The Level That Could Send Stocks Tumbling

Despite a constant stream of concerning news in the last month, the S&P 500 remains less than 5% below its all-time high.

That’s an impressive performance, considering Brent crude oil is nudging up against US$100 and could head much higher.

I just paid $124 to fill up the tank this morning. Ouch.

My reading of the S&P 500 is that it doesn’t have to fall much to trigger a chain reaction that could lead to a sharp decline.

Bonds are selling off alongside stocks at the moment, which will make things uncomfortable for risk-parity funds.

They are leveraged into bonds and equities. Returns are great as long as bonds and equities move in different directions, as they usually do.

But when they both sell off at the same time, returns can dive rapidly.

To address that risk, they deleverage when the correlation between bonds and equities becomes too high.

Their selling can often spark selling by other strategies, such as CTA (Commodity Trading Adviser) strategies that follow trends or volatility-targeting funds.

The weekly trend on the S&P 500 is down, and the bottom of the range it has been stuck in for the past three months is just 2.5% below current levels.

There should be plenty of stop losses lined up beneath there.

Everything hinges on the news flow out of Iran, of course, but my guess is we need to see things get much worse before Trump throws in the towel.

A feasible outcome is oil continuing to shoot higher and stocks diving rapidly before Trump bites the bullet and backs off.

So, strap yourself in for what could be a volatile period ahead.

If you are nimble, you might get a chance to deploy cash near the bottom of the freak-out period. So pay attention.

The US Dollar Index [TVC:DXY] looks poised to surprise to the upside if it can head above 100.00-101.00.

The S&P/ASX 200 [ASX:XJO] also looks dangerous if it breaches the low hit in November 2025. Under there, we could see a quick 6% fall.

When multiple markets look ripe for a big move, it can increase confidence that you are on the right track.

I think current market conditions aren’t easy to navigate, and the risk is to the downside.

So tread carefully and make sure you have some powder dry to take advantage of opportunities if a sell-off occurs.