: targeted 2–4x upside from mean-reversion in realized oil price volatility; tail risk = crude collapse impacting spot-based realizations.
• Cheap tail hedge: buy short-dated VIX call calendar or weekly 40–60 delta VIX calls (size 0.25–0.5% NAV). R/R: asymmetric payoff for geopolitical or oil-driven risk-off spikes; cost = premium but low carry if kept short-dated and rolled tactically.
• Relative-strength pair: long SPY / short IWM pair (notional neutral, net exposure 0.5–1% NAV) for 1–3 months to exploit a rotation back into large-cap defensive names if volatility re-surges. R/R: expected 150–300bps outperformance in a risk-off squeeze; risk = small-cap rebound eroding spread — use a 4–5% stop on the pair.