If you’re making intraday decisions, this market environment actually may be rewarding given the large swings that create opportunity in capturing moves in ES/NQ futures. If you’re a longer-term investor or an intermediate-term investor in US companies who tends to hold positions, this is a very unfavorable environment. No getting around it, explains Larry Cheung, founder of Letters from Larry.
Generally speaking, my data sets suggest that the largest equity returns come from longer-term or at least intermediate-term timeframes. Because of that, my best ideas tend to come from point #2 above. But we’re in a landscape that is, for now, only allowing point #1 to work.
Let me share some Orderflow data (courtesy of Bookmap) on recent events that I believe explain what happened last week. Look at the Orderflow in the pre-“Liberation Day” announcement session April 2. It explains the large surge we saw ahead of the event and the liquidation after.
Bookmap: All the green dots represent market buys.
My observation is that there was a TON of aggressive market buying activity (green dots show above) in the morning of 4/2 for the Nasdaq-100 (NQ) ahead of President Trump’s speech. Despite the indices already making a big move to recover a large pre-market loss on 4/2, I believed and shared that there was still room in the tank to move even higher based on my interpretation of the order flow.
Turns out NQ went up another +300 points (19,600 → 19,900) afterwards before the close. Well, we know what happened afterward with Liberation Day. We got something completely unexpected.
So, what happened to the large and aggressive buyers from 4/2? My thinking is that they had to surrender, which caused the liquidation to occur. And I also believe they tried AGAIN Thursday to defend the market at the weekly lows but ultimately failed - leading to a cascade of further selling.
Now that institutional buyers have tried (and failed) to lift the market – coupled with the fact that we are now exploring price action beneath the weekly lows AND macro policy uncertainty is changing the fundamentals of companies within the indices – I’d say the psychological chaos is real.
The next date to mark on our calendars is April 9, which is when reciprocal tariffs will actually begin to take effect. Negotiations are (most likely) taking place in the background. Until something concretely good hits as positive developments, I rate this market only suitable for scalping or super long-term investing.
