All major markets broke down in a big way on Thursday. SPY dropped 4.93%, QQQ fell 5.35%, IWM slid 6.42%, and SMH led the plunge, closing down 8.65%. The Magnificent 7 took a beating as well—AAPL, AMZN, and META all dropped roughly 9%. There was blood in the streets as the market scrambled to price in the impact of Liberation Day and Trump’s reciprocal tariffs. While it’ll take time to truly understand the effect of these tariffs, the market's initial reaction made one thing clear: if they’re implemented as laid out in the Rose Garden, the outlook isn’t bullish. The odds of a recession are skyrocketing—and if nothing changes with the tariffs, 2025 is going to get a lot bumpier.

Markets have been in pure euphoria for the last couple years, and it’s been wild to watch how fast sentiment has shifted. On February 19th, most market participants couldn’t even imagine stocks going down. FOMO was everywhere as record amounts of capital chased the Magnificent 7, trying to squeeze the last drop out of the AI trade. Now, sentiment is in the gutter. People are panic-selling everything, convinced stocks will never go up again. Traders who would’ve given their left foot to buy the Mag 7 at a 30% discount just weeks ago now think AI is bubble and are allergic to the buy button. This is how it always works—sentiment is everything.

The Liberation gap was absolutely devastating for bulls. It shot the probabilities of a bear market way up and made everyone with money in the markets sit up and take notice. Volume exploded—higher than we’ve seen in over a year—which could be a sign we’re starting a third wave lower. That wave would send SPY down to the $513–$480 support/buy zone we’ve been watching.

But if you're looking for a little bullish hopium, I might actually have some. Hear me out—markets tend to inflict max pain. Right now, I can’t think of a more painful move than a bullish close above Wednesday’s candle. No one would be right in that scenario. SPX held support around $5400, while SPY actually broke below it, closing right at the day’s lows with a textbook shaved-bottom candle. If we get any big news—tariff delays or moderation—you could see a vicious short-covering rally that rips through Wednesday’s highs. I’d still treat that move as a chance to sell, hedge, or reload shorts, because the overall structure is broken—especially in QQQ and tech—but it’s a move worth watching for. SPX holding its support, even barely, keeps that bounce setup, and maybe a few bulls dreams alive.

Now for the more bearish and, realistically, more probable scenario. Every path I’m tracking leads to lower lows—the only difference is the timeline. I mentioned the text book shaved bottom candle above, so let’s dive a little deeper into that. Typically, that sets up a gap down the next morning—a retest gap—as traders who sold all the way into and after the close cover their shorts. However, if the fear is strong enough there is no reason to cover and that gap can turn into a continuation move, just like it did after the shaved-bottom candle on SPY back on 6/9/2022. For a good example of a gap down that led to a bit of a bullish bounce check out 1/24/2022. I’ve overlaid both patterns on the current SPY chart to help you visualize what could be coming next for the markets.

You’ll notice both historical overlays show solid bounces before the next big drop. That’s just how markets work. They don’t fall in a straight line. Even in bear markets, you’ll get sharp countertrend rallies—great opportunities to manage risk, hedge recent buys, and lock in profits. That’s why I’m still planning to buy once we start hitting key green support zones shown on the SPY chart. There is money to be made in both directions right now; it’s all about patience, execution, and a little luck that Trump doesn’t announce something that immediately negates your edge.

P.S. How about that Bitcoin relative strength!