Good afternoon, everybody. JD here with your Rational Trader market analysis daily.
In today’s video…
The market’s at all-time highs.
We’ve got peace in the Middle East. Inflation is easing. The U.S. economy is strong. Earnings look solid. A rate cut is likely coming.
So now what?
That’s the question I’m hearing a lot lately. And when I get a question like that — especially at a potential inflection point — I go back to what I call my Four Pillars of Rational Trading.
Let’s walk through each of them.
1. Valuation (Not Useful Right Now)
This one might surprise you, but I’m throwing valuation out — at least for now.
We’re in a market where traditional valuation metrics just aren’t driving behavior. If they were, Bitcoin wouldn’t be near $70K and NVDA wouldn’t be flirting with a $3.5 trillion market cap.
In this kind of tape, valuation is noise. So I’m setting it aside.
2. Volatility (VIX)
The VIX is fading. That’s a bullish signal — in theory.
But I’m not fully buying it yet.
Until we trade below 15 on the VIX for 30 to 60 days, I think there’s still too much embedded fear. Volatility doesn’t just drift lower forever — it tends to spike hard and fast. So while this drop is interesting, I’m not hanging my hat on it.
3. Yield Curve (Healthy Again)
This one matters.
The yield curve is now upward sloping — meaning long-term rates are higher than short-term ones. That’s what you want to see in a healthy, growing economy.
It tells me that just because we’re at all-time highs doesn’t mean we can’t keep going. When the curve was inverted, I was cautious. Now? Less so.
4. Technicals (Watch the Small Caps)
This one’s a mixed bag.
- The Nasdaq and S&P 500 are way above their 200-day moving averages — strong uptrends.
- But the Russell 2000 is just now approaching its 200-day average.
That tells me this rally is being driven by large caps, not the broader market. Specifically: tech and AI names.
The gap between the indices is starting to widen again — and that’s something I’ll be watching closely.
Final Thoughts: What I’m Watching Next
I’m not calling a top here. But statistically, these kinds of rallies don’t last forever. Either we drift sideways, take profits, or maybe rotate into lagging areas like small caps.
The good news? Earnings season is coming, and that always creates opportunity.
I’m not trading the index right now — I’m staying focused on individual stock setups. Especially those two standard deviation outliers we’ve been talking about. You’ll see me lean heavily into those in the coming weeks.
JD
The Rational Trader
