Overnight, the tone has suddenly changed

Source: Wall Street Intelligence Circle

——The most familiar trading logic almost completely failed yesterday.

The trend of the global market on Monday can be described as a "sudden change of course":

- U.S. stocks finally saw a decent rebound, with the Nasdaq Index surging 2%;

- Oil prices did not rise, struggling to hold the $70 level;

- At the same time, gold and the U.S. dollar both fell.

Monday's rise was an emotional recovery driven by "short covering and bottom fishing — not a confirmed reversal of the overall trend just yet. Tuesday, therefore, is the real test of the strength of this rebound.

First, pay attention to whether oil prices can stay above $70. If oil rises to $72 or $73 and above, the market will start recalculating whether inflation will reignite and if U.S. Treasury yields will rise again. If oil prices rise significantly today, it may start to put pressure on the stock market. Conversely, if oil prices fall back to around $70 or lower, it means the market still believes "everything is just noise"—which is exactly what the stock market wants to see.

Second, U.S. Treasury yields may start to choose a direction. Bonds barely moved yesterday (they didn't buy into the optimism of the stock market), signifying that the market is waiting to see what Thursday's employment data will bring. If some investors start preemptively betting on strong employment data today, 10-year Treasury yields may rise again and the U.S. dollar may bounce back from its decline. If yields once again approach previous highs, tech stocks will face significantly more resistance in their rebound today. Usually, there is a minor directional move in the market before major data is released, and the bond market is the most sensitive to this.

Third, the most important thing for U.S. stocks today is "breadth." The Nasdaq did well yesterday, but in reality, not many stocks actually rose—a few AI giants led the way. Today, watch to see if the rally broadens out. If only the Mag7 stocks are climbing again, then yesterday looked more like a regrouping of capital rather than a true rally.

Fourth, today is the last day of the half-year, and hedge funds and large asset managers need to present their half-year reports to clients. To make their portfolios look "smart," institutions will dress up their holdings in the final hours of the day: funds will continue to flow into the Mag7 super-weight stocks that performed best in the first half and are politically correct, to show they "caught the AI boom" (institutions are doing this not just for profit, but for better-looking holding reports). In contrast, sectors that performed terribly and lacked imagination in the first half may see a final round of active institutional selling today. This will further intensify the phenomenon of "poor market breadth, with indices hijacked by a handful of giants."

The real test is not at the opening, but at the close (the period of the greatest intraday volatility).