on March 4, 2025

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Inverted Yield Curve: A Recession Signal That Won’t Go Away

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Our View

The ES traded up to 6000.50 on Globex and made a 5997.00 high during the day session and that was all she wrote. It’s now 3:30 PM, and after a big rip on Friday afternoon, buyers are puking everything they bought. The NQ just hit a low of 20,316.75, down -2.8%, while the ES dropped to 5821.75, down 2.1%.

It’s the same story, stocks got hammered, and bonds rallied as Trump continued his tirade against Ukraine, announced 25% tariff threats, and U.S. manufacturing costs jumped. NVDA took a beating, falling over 8.7%. It looks like Trump’s “Make America Great Again” push has actually put the brakes on the U.S. stock market. Later, the MIM showed $700 million to buy. Because there wasn’t a big sell imbalance, that $700 million buy pushed the ES and NQ higher. In fact, the ES went out at a big premium to the S&P cash.

What do we know? On Monday, the ES rallied 137 points with $4.7 billion to buy on the 3:50 cash imbalance. Yesterday, the ES dropped 175.25 points. What stands out is how sellers completely shook off Friday’s rally.

Some believe the bond rally is just part of ongoing asset allocation, in other words, there’s institutional stock selling going on, a safe haven. I’ve given this a lot of thought and being a bull, it pains me but like I said in the OP yesterday, the rally on Friday’s close wasn’t going to change the current path. There’s just too much turmoil, both known and unknown.

Goldman CTA Flows:

Over the next 1 week…

Flat tape: -$11B to sell (-$4.7B SPX to sell)
Up tape: -$4B to sell (-$1.3B SPX to sell)
Down tape: -$40B to sell (-$12.6B SPX to sell)

Over the next 1 month…

Flat tape: -$27B to sell (-$11B SPX to sell)
Up tape: +$12.5B to buy (-$142M SPX to sell)
Down tape: -$193B to sell (-$58B SPX to sell)

Translation: CTAs are selling in every scenario with the worst case is $193 billion in global stock if equity markets continue sliding in the coming month and the selling will persist even if the market manages to rebound from here.

Our Lean

Did you know that when you get an inverted yield curve, there has only been one time that it didn’t lead to a recession? Well, it’s been that way for a long time. Almost every day, we get some economic number that isn’t moving in the right direction. I don’t know anyone who predicted what was going to unfold on Friday, nor did I hear anyone say the ES was going to drop 2% yesterday. That said, as crazy as it sounds, I think the public is getting used to it.

We don’t have any economic releases today, but we do have two Fed speakers.

Our lean: If there’s anything that describes the current state of affairs, it’s “unpredictably bad”. That said, I think you have to keep selling the big rips. It looks like we’re in a 5800-6000 range, but I question how long 5800 is going to hold. It’s a key level that the bears need to close below because if that happens, 5700 could come fast. The ES went out at a big premium to the S&P cash. My guess is that means it is going to have to realign to fair value. It should sell off a little, but then I think we can bounce a little further but I’m looking to sell that rip. I think 5900-5920 would be sweet.

I know April starts the best six-month period for stocks, but I have this gut feeling that there’s more downside to come. This isn’t your typical election year.

MiM and Daily Recap

The ES opened the Globex session at 5967.50 and initially pushed higher, reaching an overnight high of 6000.50 at 7:15 AM before reversing lower. Selling pressure persisted into the early morning, bringing the market down to 5980.25 by 8:51 AM (-20.25 points, -0.34%).

The regular session opened at 5984.75, but sellers quickly took control. By 10:00 AM, the ES had already plunged to 5930.50, a 66.50-point decline (-1.11%) from the overnight high. A modest bounce followed, with the ES climbing to 5974.75 at 10:42 before another round of selling pushed it down to 5945.00 at 10:57 AM (-29.75 points). Another weak bounce took the index to 5968.75 by 11:24 AM, but once again, sellers stepped in, forcing a drop to 5934.50 by 11:42 AM.

Midday action saw another failed rally attempt, reaching 5965.50 at 12:42 PM before yet another sharp selloff. By 1:36 PM, the ES bottomed at 5897.75, dropping 67.75 points (-1.14%) from the midday peak. Despite another weak bounce to 5929.50 at 2:42 PM, the market continued lower into the afternoon, hitting a session low of 5821.75 at 3:42 PM—a staggering 107.75-point drop (-1.82%) from the midday high.

A strong bounce in the closing minutes helped the ES recover some ground, reaching 5876.25 by 4:15 PM. The regular session closed at 5862.75, down 122 points (-2.04%) from the open or -101.25 points from the previous cash close.

The overall tone was decisively bearish, with sustained selling pressure throughout the session. Despite multiple bounce attempts, each rally failed to generate meaningful upside momentum, with lower highs forming consistently. The steep selloff into the afternoon and a late-day recovery highlighted aggressive liquidation, followed by some bargain hunting near the lows.

The Market-on-Close (MOC) imbalance showed a $1.099B flow, with 60% of the symbol imbalance favoring buying aiding in a closing bounce.

Volume was notably high, with 2,153,353 contracts traded during the regular session and total session volume hitting 2,518,379. This, combined with the strong downside momentum, suggests institutional selling dominated the session, with limited sustained buying interest until the extreme lows.

In summary, yesterday’s session was characterized by heavy downside momentum, consistent distribution, and failed rallies. The late-session bounce was notable but didn’t reverse the broader trend, leaving the market vulnerable to further downside pressure in the coming sessions.

How to read the MIM

Technical Edge

Fair Values for March 4, 2025:

SP: 9.88
NQ: 36.8
Dow: 65.68

Daily Market Recap 📊

NYSE Breadth: 21.7% Upside Volume
Nasdaq Breadth: 22.9% Upside Volume
Total Breadth: 22.8% Upside Volume
NYSE Advance/Decline: 30.3% Advance
Nasdaq Advance/Decline: 22.7% Advance
Total Advance/Decline: 25.7% Advance
NYSE New Highs/New Lows: 111 / 206
Nasdaq New Highs/New Lows: 89 / 515
NYSE TRIN: 1.69
Nasdaq TRIN: 0.99

Weekly Market 📈

NYSE Breadth: 49.5% Upside Volume
Nasdaq Breadth: 44.4% Upside Volume
Total Breadth: 46.5% Upside Volume
NYSE Advance/Decline: 51.7% Advance
Nasdaq Advance/Decline: 34.7% Advance
Total Advance/Decline: 41.2% Advance
NYSE New Highs/New Lows: 119 / 232
Nasdaq New Highs/New Lows: 213 / 680
NYSE TRIN: 1.00
Nasdaq TRIN: 1.24

Trading Room Summaries

Polaris Trading Group Summary – Monday, March 3, 2025

Market Context & Early Action

The market opened with bullish momentum, continuing Friday’s late rally. Buyers pushed price above 5992.50, achieving the CD2 Penetration Target.
Key support was identified at 5950, where bulls maintained control early on.
Nasdaq (@NQ) also hit its upper penetration target at 21065.50 and Money Box at 21075.75.

Morning Trade Developments

An initial sell-side lean developed, but buyers responded at 5971 (prior high) before failing to hold, sending price lower to 5950.
A further break led to 5940, marking a “Line in the Sand” level.
ISM Manufacturing Data came in weaker than expected (50.3 vs. 50.8 expected), contributing to further downside pressure.

Key Trade Executions

@NQ Open Range Short hit all targets.
@ES Open Range Short also hit targets, confirming the downward bias.
@CL Open Range Long hit first target but stop trail was elected.

Midday Consolidation & Bearish Breakdown

Cycle Day 2 balancing and consolidation took place around the 5940-5950 zone, as expected.
Bears took control as price sustained below 5940, targeting 5925-5920.
Key level: 5902 P-HVN, Bears defended, but bulls attempted to reclaim 5910-5915.

Afternoon Selloff – Breaking Key Levels

Trump announced tariffs on Canada & Mexico (25% starting Tuesday), sparking heavy liquidation.
@ES gave up all of Friday’s gains, fully retracing.
Prior POC (5880) became the key bull defense level, but selling pressure continued.
Wholesale Tech Wreck: Nasdaq plunged, tagging 20395 D-Level, confirming a CD2 Violation.
ES hit 5831.50 D-Level, triggering a buy response.

End-of-Day Bounce & Position Squaring

@ES found support at 5831.50 and rebounded towards 5848, a key level to reclaim.
MOC imbalance: $700M buy-side (small relative to overall volume).
Final push into the close: A PKB Long setup emerged, but bulls needed to defend 5848 for continuation.

Key Lessons & Takeaways

Trend Reversals Matter: The bullish start reversed sharply following external macro events (tariff news). Be adaptable.
D-LEVEL to D-LEVEL Trading Works: Both ES and NQ fulfilled their downside targets, reinforcing these levels’ importance.
News Drives Volatility: Trump’s tariff comments triggered aggressive selling—always be aware of scheduled/unexpected news events.
Liquidity Zones Hold Weight: The 5902 P-HVN and 5831.50 D-Level provided tradable reactions for both bears and bulls.

Final Thought

A textbook Cycle Day 2 selloff with clear execution points for both shorts and long bounces. Traders who followed PTGDavid’s guidance had strong opportunities throughout the session.

Discovery Trading Group Room Preview – Tuesday, March 4, 2025

Markets in Turmoil as Tariff War Escalates
U.S. stock markets tumbled as President Trump announced 25% tariffs on Mexico and Canada, along with an additional 10% tariff on China. Economists warn that these measures could significantly impact the economy, with The Tax Foundation calling it a $130 billion annual tax hike on American households.

Global Retaliation and Economic Impact
- Canada imposed reciprocal 25% tariffs on $20.6B in U.S. exports, with a second round hitting C$125B worth of goods in three weeks.
- China retaliated with 15% tariffs on key U.S. farm imports and added 25 U.S. companies to trade restriction lists.
- Mexico, despite cooperation with the U.S., faces tariffs and has vowed to respond in kind.
The ISM Manufacturing PMI missed expectations, reflecting tariff uncertainty, while the Bank of Canada warns of a potential 3% GDP loss over two years if the trade war persists.

Corporate and Market Fallout
- Nvidia (NVDA) plunged 8% following reports that its Blackwell chips are making their way into China despite U.S. restrictions.
- Singapore is probing Dell (DELL) and Super Micro (SMCI) over AI server exports to Malaysia, causing DELL (-7%), SMCI (-13%), and Arm (ARM) (-8%) to decline.
- Earnings watch: Premarket reports include AZO, Best Buy (BBY), ONON, SE, Target (TGT); post-market includes ANET, CRWD, FLUT, ROST, SQM.
Fed and Volatility Outlook
The economic calendar is light, with New York Fed President John Williams speaking at 2:20 PM ET. Volatility remains elevated, with Monday’s sharp selloff pushing the ES 5-day average daily range above 122 points.

Technical Levels for ES Futures
- 200-day MA (5847) remains key support
- Short-term downtrend levels: Support at 5817/14, 5687/69, 5624/19; Resistance at 5987/84, 6161/58
- Whale traders leaning bullish into the U.S. open, despite light overnight volume
Key Event Today
President Trump will address a joint session of Congress in a prime-time speech, expected to focus on tariffs and economic policy.

ES -Week to Week

The bull/bear line for today is at 5881. This is the key level that defines intraday bias—staying above it favors bullish continuation while trading below could signal further weakness.

If the market holds above 5881, expect a move toward 5960 as the first upside target. Beyond that, 5970, which is the range high target for the day. Next on the upside is 6039 is the psychological level to watch.

On the downside, failure to hold 5881 could lead to a test of 5861.25. Below that, 5821.75 and 5792.25 (our target low range) become significant downside levels, with 5708.75 as a deeper target if selling accelerates.

Overall, price action around 5880.9 will be crucial in determining the day’s direction. Bulls need to reclaim lost ground above this level, while bears will look for continued weakness if resistance holds.

We are in a long-term bear mode favoring longer-term swings short. That will reset with trades above 6113.50

NQ – Week to Week

The bull/bear line for NQ is now at 20,568.00, marking the critical pivot level for today’s session. Trading above this level would indicate bullish control, making long positions more favorable, while sustained action below keeps the bearish trend intact.

If buyers push the market above 20,568.00, the first upside target is 21,020.50, followed by a test of 21,121. If momentum continues, we could see an extension towards 21,375.50 and 21,578.25.

On the downside, failing to reclaim 20,568.00 brings 20,316.75 into focus. A further breakdown could test the next support at 20,152.75 which is our range low target today. If sellers extend control below this level, the market could face additional downside pressure.

Currently, NQ remains in a bearish swing mode, with downside pressure dominating. Watch for reactions around the bull/bear line for potential shifts in momentum.