What I'm Doing

Weeks like this are a great reminder of why I got into technical analysis in the first place.

In 2019, I was early in my public accounting career, a freshly minted CPA, knee-deep in Excel and financial statements.

I studied DCF, margin of safety, competitive moats, valuation metrics, the whole deal.

I thought I knew how the game worked.
Glued to the news, chasing every headline, trying to make sense of it all.

So many big words. So many elegant explanations.

But they all came after the move.

No heads-up. No warning. Just a bunch of “it was obvious” after the fact, after the money was lost.

It’s easy to blame others, but who cares. It wasn’t their money on the line.

Ownership is what cultivates change. It was my fault.
I didn’t have a risk management process.

That’s when I picked up my first book on technical analysis.

Back in college, I studied Austrian economics.
I understood economies revolved around irrational people making decisions under uncertainty, driven by incentives and emotions.

So when I found technical analysis, it clicked. Price reflects the actions of these people, it follows their feet not just their lips.

I spent every night diving into textbooks from the mid-1900s.
The charts were old, but the lessons on human nature and price behavior still held up.
That’s when I knew this wasn’t a phase. I was addicted.

That’s why I sat for my CMT exams.
To build a foundation.
To study what’s stood the test of time.
To master the craft, not just mimic it.

And I’m still learning. Still testing. Still refining.

What technical analysis does is give us tools:

• To measure and manage risk

• To understand participation

• To identify fear and positioning in real time

Tools that often lead the narrative. And this time was no different.

Price has been flashing warning signs all year:

• The bearish rotation (my research note from 2 weeks ago)

• The break below $580 and the 200-day (last week’s note)

• Most stocks trading below their 200-day (note from 3 weeks ago)

All of this before the “tariff” news broke this week.

Convenient how NOW the media has such eloquent explanations.

The signs were already there. We just had to listen.

I’m not saying technical analysis predicts the future.
I’m saying there’s information in price, and it’s worth our time.

If this market cycle taught me anything, it’s this:

Trust price and the technical toolkit because they’ve earned it.

I’ve talked about this over the past few weeks, so if you’ve been following along, you know the current focus: we’re looking for a bottom.

The classic recipe? Capitulation plus price follow-through. One without the other doesn’t cut it.

So I’m keeping it simple this week, old-school style.

Just a list of what I know and what I don’t know.

Call it the grown-up version of the pros and cons chart we used to do as kids.

It slows things down, filters the noise, and brings clarity.

The Knowns

1. We’re in a downtrend.

• Selling has accelerated, and we’re below key levels that would flip my view intermediate to long term view. Any trades at the moment are taken with tight risk parameters.

2. Signs of capitulation are here.

• $SPY ( ▼ 5.85% ) - 479 of the 503 S&P stocks finished red this week, correlations nearing 1. This throwing the baby out with bath water selling is typical during capitulation stages.

  

  5 Day Change in the S&P 500 Components

• VIX spiked above 40. Fear is real. The VIX, often called the "fear index," hitting above 40 is a historical signal of panic, it tends to happen during capitulation stages. You can see these tend to coincide with major bottoms in the market. It’s not the buy signal but it’s the" “pay attention for price reversal” signal.

  

  VIX Above 40 Is Historic

3. No price follow-through yet.

• Capitulation without price confirmation is not how you make money going long. We haven’t seen any real price reversal yet, no positive trend, no fake breakdowns reversing. Until price flips, patience is the trade.

4. Capitulation rallies can be fast and brutal.

• Oversold bounce-backs tend to be sharp. Any long trades taken are very short term in nature because in bear phases, these rallies can also be a time to reduce risk. I’m respecting the downtrend until the evidence shifts. Overbought levels is a time to consider trimming risk, or taking profits in longs. Oversold levels consider taking profits on shorts, and get ready for bounce setups.

The Unknowns

1. What’s next.

• Nobody knows. That’s why technical levels matter. They let us manage risk while being prepared for either direction.

2. Is the next rally “A” bottom or “THE” bottom?

• Again, we don’t know and we don’t need to. That’s what risk management is for. We enter, we trail stops, we let the market decide.

This exercise is painfully simple, but it works.
The market’s messy. I’m keeping it clean. No need to predict, just prepare.

This weekend is about slowing things down, building the game plan, and organizing thoughts.

So during the week, it becomes simple: recognize, react, execute.

I’ve already reduced risk significantly, so now I’ll be looking for a bounce to get long for a short-term, tactical trade.

It’s not until we rally and get punched then make a higher low that my intermediate or long-term view will shift.

I’ll be sharing any of those shorter-term trades this week in my Thompson’s Two Cents notes that come out every Tuesday and Thursday.

Be sure to check ’em out!

Check out my weekly show with my friends at Stocktwits!

In the first 20 minutes, I break down the charts that gave us clues to the mess was not behind us just yet.

Put it on 1.5x speed and let it rip.

Yesterday I joined the morning show with the Squad from Stock Market TV.

I jump in around Minute 48, where I share why I focus on technical analysis and why it’s so hard to be bearish.

Check it out!

Cheers,

Larry Thompson, CMT CPA

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