Welcome to the third issue of Lines After Dark—a succinct, midweek update to bridge the gap between the longer Sunday letters. These notes are designed to focus on short-term setups and take less than three minutes to read.
To get the most from this note, I recommend starting with the latest Sunday letter.
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Trade Closed For Loss
Last Wednesday’s note (& Sunday) outlined a bearish setup as the S&P 500 approached resistance. That trade idea has been invalidated—price exceeded the 5767 risk threshold following a positive market response to the administration’s progress on trade with China.
Does the current market feel euphoric or toppy?
Yes—that’s a fair observation after a 23% rally off the April lows.
But is this a spot to reinitiate a short? Not for me.
Is it a spot to go long? Also no, for me.
If this is a healthy rally, we’ll likely see a pullback—with small caps holding their breakout levels.
If it’s not healthy and instead an incredibly strong relief rally, we’ll know soon enough—when risk-off signals begin to trigger as they did in February.
Loss of trend
Negative breadth
Momentum breakdown
Long-time readers will recognize this as what I call the “grey area”—a zone of indecision where risk is high, but conviction is low.
This week’s Lines After Dark focuses on defining the key ranges that will tip the scales bullish or bearish in the near term.
Risk Off Criteria
As of Wednesday’s close, zero risk-off signal remains active.
The S&P 500 is still trading well above its short term moving average, 20-day EMA
Breadth close positive— albeit remaining relatively flat range from April 10
Momentum progressed from being overstretched to the negative, and now is approaching the overstretched ranged to the positive— the elastic band works both ways, this will revert to the mean with either time or a healthy pullback
Risk escalates if the index closes below 5630
All time highs become a probable outlook with closing prices above 5930
Small-cap segment has successfully added bullish confidence to the broader market rally.
ARKK is trading above 52
IWM is trading inside the 205 - 212 range, exceeding 212 adds a further bullish lean
Key Levels in Focus: 5930 and 5630
In the near term, two levels matter most: 5930 and 5630—a wide 300-point range that I expect to narrow in the coming weeks.
5930 marks a level that is 5% above the long-duration moving average.
Based on my research, once price trades above this level, the market tends to be well-positioned to advance toward all-time highs. That doesn’t mean the path will be smooth—pullbacks are expected. But if price clears 5930, I’ll be watching those dips closely as potential opportunities to accumulate long exposure.5630 represents the short-term moving average and serves as one of my risk-off criteria. In a healthy uptrend, this area should act as support during corrective moves. A breakdown below it would raise red flags and signal a shift in tone.
Summary
The near-term short setup has been abandoned, as the S&P 500 closed Wednesday at 5892—a 23% rally off the April lows.
Small-cap barometers ARKK and IWM are both holding above key breakout levels, reinforcing confidence in a potential longer-term trend shift. These levels will need to hold on any pullback to sustain that bullish outlook.
In a constructive scenario, price pushes through 5930, then pulls back in a healthy, controlled fashion toward the short-term moving average—providing opportunities to accumulate long exposure for a potential move toward all-time highs.
Conversely, if 5930 acts as resistance and trend, momentum, and breadth begin to deteriorate, the bearish case can be reconsidered.
Could the market still revisit the April lows?
Technically, yes—anything is possible.
But for now, that view has been shelved. The bearish thesis will only come back into focus if trend, breadth, and momentum realign to trigger a fresh risk-off signal.
Final thought: The speed at which greed has returned to this market over the past month is remarkable. I’ll explore this dynamic further in Sunday’s note.
Disclaimer: The information in this article is for informational purposes only and should not be considered financial advice or a recommendation for any investment. I am not a financial advisor, and the content is not intended to serve as financial advice. It is solely intended to journal thought, ignite more thought and discussion.