Magnificent 7 Beating

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Our View

This is the world we live in, and despite me saying “buy the pullbacks,” I’m not surprised at all by the sell-off because I warned about the return of the Trump headlines — which will continue right into and after Trump’s April 2nd tariff deadline.

I did say: Clearly, the markets have calmed down, but the overall picture remains murky. Lower earnings and evidence that the economy is cooling were evident in yesterday’s consumer confidence number, which showed a bigger drop than economists had expected and fell to the lowest level since early 2021.

The ES made a high at 5834.50 and just hit a low at 5643.00 at 3:00. Funny thing is, when I was writing the OP Tuesday night, I was very close to reporting that the ES had rallied 158 points in two days and was still subject to a further decline — but I had no idea that NVDA would be down $7.00, AAPL down $3.00, AMZN down $4.60, Alphabet down $5.65, META down $15.33, MSFT down $5.19, and TSLA down $16.08. And outside of the Mag 7, NFLX was down $30.00. The PitBull said the stock market is like a roller coaster that could roll right off the tracks.

From Twitter’s GORK:

As of March 26, 2025, the “Magnificent Seven” stocks — Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Tesla (TSLA) — have experienced a notable decline year-to-date (YTD). Based on available data up to March 21, 2025, these stocks have collectively lost approximately 12.2% of their combined market capitalization. This figure reflects their performance through March 21, as reported in posts on X and corroborated by broader market analyses. Based on the most recent data available, the combined market cap of these stocks stood at $16.0 trillion on March 25, 2025. Earlier posts indicate that on March 21, 2025, their combined market cap was $15.5 trillion, reflecting a $2.3 trillion decline (-13.0%) from an unspecified 2025 peak up to that point.

Here are the YTD returns:

I have no special tool — everything I do is based on my feel and the price action. And while I admit to being wrong, I never said anything about getting bullish or that the bottom is in — and that’s coming from a bull guy that loves to buy the falling knives.

I try to keep politics out of my commentary, and I understand Trump’s motivation about bringing business back to the US. But I think we’re stuck in a pain game. I knew the Trump headlines would be back, and now we have only five trading days until the April 2nd tariffs. My guess? The headlines will only increase as we get closer to that date.

I personally had a rough trading day, but the way I see it, that’s part of the game — it’s impossible to be right every day. Especially with headlines like these:

Some people think the markets will calm down at some point. I think this is going to go on as long as Trump is president.

After the first headline, the ES sold off down to 5730.00, and at 10:06 PM, the futures were trading in the 5760.00 area.

It was back to reality for the tech sell-off, both TSLA and NVDA fell more than 5%. I don’t envy individual investors right now. The market tumble is somewhat scary to watch, but at the end of the day, I think we all knew the Magnificent 7 were overdue for a correction. The concerns over potential levies on everything from alcohol to microchips have only increased the selling pressure.

I also don’t think the stock market rotation out of the US to Europe and the tech selling is over, nor do I think consumer sentiment is going to improve anytime soon.

Our lean: In most cases, when the ES and NQ sell off hard, they bounce. Yesterday, the yield on the 10-year Treasury note closed at 4.34%, up from 4.307% Tuesday. Next Monday is the end of the quarter. The stats for the Dow are favorable, but not for the Russell 2000.

I think it’s important not to fall in love with the rallies, no matter if the ES rallies 200 points. I think there is more headline risk, but I want to get a look at the early price action before making any directional trade decisions.

The 50% retracement from 5730.00 to 5834.50 is 67.25 points, or 5797.25. My gut says to sell the big bounces.

MiM and Daily Recap

The overnight Globex session for ES opened at 5831.00, up slightly from Tuesday’s cash close. The high for the session was set around 8:42 PM at 5836.50, just 5.5 points above the open. The low was established early Wednesday morning around 6:00 AM at 5813.50. Globex closed just 2 points below the previous day’s cash close.

Wednesday’s session opened at 5824.00 in the regular trading hours and quickly registered its high of the day at 5834.50 by 9:39 AM, up 14.75 points from the 9:33 low of 5819.75. That early bounce failed to find traction, and a broad risk-off tone emerged, pushing ES to 5797.00 by 10:21 AM, down 37.50 points (-0.64%) from the morning’s high.

A minor recovery lifted prices to 5810.50 at 10:51 AM, but the rally lacked conviction. Selling resumed, driving ES to a new low of 5772.00 by 11:54 AM, a 38.50-point slide from the prior lower high. Another midday bounce peaked at 5785.50 by 12:30 PM before the next leg lower took the index to 5750.50 at 1:39 PM. This marked the drop of the day, a 35.00-point loss (-0.60%) from the earlier high.

The afternoon saw a modest recovery with a lower high at 5766.50 at 2:27 PM, only to be reversed again to a session low of 5743.00 by 2:57 PM. That low held, and a late-day push brought ES to 5767.50 at 3:51 PM—its final swing high—before closing the session at 5758.25.

The regular session logged a 65.75-point loss from open to close (-1.13%), while the full session dropped 76.25 points (-1.31%) from the prior day’s close. Notably, the cash-to-cash change was -68.00 points or -1.17%, reflecting sustained weakness throughout the trading day.

The tone was broadly bearish from the outset, as every bounce was met with stronger selling pressure. Each intraday high printed lower than the last, reflecting a persistent downtrend that extended from the early morning into late afternoon. Volume was substantial, with over 925,000 contracts traded during regular hours and more than 1.07 million across the full session.

The closing imbalance (MOC) data painted a mixed picture. While total notional imbalances hit $1.302B with 78.6% on the buy side, the symbol imbalance ended at 61.4%, a little shy of the 66% threshold for a strong signal. Although the dollar imbalance skewed bullish, it had minimal impact on price, as ES failed to rally meaningfully in the final minutes and ultimately faded into the close.

The cleanup session added little change, ticking down another 3.25 points and solidifying the day’s bearish close at 5754.75. The inability to reclaim key resistance zones throughout the session underscored the market’s defensive posture.

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Dan @ GTC Traders

Markov State Trading Processes

Markov State Trading Processes

In its simplest form, a Markov state process is a way of understanding systems where the position in any given market depends solely on the current state and not on the sequence of events that preceded it. Think of it like a game of chance—a roll of a dice or a coin flip. Each outcome is independent of the last. For trading, this means that future price movements or market conditions can be modeled based on the idea that past “memory” is irrelevant, and only the present state matters.

This “memoryless” property is the foundation of a Markov process. When applied to trading, it allows us to break down market behavior into a series of states —for instance, “bullish,” “bearish,” or “neutral” conditions. By assigning a risk model to such ‘states’, traders can develop strategies that react to shifts in market conditions rather than trying to predict every twist and turn.

How Does It Work in Practice?

Imagine you’re monitoring a stock, and you’ve determined that it can be in one of three states: “bullish,” “bearish,” or “neutral”. A Markov model would have a predetermined risk-model for each state. In a ‘bullish’ state, the process may allocate X% of the account’s buying power to a particular asset, and this could change when the market hits the ‘third day’ of such a state. It may then change when the ‘current state’ switches to ‘neutral’. Thus, instead of relying on gut feelings or traditional technical indicators alone, you have a structured, statistical framework that informs your decisions based on the current state of the market. What any individual ‘thinks’ may happen in the future is completely irrelevant to a Markov State trading process.

Why Markov Processes Fit into a Multi-Strat Portfolio

The beauty of Markov state trading processes lies in their simplicity and objectivity. They strip away the noise of market history and focus on the present condition, which can be a powerful way to avoid the pitfalls of overfitting and biased predictions. In a Multi-Strat portfolio, where you employ various trading methodologies, having one strategy that uses a Markov model can provide a counterbalance to strategies based on momentum, value, or sentiment. Each strategy in a Multi-Strat portfolio should ideally operate on a different thesis. Markov models, with their focus on current state risk models, offer an approach that is fundamentally different from trend-following or mean-reversion strategies. By integrating a Markov-based strategy, you add an extra layer of diversification—not just in the assets you hold, but in how you approach market behavior. This diversification is essential because, as we’ve said many times, during severe market downturns, even non-correlated assets can all move in tandem if their underlying strategies are built on similar assumptions.

The Practical Benefits

For the retail trader, the practical benefits of incorporating a Markov state trading process into your portfolio are significant:

• Simplicity: The model is based on clear, straightforward probabilities derived from current market conditions.

• Objectivity: By removing the influence of past sequences, you rely on a method that reduces bias. Decisions are driven by current data, not by the assumption that history will simply repeat itself.

• Risk Management: A structured model helps in setting more objective stop losses and targets. Knowing the likelihood of transitioning from one state to another can guide your risk-to-reward ratios and position sizing.

• Complementary Nature: Because Markov processes provide a unique perspective, they serve as a robust complement to other strategies. This helps ensure that your

A Word of Caution

While Markov state trading processes offer a clear, statistical framework for understanding market conditions, they are not a silver bullet. Markets remain complex, influenced by myriad factors that can defy even the best models. That said, using a Markov approach as part of a broader Multi-Strat strategy can help mitigate risks inherent in any single method. It’s not about predicting every move; it’s about structuring your approach in a way that balances risk and reward based on the current state of the market.

In essence, if you’re serious about developing a robust, non-correlated trading portfolio, understanding and incorporating diverse strategies like Markov state trading processes is crucial. It’s a reminder that the strength of your portfolio comes not from a single, infallible strategy, but from a collection of approaches that each work in different market environments.

Until next time, stay safe and trade well.

Trading Room News:

Polaris Trading Group Summary: Wednesday, March 26, 2025

The PTG room had a solid trading session today, staying in sync with the market’s dominant tone. Clear scenarios laid out in the pre-market gave structure to the day, and both crude and equity index trades offered clean opportunities, particularly on the short side as the bear case unfolded.

Pre-Market Overview

Trade Highlights

Market Context and Insights

End-of-Day Notes

The room executed well today, especially by respecting the planned scenarios and remaining focused on short-side opportunities once the bear structure confirmed. A day filled with both profitable trades and valuable technical lessons.

DTG Room Preview – Thursday, March 27, 2025

ES likely to stay range-bound ahead of Friday’s Core PCE unless GDP shocks the tape.

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!