The markets are recovering from the tariff turmoil earlier this year. The MRI readings for the DJIA indicate the status of stocks in general (as of May 30, 2025):
DJIA Percentile Direction Comment
Micro MRI 82nd Positive Cannot go much higher
Macro MRI 66th Negative Can move much lower from here
Exceptional Macro Not present Not close to
providing resilience
This set of conditions indicates that the long-term trend of the market is negative and that the short-term rally in the stock market is nearing an end. The Micro MRI cannot keep rising. When it turns to a negative trend this week or next, none of the three MRI will be providing resilience. That set of conditions will be unfavorable for the stock market. Any negative news will produce a more negative move in prices than if the same news occurred during more resilient conditions.
Other US stock indexes show similar conditions. The Micro MRI for the S&P 500 is even
higher than the DJIA’s, and the higher level and negative trend of the Macro
MRI suggests that the price of the S&P 500 can fall even more dramatically
from this level compared to the DJIA.
S&P 500 Percentile Direction Comment
Micro MRI 93rd Positive Cannot go much higher
Macro MRI 77th Negative Can move much lower from here
Exceptional Macro Not present Not close to
providing resilience
The NASDAQ also has a negative trend in its Macro MRI and
the Micro MRI is at a high level.
NASDAQ Percentile Direction Comment
Micro MRI 74th Positive Cannot go much higher
Macro MRI 75th Negative Can move much lower from here
Exceptional Macro Not present Not close to
providing resilience
Our algorithms will not respond to the high level of the
Micro MRI. Instead, the more successful
strategy historically has been to wait until the Micro MRI has made the change
to a negative trend. I suspect this negative trend could be established this week or next. The expectation would then be the beginning
of a meaningful market decline.
If the Macro MRIs listed above had positive trends the
outlook would be different. Upward price
moves could take place, albeit at a slower pace.
A good case can be made that the negative trending Macro MRI for the US stock indexes is the result of the tariff turmoil of earlier in the year. If that turmoil is now over, the market might treat it like a natural disaster. When a disaster strikes, the market may falter for days or weeks but will soon resume its prior path. If this is the current scenario, the negative trending Macro MRIs will soon resume their upward trends. The algorithms can accommodate this.
The algorithms for the DJIA current are leaning toward a
resumption of an upward trend, while those for
the S&P lean toward a continued negative trend and a new “Sell”
rating this week. Those
for the NASDAQ are borderline. All of these leanings close to the borderline can change meaningfully in one week.
It is important to note that the naturally occurring
long-term shifts in sentiment favor optimism, which suggest that prices can
move higher from here and widespread panic is not likely. This suggests that the negative Macro MRI
trends are related to current economic conditions as opposed to naturally occurring
cycles.
The bond market is stressed.
It has struggled and pundits say it will continue to struggle as long as the US
budget deficit problems remain inflamed by poor management of spending and tax
receipts. Our metrics for the US 10-year
bond index is for it to become less resilient in a week or so, potentially
sending yields higher. This type of
event is usually a negative one for the markets short term.
Thus, the medium-term trend in the stock market that is
relevant to us depends on the US administration’s actions. A steady hand will steady the markets.
If we look overseas at the EAFE Index, its MRI conditions
are different.
EAFE Percentile Direction Comment
Micro MRI 29th Positive Can go much higher
Macro MRI 49th Positive* Can go higher
Exceptional Macro Present Is currently providing resilience
The condition for EAFE companies is more positive (*the Macro MRI recently changed to an upward trend, which is an optimistic indicator for the ETF) and may not have the negative effects of domestic US issues. However, it should be noted that the long-term performance of US stock indexes has been much better than non-US stock indexes. Also, it is often said that if the US sneezes everyone else catches a cold. Thus, the addition of the EAFE ETF may not be a long-term solution. But it may present an alternative to the US indexes until our domestic issues are resolved or, at least, stabilized.
