Market Weakness: Is It a Bearish Setup or Just the Calm Before the Storm?

Market Context and Game Plan March 27, 2025

Yesterday, President Trump dropped a major bombshell—25% tariffs on cars not manufactured in the U.S. This news caused a quick market weakness, and it’s worth diving into whether this could be the start of a bearish setup or if we're just seeing a temporary pullback before a possible bigger move. Add to that today’s GDP numbers and upcoming tariff announcements in early April, and we’ve got some interesting dynamics unfolding.

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The Market’s Immediate Reaction: Was It a Trap or Just Bearish?

Let’s talk about SPY first. The market immediately rejected around 577, exactly where the election day results gap occurred. The market rallied there after Trump’s election win, and now it has turned into a resistance point. It shows that the election day rally is now a key level to watch, and the market's failure to push through this level may indicate weakness.

But here's the tricky part: While the market is grinding down, it's not showing strong higher lows—it’s more of a smaller lag down, not the kind of structure we expect in a bullish market. On the daily chart, the structure is weak. Yet, when you zoom out to a 4-hour chart, we’re still seeing higher highs and higher lows, and that means the bigger trend isn’t over yet.

The Big Test: Defending the Monday Morning Gap

Now, let’s talk about the Monday morning gap—this gap is crucial because it lines up exactly with the previous breakout point that happened during the consolidation phase between July and September 2024. The market initially broke out from this point, and now it’s retesting it. If this gap doesn’t hold, it will be a significant warning sign for the market structure. This would show that the market is failing to defend key levels, which would lead to further weakness and possible continuation to the downside.

The gap from Monday morning is more than just a number—it’s tied to a major market shift, and if it fails to hold, that’s a red flag for the bulls. Losing this gap would compromise the market’s structure, potentially signaling more downside ahead.

Key Levels to Watch:

• SPY Resistance: The 577 level remains crucial. If we can’t break above it, the market might face further pressure.

• Support: The Monday gap and previous lows near 572 will be the first level of defense.

• NQ: Look for weakness below 20420, which would suggest continued downside.

  

  For bullish continuation, we should at least see SPY above the 570 level before considering a long position, or wait for a complete gap closure and a bounce in the 564 to 565 range. In between this range, predicting whether the market will continue the trend becomes much more challenging. The same applies to ES; we should aim for a move above 5770 for a long, or wait for the gap closure around 5720. For NQ, we need at least a reclaim of 20,150 before considering long, or the gap closure with a hold above the psychological 20,000 level.

Economic Data: Can GDP Provide Any Clarity?

The GDP Third Estimate comes today, and with the tariff news added to the equation, it might be a bit harder to rely on this GDP estimate as the market has already priced in some uncertainty. If GDP comes in weaker than expected, it could signal more trouble for the bulls. Conversely, a stronger GDP might give the market some relief, but considering the market's recent behavior, it’s hard to bet on a strong rally.

What’s Next? Bearish Setup or a Trap?

With GDP data coming in today, it’s possible we’re seeing a bearish setup or even a bear trap. The market has shown signs of weakness, but we’re still holding some key levels that could lead to a strong bounce if data surprises. The tariff news adds even more complexity to the picture, and we need to be aware of both the downside risk and the potential for a countertrend move once the data hits.

The Bottom Line

• Short-term: Expect a possible test of key support around 572 for SPY and 20200 for NQ.

• Longer-term: With GDP and tariffs still on the horizon, there’s potential for the market to either grind higher or face continued selling pressure. This creates a sensitive situation where we need to remain nimble and adaptive.

We’ll continue to watch how the market plays out today and how it reacts to the data ahead. If we break down, be ready for more downside, but if the market holds and the data surprises positively, there may still be upside left.

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Your Thoughts? Is this just another temporary dip before a rebound? Or is the market truly heading into a bearish trap? Drop your thoughts below—I’d love to hear your take as we head into a big data week.

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Risk Disclaimer

Disclosure:
The information provided in this article is for educational purposes only and should not be considered as financial advice. Trading and investing in financial markets involve substantial risk, and it is important to conduct your own research and consult with a qualified financial professional before making any investment decisions. The author is not responsible for any financial losses or gains that may result from actions

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