Shadow Puppets

What’s Goin’ On?

Depends on the day. One day things are going great and the next they change. There seems to be so many balls in the air. It’s really hard to stay positive with all the ups and downs.

Market Volatility and the Puppet Masters

If January felt like a fever dream, February’s turning up the heat—and the smoke and mirrors. The market’s humming, but something’s off. One day it’s roaring, the next it’s stumbling, and the headlines? They’re all over the place. Progress is there, no doubt—our calls are paying off—but it’s like we’re watching a play where the actors keep rewriting the script. Confusing? Sure. But here’s the twist: that’s exactly how the big players want it.

This month’s edition is Shadow Puppets, and it’s all about what’s happening behind the curtain. You know those old puppet shows where silhouettes dance on a screen, making you think one thing while something else is going on backstage? That’s Wall Street right now. The pros are pulling strings—using headlines, policy buzz, and market dips—to keep us guessing while they stack chips. 2025’s barely two months old, and we’re already knee-deep in their game. Let’s pull up a seat and figure out what’s really moving the markets.

Last month in The Drawback, we talked about how the tide’s receding sets up the big wave—how institutions tank prices to reload before the surge. Now, the wave’s building, but the story’s shifted. January threw us a new administration, policy whiplash, and the Fed’s easing finally kicked into gear. February’s keeping the chaos alive: tech stocks are wobbling after a hot start, yields are flipping, and the dollar’s doing its own dance. The charts are screaming one thing, but the news? It’s a different tune—fear one minute, hype the next. Sound familiar? It should. This is the puppet show in full swing.

Take the election fallout. Pre-November, it was “China’s toast!”—tariffs, trade wars, the works. Post-election, the new crew’s in, and suddenly we’re pals with Beijing—tariffs might hit 10%, might not. The Street didn’t blink. Why? Because they’re calling the shots. Politicians need Wall Street more than Wall Street needs them—Washington’s just the opening act; the headliner’s in the bank boardrooms. Campaign promises get trashed, advisors (read: bank insiders) step in, and policies bend to fit the institutional playbook. Retail investors? We’re the suckers clapping at shadows while the real moves happen offstage.

And it’s not just politics. Look at NVDA this month—prices tanked, headlines screamed “AI’s over!”, then boom, it’s back. Classic misdirection. Wall Street thrives on this—pushing fear to shake out weak hands, then scooping up the scraps. They’ve got the cash, the timing, and the media megaphone. Easing monetary policy’s juicing equities, and they’re riding it, but they don’t want us to see the strings. That’s where Shadow Puppets comes in—we’re here to spotlight the tricks and decode the signals.

So, what’s the play? The market’s a rollercoaster, and the puppets are dancing. Tech’s catching its breath, yields are hinting at big shifts, and the Fed’s moves are rippling through everything. In this edition, we’ll peel back the screen—break down the charts, track the dollar, and peek at bonds—to see past the shadows. The institutions want us chasing the wrong story. Let’s flip the script and get ahead of their game. Buckle up—it’s time to dive in.

Market Overview

Tech’s panting after a hot January, the Nasdaq’s dizzy, and the Atlanta Fed just slashed Q1 GDP estimates to -1.5%—right as markets tanked. Coincidence? Please. The economy’s got muscle—spending’s up, jobs are steady—but yields are twitching, and the Fed’s rate ghost still haunts. After a strong start to 2025, we’ve hit a bump. Tech stocks, the early-year darlings, are catching their breath, and the major indices are showing fatigue. This pullback’s got traders sweating—is it a reversal or just a bull-market breather?

The signals are messy. Consumer spending and low unemployment say “go,” but inflation’s lurking, and the Fed’s hikes are starting to sting. Throw in that GDPNow drop—tied to a brutal durable goods report—and it’s no wonder sentiment’s shaky. That’s the market, though—always a curveball. Let’s dig into what’s driving this: institutional cycles, monetary policy, and the supply-demand tug-of-war. 

Chart Analysis: SPY (SPDR S&P 500 ETF Trust)

Technical Analysis Description:

Looking at the weekly SPY chart, we can see that the long-term uptrend remains intact. However, the recent price action suggests that we may be experiencing a short-term pullback or consolidation. The price has pulled back from recent highs, and the RSI indicator has moved out of overbought territory. While the price remains above the 200-week exponential moving average (WEMA), it’s too extended. When price gets too far from it’s longer term moving averages it’s time to get defensive and expect at least some consolidation. .

The chart also highlights the yield curve inversions, which are often seen as a sign of a potential recession. While the yield curve is not a perfect predictor of recessions, it is something that we should keep an eye on.

Overall, the SPY chart suggests that the market is in a bullish trend, but we may experience some short-term volatility. This is a result of the re-accumulation in the Magnificent 7 we’ve been covering for some time. February’s pull back should really come as no surprise. 

Nasdaq Composite (IXIC) – Tech’s Temperature Gauge

Building on our market overview, let’s turn our attention to the Nasdaq Composite (IXIC), a crucial barometer for the technology sector and growth stocks. As we saw with the S&P 500, the Nasdaq also exhibits a clear long-term uptrend, reinforcing the prevailing bullish sentiment. The robust recovery from the 2022 lows speaks volumes about the significant buying pressure, particularly from institutional investors who have been keenly focused on the tech sector.

Examining the recent price action, we observe the Nasdaq reaching new highs, followed by a noticeable pullback. This is a common tactic employed by Wall Street institutions: profit-taking. After a substantial run-up, they often secure gains and rebalance portfolios. This pullback, while creating short-term volatility, is a natural part of the market cycle.

A key technical indicator we’re monitoring is the 200WEMA, represented by the blue line on our chart. The Nasdaq’s price remains comfortably above this crucial level, confirming the long-term bullish trend. Institutions closely watch this WEMA, using it as a significant support level. Should the price approach this WEMA, we can anticipate potential buying activity as institutions capitalize on the opportunity to accumulate shares at lower prices.

The Relative Strength Index (RSI) reveals that the Nasdaq recently ventured into overbought territory, followed by a pullback. This RSI divergence is a classic tool used by institutions to anticipate potential trend reversals. They often use these signals to fine-tune their entry and exit points.

Furthermore, analyzing the volume profile provides valuable insights into institutional activity. Increased volume during rallies and decreased volume during pullbacks are hallmarks of healthy accumulation. Institutions strategically accumulate shares during these pullbacks, preparing for the next leg up.

In essence, the Nasdaq’s chart paints a picture of a market driven by institutional strategies. Profit-taking, consolidation, WEMA monitoring, RSI divergence, and volume analysis are all tools used by Wall Street to navigate the market and maximize profits. By understanding these tactics, we can gain a deeper understanding of the market’s dynamics and align our strategies accordingly. This Nasdaq analysis, combined with our S&P 500 overview, reinforces the notion that while the overall trend is bullish, we should anticipate short-term volatility and remain vigilant.

In summary, our analysis of both the S&P 500 and Nasdaq Composite reveals a market navigating a delicate balance. We see a clear long-term bullish trend, punctuated by periods of profit-taking and consolidation – classic hallmarks of institutional activity. The strength of the 200-week exponential moving average, particularly in the tech-heavy Nasdaq, underscores the enduring confidence of major players. These charts are not just lines on a screen; they are a visual representation of the institutional business cycle in action, where phases of accumulation, markup, distribution, and potential re-accumulation play out.

Now, to truly grasp the forces driving these market movements, we must turn our attention to the broader economic landscape, and in particular, the role of monetary policy. The Federal Reserve’s decisions on interest rates, quantitative easing, and other policy tools have a profound impact on institutional strategies and, consequently, on the charts we’ve just examined. As we delve into monetary policy, we will explore how these decisions are shaping the current phase of the institutional business cycle and what implications they hold for investors.

How is that affecting things?

It’s tough. We know good things are coming, but that doesn’t help us today!

Looking at the TNX chart, we can see a very significant development: the break of the local demand (support) line. This, combined with the prominent head and shoulders pattern, signals a potential turning point in treasury yields. These patterns are not just abstract lines on a chart; they represent critical shifts in market sentiment and institutional behavior.

When a key support line like this is broken, it’s a sign that the balance of power has shifted. The bulls, who were previously in control, are now losing ground to the bears. This is often a turning point, as the tide has turned and the next phase of the process is expected.

For our readers, this is a crucial piece of information. It tells us that interest rate expectations have changed and this could have significant implications for the broader market. We’ve been mentioning it for the past few months. Lowering interest rates should produce lower yields. Rising yields can put pressure on growth stocks and interest-rate-sensitive sectors, while falling yields can have the opposite effect.

However, it’s at these very turning points that Wall Street often employs its most effective tactics to deceive retail investors. Take, for example, the recent upticks in yields within this topping pattern. Wall Street’s fear porn—“Inflation’s back!”—is just noise to spook us. Charts say yields crash soon, and that’s rocket fuel for stocks.

The reality, however, is that these upticks are merely part of the larger topping pattern. The chart clearly shows that 10-year yields have formed a giant topping pattern and should be heading much lower. Historically, these sharp declines in yields happen very quickly and are extremely bullish for equities. But retail investors, swayed by the headlines, often sell their equity positions, fearing further losses.

This is a classic example of how Wall Street uses the media to manipulate market sentiment. By understanding these tactics and focusing on the chart data, we can avoid being swayed by fear-mongering headlines and make informed investment decisions.

In the context of our broader discussion on monetary policy, this TNX chart is a critical piece of the puzzle. It highlights how changes in interest rate expectations can impact market sentiment and institutional behavior. And it underscores the importance of staying vigilant and not falling prey to manipulative headlines.

Analyzing the US Dollar Index (DXY) and Monetary Policy

DXY: The Dollar’s Dance – A Historical and Tactical Perspective

Let’s turn our attention to the US Dollar Index (DXY), a critical gauge of the dollar’s strength and a key player in the global financial arena. To truly understand its current movements, we need to take a step back and examine its historical context.

Looking at the monthly chart, we see a fascinating tapestry of long-term cycles, shaped by major economic and geopolitical events. The Volcker era’s hyperinflationary market, the Dotcom recession, the Great Financial Crisis – each event has left its mark on the dollar’s trajectory. These cycles aren’t random; they’re driven by deliberate policy decisions and institutional strategies. Notice the labeled periods of ‘easing monetary policy’ – these are not mere coincidences, but rather engineered phases designed to achieve specific economic objectives.

Institutions, with their long-term perspective, meticulously analyze these historical patterns. They understand that the dollar’s strength is not just a reflection of economic fundamentals but also a tool to manipulate market conditions. They use these insights to formulate their strategies, anticipating how the dollar’s movements will impact various sectors.

Now, let’s zoom in to the daily chart. Here, we see the more granular details of the dollar’s recent dance. The labeled ‘Distribution’ and ‘Redistribution’ phases from the monthly chart reveal the tactical maneuvers of financial institutions. They strategically engineer periods of dollar strength and weakness to suit their investment objectives. For instance, they might create a period of dollar strength to put downward pressure on interest-rate-sensitive sectors, allowing them to acquire assets at discounted prices.

Notice the ‘Ice’ line on the daily chart – a critical support level. Institutions closely monitor these levels, using them as key decision points. They understand that breaking these levels can trigger significant market movements.

However, it’s at these very junctures that retail investors are often misled. The media, influenced by Wall Street narratives, may focus on positive economic news during periods of dollar strength, while the charts reveal underlying weakness. This creates a false sense of security, leading retail investors to make decisions that benefit the institutions, not themselves.

This week’s market pullback, which we believe marks the bottom of corrective wave patterns, is a perfect example of how these narratives can diverge from reality. While the headlines may scream ‘sell-off’ and ‘panic,’ the charts are telling a different story – a story of potential opportunity.

By understanding the DXY’s historical context and the tactical maneuvers of financial institutions, we can navigate these market waters with greater confidence. We can avoid being swayed by fear-mongering headlines and make informed decisions based on the data, not the hype.

TLT: The Bond Market’s Whispers – Decoding Institutional Accumulation

Now, let’s turn our attention to the iShares 20+ Year Treasury Bond ETF (TLT), a crucial indicator of long-term interest rate expectations and a battleground for institutional strategies. To truly grasp the significance of its recent movements, we need to examine its evolution over time.

First, let’s revisit the TLT chart as it appeared in April 2024. At that time, the prevailing narrative was one of relentless rising interest rates and continued downward pressure on bond prices. The chart reflected this sentiment, with a clear ‘Mark down’ phase and increased volume during the downtrend, suggesting strong selling pressure. The ‘Breaks the ice’ notation further emphasized the bearish outlook, indicating a breakdown of key support levels.

However, as we’ve learned, Wall Street often uses these narratives to deceive retail investors. While the headlines screamed ‘sell bonds,’ institutions were quietly accumulating them during the labeled ‘Accumulation’ phase. This is the essence of our ‘Shadow Puppets’ theme – creating fear and uncertainty to manipulate market sentiment.

Now, let’s examine the current TLT chart. The changes are striking. We see a potential ‘Spring’ formation, a classic Wyckoffian signal of a potential trend reversal. This ‘Spring’ could represent a significant turning point, indicating a shift from a downtrend to an uptrend.

Notice the increased volume on the current chart. This surge in volume could be a sign of institutional accumulation, further supporting the potential ‘Spring’ scenario. Institutions are likely taking advantage of the prevailing bearish sentiment to accumulate bonds at discounted prices.

The ‘Demand > Supply’ notation reinforces this narrative. It suggests a shift in the supply-demand dynamic, with increasing demand for bonds potentially driving prices higher. This shift is often overlooked by retail investors, who are swayed by the fear-mongering headlines.

The combination of the ‘Spring’ formation, increased volume, and the ‘Demand > Supply’ notation paints a picture of potential institutional accumulation, even as the media continues to portray a bearish outlook for bonds. This is a classic example of how Wall Street uses the ‘Shadow Puppets’ to manipulate market sentiment and create opportunities for themselves.

By understanding these dynamics, we can avoid being swayed by fear-mongering headlines and make informed investment decisions based on the chart data. We can recognize the ‘Shadow Puppets’ for what they are – tools of manipulation – and focus on the underlying signals that reveal the true intentions of the smart money.

We’ve navigated the intricate dance of monetary policy, witnessing how interest rate expectations, dollar strength, and bond market movements are orchestrated by institutional strategies and narrative manipulation. But these policies don’t exist in a vacuum. They directly impact the fundamental forces of supply and demand, shaping the landscape of specific sectors and asset classes. Now, let’s shift our focus from the broad strokes of policy to the granular details of market dynamics. By examining the interplay of supply and demand, we can identify potential opportunities and risks that emerge from the very policies we’ve just dissected.”

What can we work with? 

Well, I guess talking through everything helps a lot. But, we need to focus on things we can do. Take action on!

ARKK: Innovation’s Crucible – Unveiling Institutional Strategies

Now, let’s turn our attention to the ARK Innovation ETF (ARKK), a symbol of high-growth innovation and a battleground for institutional strategies. To truly understand its potential, we need to examine its journey through the lens of both absolute and relative performance.

First, let’s revisit the ARKK chart as it appeared in July 2024. At that time, the chart revealed a clear accumulation phase, suggesting potential institutional buying. The ‘Spring’ notation hinted at a potential turning point, where weak hands were shaken out before a markup. However, the prevailing narrative was one of uncertainty and potential continued downward pressure, even as institutions were strategically accumulating shares.

Fast forward to the current ARKK chart, and we see a continuation of this accumulation phase. The price has moved above the 0.236 Fibonacci level, indicating a potential shift from accumulation to a markup phase. This suggests that institutions are positioning themselves for a potential uptrend, even as the media narrative may be focused elsewhere. Cathie’s been the punchline, but institutions are quietly loading the boat.

But to truly understand ARKK’s potential, we need to examine its performance relative to the broader market. That’s where the ARKK/SPY ratio chart comes into play.

Looking at the weekly ARKK/SPY ratio chart from April 2024, we see a clear downtrend, indicating ARKK’s underperformance relative to the S&P 500. The ‘Jerome Powell’s infamous “inflation isn’t transitory” pivot’ notation highlights a key event that triggered the distribution phase. This chart reveals how institutions were strategically selling ARKK relative to SPY during the distribution and gobbling it up during the accumulation phase.

Now, let’s examine the current weekly ARKK/SPY ratio chart. We see continued underperformance, with the ratio reaching new lows. However, there are also signs of potential re-accumulation, suggesting that institutions may be preparing for a reversal. This continued underperformance reinforces our ‘eye candy’ narrative – while the media focuses on the ‘Magnificent 7,’ institutions appear to be quietly accumulating ARKK at discounted prices.

To gain a more granular view, let’s turn to the daily ARKK/SPY ratio chart. Here, we see a clear divergence between the price action and the RSI indicator, a classic sign of a potential trend reversal. The extreme sell-off today could be a capitulation event, further indicating a potential bottom.

The ‘Fed pivots on inflation and announces interest rate cuts’ notation on the daily chart is a crucial piece of information. It signals a shift in monetary policy, which should act as a catalyst for ARKK’s resurgence.

By examining both the ARKK and ARKK/SPY charts, we can see how institutions are strategically positioning themselves for a potential ARKK comeback. They are using the ‘Shadow Puppets’ of media narratives and ‘eye candy’ distractions to accumulate shares at discounted prices, while retail investors remain focused on other sectors.

This analysis highlights the importance of looking beyond the headlines and focusing on the underlying chart data. By understanding institutional strategies and recognizing potential turning points, we can identify opportunities that others may miss.

Our deep dive into ARKK, both in its absolute performance and relative to the S&P 500, has provided a microcosm of the broader market dynamics at play. We selected ARKK to be representative of all interest rate sensitive sectors of the market as they are all under similar market conditions. The accumulation patterns, potential markup phases, and the ‘eye candy’ narrative we’ve uncovered are not unique to ARKK. They reflect the strategies being employed by institutions across a wide range of growth-oriented, interest-rate-sensitive sectors. Now, let’s translate these insights into actionable trade considerations. By synthesizing our analysis of TNX, DXY, TLT, and ARKK, we can identify potential opportunities and risks, and develop strategies to navigate the current market landscape.

Trade Considerations:

There are several very interesting trading opportunities that we’re considering based on the research completed for this month’s FTTC. 

SPY (S&P 500 ETF Trust):

• Current Outlook: Bullish long-term trend, potential short-term pullback or consolidation.
• Entry Strategy: We’re considering an entry off the 30WSMA currently at $583.27.
• Stop-Loss: 5% below the 30WSMA
• Target: Our initial target would the 2.0 Fib at $661.80

IXIC (Nasdaq Composite):

• Current Outlook: Bullish long-term trend, potential short-term pullback or consolidation.
• Entry Strategy: We like this entry here against the 200DEMA at $18,317.54
• Stop-Loss: 5% below the 200DEMA
• Target: Our initial target is the 1.618 Fib from this recent pullback at $21,400. 

TNX (10-Year Treasury Yield):

• Current Outlook: Bearish reversal, with a head and shoulders pattern and broken support.
• Entry Strategy: We’re considering a short entry on the break of the 30WSMA and 55WEMA cluster at 4.23-4.26. We’ll watch for the backtest
• Stop-Loss: 5-7% above entry
• Target: The 200WEMA at 3.54

DXY (US Dollar Index):

• Current Outlook: Potential weakness, with distribution and resistance signals.
• Entry Strategy: We’ll consider a short entry against the 30DSMA (gold in daily chart above) at $107.538. 
• Stop-Loss: 3% above the 30DSMA
• Target: The 200DEMA at $105.679.

TLT (20+ Year Treasury Bond ETF):

• Current Outlook: Bullish reversal, with a “Spring” formation and increased volume.
• Entry Strategy: Consider a long entry on a break above the 200DEMA at $91.86
• Stop-Loss: 5-7% below the 200DEMA
• Target: Initial target would be the .382 Fib at $111

ARKK (ARK Innovation ETF):

• Current Outlook: Bullish, with potential for a significant markup phase following accumulation.
• Entry Strategy: We’ll consider a long entry against the 200DEMA at $53.24
• Stop-Loss: 5-7% below the 200DEMA
• Target: Initial target is the .618 Fib at $83.70

Final Thoughts Summary:

In this edition of FTTC we’ve peeled back the layers of market manipulation and institutional strategy, revealing the intricate dance between monetary policy, supply and demand, and media narratives. We’ve seen how Wall Street uses ‘eye candy’ distractions and fear-mongering headlines to create opportunities for themselves, often at the expense of retail investors. By focusing on the charts, understanding the institutional business cycle, and recognizing potential policy shifts, we can navigate these turbulent waters with greater confidence. Remember, the ‘Shadow Puppets’ are merely illusions; the true signals lie in the data. Stay vigilant, stay informed, and stay ahead of the curve.

Disclaimer: Trade Therapy, L.L.C. content is intended for US recipients only and is not directed at UK recipients. Our information and analysis do not constitute an offer or solicitation to buy any security and are not intended as investment advice. Content should be used alongside thorough due diligence and other sources. Opinions and analyses are those of the author at the time of publication and may change without notice. Trade Therapy, L.L.C. and its employees may move in or out of any trades detailed within our content at any time at their discretion. Employees and affiliates of companies mentioned may be customers of Trade Therapy, L.L.C. We strive for transparency and independence, and we believe our material does not present a conflict of interest. All content is for educational purposes only.