Treasury Yields Send A Wake-up Call To The S&P And Nasdaq

on May 22, 2025

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Our View

Despite the ES being down 44.75 points on the open and rising 30-year and 10-year yields, the ES did exactly what it did on Tuesday’s lower open—it went straight up. I did buy it, but I… lol, got out early. But that’s not the point. The point is that the index markets are taking bad news and making good of it.

After rallying up to 5956.25 at 12:48, the ES started to pull back and then got smacked by exactly what I was talking about in yesterday’s Opening Print: the treasury yields. At 1:00, the results from the 20-year bond auction showed a D+ rating, and the ES sold off down to 5852.40 at 3:14.

Before the auction results, I put this in the MrTopStep chat:
Dboy (12:38:42 PM): there are dark clouds hanging over the markets and while the es and nq have rallied this ball game is far from over.

Just off the lows of the day, I posted this in the chat:
IMPRO / Dboy (3:30:22 PM): pop time.
And the ES did just that—it rallied up to 5876 by 3:39 a nice 20+ point pop.

I do my best to help provide you a feeling for the markets, and now we are starting to feel the effects of the skyrocketing bond and note yields. Is this what Trump has been pushing for? Trigger a recession to lower rates?

Below is a story from Zero Hedge:

Yields Soar, Stocks Plunge After Ugly 20Y Auction Sees Biggest Tail Of 2025 | ZeroHedge

ZeroHedge – On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com/markets/yields-soar-stocks-plunge-after-ugly-20y-auction-sees-biggest-tail-2025

Our Lean

The Achilles heel of the stock market is one word: yields.

During the credit crisis, the yield on the 30-year bond rose to 4.79%, and the 10-year yield reached 5.26%. After hitting their highs, the 30-year Treasury bond yield fell by 2.26 percentage points—from 4.79% to 2.53% in 2008—and the 10-year Treasury note yield dropped 2.19 points—from 4.27% to 2.08%. These sharp declines reflected a significant market reaction to the escalating credit crisis, as investors sought the safety of U.S. government securities and brought on the Federal Reserve’s Quantitative Easing (QE1) on November 25, 2008. By December 16, 2008, the federal funds rate had been slashed to a range of 0%–0.25%.

Where am I going with this?

From the ES’s Credit Crisis low on March 9, 2009, to the 2024 6235 high, the ES gained a whopping 808.1%. I’m not saying the S&P is going to rally another 800%, but I am pointing out what could happen if the bond and note markets were to reverse.

Over the past few months, I’ve talked time and time again about treasury yields and where they close almost every day. I haven’t paid this much attention to yields since the credit crisis. I have to be honest with you—I’m a pessimistic bull living in a world of shit that, at some point, will catch up to the stock market.

The other part is this: the ES has been making good out of bad news, and that can’t last forever.

Our lean: The ES rallied up to 5874.25 on Globex and just traded down to 5864 at 11:37 PM—yeah, I’m still at it. As you all know, I love trading the gaps, and if the ES opens sharply lower, I would look to be a buyer and look to sell the big rips under one condition: the bonds and notes are weak.

Here are some levels I will be watching:

Resistance:

5,878.56 (200-Day MA, above current price)
5,928.85 (5-Day MA, above current price)
5,993.50 (1-Month high, above current price)
6,124.25 (3-Month high, above current price)
6,167.07 (127.2% Fibonacci extension from 1-month low to high, calculated as 5,355.25 + (1.272 * (5,993.50 – 5,355.25)) ≈ 6,167.07)

Support:

5,824.86 (100-Day MA)
5,821.22 (Year-to-Date MA)
5,758.66 (20-Day MA)
5,674.375 (50% Fibonacci retracement)
5,611.09 (50-Day MA)

MiM and Daily Recap

Wednesday’s session began with a weak overnight performance, as Globex dropped 39.00 points (-0.66%) from its open at 5953.50 to a close of 5914.50. Just ahead of the cash open, ES tagged a premarket low of 5908.75 at 9:24 AM, coming within a few ticks of the Globex low at 5905.00. From there, sentiment turned more bullish as buyers stepped in.

Price drove higher through the 9:30 AM regular session open at 5914.50, and continued climbing into a 10:00 AM apex high of 5944.50, likely triggered by a reaction to economic news. This represented a 35.75-point rally (+0.61%) from the premarket low. Sellers returned by mid-morning, pulling prices back to 5918.50 at 10:48 AM—a 26.00-point drop (-0.44%) off the morning high.

Momentum then shifted upward again, with ES climbing to 5952.75 at 11:24 AM, marking a 34.25-point gain (+0.58%) off the prior dip. A shallow pullback followed, with price easing to 5942.50 at 11:36 AM (-10.25 pts, -0.17%) before another push lifted ES to 5953.75 at 12:09 PM and ultimately to the session high of 5965.25 at 12:48 PM (+11.75 pts, +0.20%).

From that 12:48 peak, the market reversed sharply. ES plunged 89.25 points (-1.50%) to a low of 5876.00 at 1:30 PM. A modest bounce followed, with price lifting to 5907.50 at 1:39 PM, but the recovery lacked conviction.

A secondary decline unfolded into 3:24 PM, dragging ES to a new low of 5847.75, down 117.50 points from the midday high. Another attempt to rebound reached 5876.00 at 3:39 PM, but the move faded into the final hour. A last higher low printed at 5851.25 at 4:12 PM, and ES settled at 5859.25, closing the regular session down 100 points (-1.68%) from Tuesday’s cash close.

From open to close, the regular session lost 55.25 points (-0.93%). Total volume for the full session reached 1,469,883 contracts, with the bulk of it traded during the regular session (1,238,260).

Market Tone & Notable Factors

The tone was definitively bearish despite early strength after the open. Morning gains faded quickly after printing the high at 5965.25, with aggressive selling taking control through the afternoon. The selloff was broad and persistent, culminating in a steep decline and only a tepid bounce into the close. The cleanup session saw no significant recovery.

The MiM (Market-on-Close) imbalance showed a notable 82.5% buy-side dollar bias, with $996M to buy vs. $211M to sell, totaling a $785M imbalance. Symbol imbalance ended at 68.4% to the buy side, just over the 66% threshold typically viewed as meaningful. Despite this buy skew, there was no late-day follow-through, indicating heavy supply kept pressure on prices.

In summary, Wednesday marked a clear intraday reversal as sellers overwhelmed early momentum. The day closed on a weak note, and heading into Thursday, traders will watch to see if the 5840s offer any durable support or if further downside is in store.

How to read the MiM

Technical Edge

Fair Values for May 22, 2025

S&P: 16.06
NQ: 66.72
Dow: 79.98

Daily Breadth Data 📊

For Wednesday, May 21, 2025

NYSE Breadth: 9% Upside Volume
Nasdaq Breadth: 40% Upside Volume
Total Breadth: 37% Upside Volume
NYSE Advance/Decline: 10% Advance
Nasdaq Advance/Decline: 19% Advance
Total Advance/Decline: 12% Advance
NYSE New Highs/New Lows: 54 / 63
Nasdaq New Highs/New Lows: 129 / 117
NYSE TRIN: 0.81
Nasdaq TRIN: 0.35

Weekly Breadth Data 📈

For the Week Ending Friday, May 16, 2025

NYSE Breadth: 63% Upside Volume
Nasdaq Breadth: 67% Upside Volume
Total Breadth: 66% Upside Volume
NYSE Advance/Decline: 76% Advance
Nasdaq Advance/Decline: 71% Advance
Total Advance/Decline: 73% Advance
NYSE New Highs/New Lows: 175 / 63
Nasdaq New Highs/New Lows: 334 / 266
NYSE TRIN: 1.76
Nasdaq TRIN: 1.20

Guest Posts:

Dan @ GTC Traders

Short Term Correction to Long Term Problems

There is something about the ol’ saying … “out of the Frying Pan and into the Fire” that comes to mind.

Everyone is still talking about the recent stock market correction and debating whether or not this rally in stocks will continue? Or will the market turn over and we begin to see new lows in price?

I will say what we have said many times before. It’s not our job to predict the future nine months out. I’ve said this many times, but I’ll say it again: our focus is on understanding where we are right now — what mathematicians call initial conditions. We have what is referred to quantitatively as “informational constraints” on what we can see at the present time … so even trying to determine initial conditions can be a difficult, tricky endeavor.

Here’s what we do know.

For the ‘frying pan’ of the situation … there is still uncertainty as to how tariff’s will work out … how the budget, tax cuts and the deficit is to be addressed … if it even will be addressed. But for the sake of argument, let’s say that all of the above is worked out in a beneficial matter for the economy.

Great.

Well, we would then move from these shorter periodicity problems and then ‘jump straight into the fire’ that the market, longer term … remains incredibly overvalued on a number of metrics.

Or if we look to price to peak earnings …

The market is still, longer term, incredibly over-valued. In the here and now. We haven’t lost sight of that longer term view.

At the moment? Linear inputs on how we arrive at such valuations has not changed. Which means we are still adjusting our risk profile accordingly. Which, as we will discuss with our premium members here in a short while … addresses the type of return profile we are seeking.

Until next time, stay safe and trade well …

Trading Room News:

Polaris Trading Group Summary: Wednesday, May 21, 2025

Yesterday was a classic Cycle Day 1 with a strong opening performance, successful execution of multiple trade strategies, and a sharp midday reversal that wiped out morning gains. The session showcased disciplined execution, opportunistic trading, and reinforced key risk management lessons.

Morning Session – Open Range Trifecta

The trading day began with a D-Level Money Box (DLMB) reversal overnight, setting up bullish momentum early.
A Buy Signal on the DMI Ratio added confidence to long setups.
PTGDavid emphasized patience, awaiting a “solid AAA trade structure.” This led to:
- NQ Open Range Long: All targets hit.
- CL Open Range Short: All targets hit.
- A4 Long: TGT1 and TGT2 filled, with a stop trail managing the runner.
Result: All Open Range Strategies hit their targets—a TRIFECTA, as PTGDavid proudly stated.

Midday Reversal – Market Headwinds

After gap fill recovery post-lunch, equities reversed hard, vaporizing morning gains.
Treasury yields surged, triggering risk-off flows and a breakdown below the key PUT WALL at 5892.
The sharp selloff highlighted sensitivity to macro factors, especially bond yields.
PTGDavid’s humorous yet serious metaphor on stop losses emphasized their importance:
- “Execute Stop Losses like your life depends on it…Because it does…Metaphorically speaking for trading.”

Afternoon Session – Decline and Defend

Markets pushed toward CD1 Decline Targets:
- Tagged CD1 Violation Level at 5856.
- Final target zone near 5836.34–5825.84 came into focus.
A brief recovery attempt above 5870 was met with hesitation.
PTGDavid discussed MOC dynamics, noting only a modest $1B buy imbalance.
Into the close, programs went erratic—“batsh*t” as David put it—adding chop to an already volatile finish.

Key Lessons & Takeaways

Discipline pays: Waiting for clean structures led to the day’s early success.
Adaptability matters: Swift reaction to macro signals (yields, PUT walls) helped avoid deeper losses.
Risk management is paramount: Clear reinforcement of stop-loss execution as a survival tool.
Cycle Day Framework continues to prove valuable in framing price expectations.

Summary:
A strong morning built on high-quality setups and structure-based execution led to multiple profitable trades. While the afternoon reversed hard on macro news, the PTG room navigated with caution and composure, emphasizing capital protection. Another day showcasing the power of strategy, discipline, and trading psychology.

Quote of the Day:
“Stop Losses are the same as Missed Approach…No Thinking…Just Do.” – PTGDavid

DTG Room Preview – Thursday, May 22, 2025

Politics & Policy: House Speaker Mike Johnson is pushing a vote on Trump’s revamped tax bill ahead of the Memorial Day recess, despite internal GOP resistance. The bill, which includes a $40K SALT cap, is expected to significantly expand the deficit—raising market fears post-Moody’s downgrade. The White House supports the bill.
Markets: Wednesday saw equity declines and a spike in Treasury yields amid debt concerns. Bitcoin surged past $111K to a record high, with Ether up 5.5%.
Macro Risks: JPMorgan CEO Jamie Dimon warned of U.S. stagflation risks and global tensions, backing the Fed’s wait-and-see approach. JPMorgan launched a new “Center for Geopolitics” to help clients navigate international risks.
Global Trade: The EU is offering a new trade deal to the U.S., including tariff reductions and tech cooperation, but is also readying $108B in retaliatory tariffs if talks fail.
Earnings & Economic Data: Lenovo posted a 64% drop in Q4 profit, citing Trump-era tariffs. Earnings out premarket include ADI, BJ, RL, TD, WSM; postmarket: ADSK, CPRT, DECK, INTU, ROST, WDAY. Key economic releases today include jobless claims, PMIs, and existing home sales. NY Fed’s Williams speaks at 2:00pm ET.
Market Levels & Volatility: ES volatility rose with a 5-day ADR at 81 pts. The ES is now trading around its 200-day MA (~5884), which has acted as resistance overnight. Trendline levels to watch: Resistance at 6017/22, Support at 5701/06, 5298/03, and 4972/77. Whale bias is bearish into jobless claims.

ES

The bull/bear line for the ES is at 5876.50. This is the pivotal level to watch today. Currently, ES is trading at 5862.00, below the bull/bear line, indicating bearish pressure remains in control after the overnight drop.

If sellers maintain control below 5876.50, the first support level is 5858.75, followed by 5847.75. Below that, the lower intraday target comes in at 5821.00. A break of that level opens the door to further downside toward 5768.75, the S1 level. These are the key downside targets if momentum stays negative.

On the upside, if buyers regain 5876.50, there is initial resistance at 5932.00, the intraday upper range target. Above that, further resistance comes in at 5958.25 and 5984.25, the previous high and R1 level, respectively. These levels would only come into play if ES reclaims the bull/bear line with strength.

Overall, ES is trading weak and under pressure below the 5876.50 bull/bear line. Bulls need to reclaim that level for any reversal setup, while bears will aim to continue pressing the tape toward 5821.00 and below.

The bull/bear line for the NQ is at 21,213.50. This is the key pivot level for today and must be reclaimed and held for bullish momentum to reassert. Price is currently trading below this line at 21,175.50, indicating bearish sentiment in the pre-market.

If sellers maintain control below the bull/bear line, we look for first support at 21,145.50 and then at 21,072.75. The lower range target is at 20,980.00. If downside momentum strengthens, a further move toward 20,760.30 is possible.

On the upside, a move back above 21,213.50 opens the door to a test of 21,414.75 and the upper range target at 21,447.00. Continued strength could push prices toward resistance at 21,558.50 and 21,667.00.

Trend bias remains bearish below 21,213.50, with intraday rallies likely to find resistance unless that level is convincingly reclaimed and held.