Biggest S&P 500 Warning Sign Since March 2025

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

The S&P 500 just triggered its first sell signal since before the Liberation Day crash
Six popular stocks went risk-off yesterday – do you own them?
A “coiled spring“ trade is setting up in one of AI's most important stocks

The Iran war whiplash continues…

Yesterday, Wall Street saw President Trump’s social media post about “very good and productive” talks with Iran and slammed the buy button.

The S&P 500 rose as much as 2% before giving some of those gains back and closing up 1%.

Trump claimed his son-in-law Jared Kushner, along with his special envoy to the Middle East, Steve Witkoff, spoke with an unnamed Iranian official to broker a deal. Reports later emerged it was Mohammad-Bagher Ghalibaf, the speaker of the Iranian parliament.

But the Iran government insists no such talks took place. And Ghalibaf himself denied the reports, calling them an attempt to “manipulate financial markets.”

Here at TradeSmith, we don’t waste time trying to peer through the fog of war. Instead, we follow what the market is telling us.

And right now, our systems are firing a warning on the backbone of the U.S. stock market – and millions of Americans’ retirement accounts – the S&P 500.

On Friday, the S&P entered the Short-Term Health Red Zone, meaning its bullish momentum has broken down.

That’s not necessarily a reason to sell your stocks and hide in cash. Short-Term Health is our most sensitive indicator. It’s tuned to the kinds of short-term momentum shifts traders follow.

And while it has signaled bear markets in the past (like 2022), it’s just as often triggered right ahead of short-term flushes that quickly get bought up (like last April, October 2023, and the 2020 pandemic).

Nevertheless, an important warning that the war with Iran is taking its toll on the bull market.

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This key risk-off signal that doesn’t fire often…

The last Short-Term Health red signal happened two weeks ahead of the Liberation Day tariff crash in April of last year – when the S&P 500 plunged 15% over four trading days.

The chart below shows the S&P 500 with its Short-Term Health status across the bottom.

The index also entered a Red Zone on Feb. 3, 2022 – eight months before the S&P bottomed at 25% below its all-time highs.

It also triggered during shorter spats of volatility in 2023.

So far, we don’t know if we’re looking at a repeat of the 2022 bear market or a hiccup like in October 2023. As you can see, Short-Term Health chops around in its Red, Yellow, and Green Zones during volatile years.

But overall, this signal does not fire when everything’s hunky-dory.

If you’re sitting on profits in shorter-term positions, this is your cue to take some of those profits off the table.

And while the S&P 500 flipping Red is key, the stocks within it are confirming the momentum collapse.

Six S&P 500 stocks triggered Flash Sell signals yesterday…

Yesterday, six stocks in the S&P 500 turned Red. That drives the count of S&P 500 stocks turning into the Red Zone over the last 7 days up to 35. Take a look:

Look at what’s on this list:

Amphenol (APH) makes the electrical connectors that go into everything from fighter jets to smartphones to AI servers – it’s a bellwether for hardware demand across the economy.
Super Micro Computer (SMCI) builds the servers that power AI data centers.
Lowe’s (LOW) is one of America’s largest home improvement retailers, a direct read on consumer confidence and housing activity.
Truist Financial (TFC) is a major regional bank.
Electronic Arts (EA) is one of the biggest names in video game software.
Camden Property Trust (CPT) is a residential apartment real estate investment trust (REIT).

We have stocks in six different industries turning Red on the same day – while the market was going up.

The Super Micro Computer signal is worth a closer look. It’s been one of the most volatile stocks in the AI infrastructure trade so far this year.

It’s down nearly 30% over the past month. Before that, it was one of the biggest AI winners. At one point, it was up more than 1,250% from where it started 2023.

Meantime, watch this “coiled spring” trade in one of AI’s most important stocks…

TradeSmith analyst Jeff Clark has been trading options for more than 40 years.

He spent years managing money for about 100 of California’s wealthiest individuals before “retiring” to share his strategies with a broader audience.

If you’re a long-time newsletter reader, you’ll recognize the name. Jeff was one of Stansberry Research’s most popular analysts, heading up their Short Report trading service.

And since joining TradeSmith, he’s developed a software tool to find high-probability trade setups – the Convergence/Divergence signal.

Here’s the idea… Stocks don’t move in straight lines. Sometimes they surge in strong uptrends, collapse in fierce downtrends, or consolidate sideways.

Jeff quantifies these stages using three proprietary moving averages.

If you’re unfamiliar with the term, a moving average is the average closing price of a stock over a set number of days – updated daily as new prices come in. It smooths out the daily noise so you can see the underlying trend more clearly.

When a stock is going nowhere – drifting sideways without a clear direction – all three lines are averaging out roughly the same flat price action. So they bunch together in a tight cluster.

Then, when the price breaks above or below the lines, that’s a trade signal.

Think of it like a coiled spring. The tighter the lines bunch together, the more energy is building beneath the surface – waiting for a catalyst to release.

The opposite is true when the averages are spread far apart. That means a stock is trending strongly in one direction or another and vulnerable to snapping back.

Divergences have been popping up all over lately. It’s how Jeff was able to close out recommended trades at his Delta Report advisory with gains of 61.8% on (FIG) in 13 days, 128.2% on (NVO) in a little over a month, and 140.8% on (OSCR) in eight days.

One interesting setup I saw on Jeff’s Convergence/Divergence dashboard is in Arista Networks (ANET):

Arista is a cloud networking company that builds the high-speed switches and routers that connect AI data centers. Its hardware is a key part of the infrastructure of Microsoft (MSFT), Meta Platforms (META), and other hyperscalers spending hundreds of billions on AI buildout. It’s not a household name – but it’s one of the most important pipes in the AI plumbing system.

The stock has been trading sideways since late last year, consolidating around the $135-$140 range after a strong run higher. During that consolidation, Jeff’s Convergence signal has flagged it as one of the most tightly wound setups in the market.

The break could go either way. But given the surrounding context – the S&P 500 in a Red Zone, the tech-filled Nasdaq 100 in a downtrend, and the broad deterioration we’re seeing across sectors – Jeff’s system shows the short side of this trade has historically tested better in conditions like these.

If ANET breaks lower from this coiled setup, it’s a stock to avoid outright. And for options traders, it’s a candidate for a bearish put trade.

But this is just one setup in a much bigger market story.

In a recent presentation, Jeff said this is the most dangerous market environment he’s seen in his 40-year career.

In fact, he’s identified more than 60 S&P 500 stocks showing the same pattern he tracked before the 2000 dot-com crash, the 2008 financial crisis, and the 2022 tech collapse – a pattern he calls “The Breaking Point.”

And he couldn’t be more excited to trade it.

Traders who understand what’s happening can use this moment to their advantage, the same way Jeff has navigated every major market dislocation of the past four decades.

For the full case – what he’s seeing, which stocks are most at risk, and how he’s positioning his subscribers to profit regardless of which way markets go from here, click here to watch Jeff explain his Breaking Point trade strategy.

Biggest S&P 500 Warning Sign Since March 2025