The Fed Didn’t Hike… Markets Did
The S&P closed up 0.3% from Monday’s open to Friday’s close.
Trend has flipped from down after setting a lower low on Wednesday, back to neutral on Friday with the reclaim of the prior gap as well as the moving average stack.
While this may seem frustrating lets just remember back to the end of 2025… its the same thing. Less is still more at this stage until we have a confirmed low or a new long standing base.
S&P weekly MACD still has a bearish cross. Nasdaq and even more specifically semiconductors and memory stocks still look like they have lower highs to set in existing downtrends.
Could this be a low? Sure. Could markets continue to base or even break to new lows? Also sure. The data points don’t scream coast is clear, so a cautiously optimistic approach seems appropriate headed into this week.
The Fed Held… But Markets Tightened
The Federal Reserve left rates unchanged at 350-375 basis points, but three FOMC members voted for a hike.
Although the Fed didn’t adjust their policy, those three members got their way as the bond market did the job for them. The 10-year rate reached roughly 4.7% while the 30-year rate moved above 5.25%.
This move higher in rates, as the market continues to rally means that there is hardly room for error. Anything less than market expectations from earnings or any unexpected news catalysts about slowing orders will absolutely punish individual equities.
Megacap tech names with healthy balance sheets will likely be able to absorb higher rates for a while which will mask index level weakness, so look to small cap names to be the first to falter if this is going to develop into a larger issue.
Picking Winners and Losers
The earnings reports from hyperscalers this week proved that Wall Street is starting to pick winners and losers.
Microsoft reported 43% Azure growth while Amazon reported 37% AWS growth. Both of these stocks gapped up on earnings, but it has less to do with the cloud growth and more to do with the capex explanation.
Microsoft announced that they are effectively not raising capex guidance while also extending their depreciation schedule from 15 years to 25 years. The combiination will allow free cash flow for fiscal 27 to remain positive.
In Amazon’s conference call Jassy noted that “If the demand isn’t there, we won’t spend the capital.” This sparked a rally of confidence that the capex wasn’t commited and irreversible. If the management team doesn’t see a road to revenue, they wont spend the money.
Clearly these two companies have a path to prove the capex guidance is translating to revenue and real growth. Mark Zuckerberg’s Meta cant quite say the same.
Meta not only announced that they are increasing their capex which gets the market on edge about cashflow, but in the earnings deck illustrated that their growth for ads is actually decelerating. Below is their world wide ad impressions growth rate year over year.
Spending more to make less is not a combination that this market likes right now and that sentiment is reflected in the stock price.
Friday’s Big Test
Its the start of a new month, which means its labor report time. With the Fed issuing less guidance under Warsh, economic data now carries more weight.
Non-farm payroll is expected at 88k new jobs and an unemployment rate unchanged at 4.2%.
A stronger number should push yields higher and reinforce the expectations of a rate hike coming in September. A weaker number should ease pressure for that rate hike and give Warsh some cover for the sustained pause.
Use the 10-year as the guide here. Over 4.6% and pressure is still on. Under 4.6% and the market may sigh a breath of relief.
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Broad Market Analysis
SPY – Monthly
July closed with a small-bodied, indecisive candle with both an upper and lower wick larger than the body. The bar to bar count formed a lower high, a higher low, and finished unchanged near the previous monthly close. Pretty darn neutral.
The larger trend remains up. SPY is above a rising monthly 20 SMA and can still set a monthly higher low without damaging the primary structure. A retest of the previous all-time high near 700 would be the first major area where I would expect buyers to respond. The longer-term upside measured move remains near 850 based on some fib extensions if price eventually resolves into blue sky territory.
SPY – Weekly
The weekly candle was much more constructive. Sellers broke important support and pushed SPY to a lower low, but buyers absorbed the weakness, reclaimed the opening price, and closed the week near the highs with a long lower wick.
SPY also reclaimed the 10-week moving average, the all-time high anchored VWAP, and the lower edge of the high volume node. It remains above a rising 20-week moving average and above the 38.2% Fibonacci retracement. Until sellers prove otherwise, the weekly structure still looks more like a bull flag than a completed trend reversal.
SPY – Daily
The expected move for the week runs from 736.63 to 757.43. The upper boundary would create a higher high above last week’s range, while the lower boundary would still leave SPY above the Wednesday liquidation low. That gives the expected move a slightly constructive lean.
Friday’s hammer indicates sellers failed to establish the lower high I expected beneath 742 and the moving average stack. Its a great step to neutralize the trend, but the market has not produced a confirmed follow-through day. I would want to see a rally of roughly 1.5% on increased volume on day four or later before treating this as a confirmed new uptrend rather than a violent countertrend recovery.
SPY – Hourly
The hourly trend has turned higher. SPY broke its descending trendline, produced an hourly higher high, and now has room to establish a higher low. The critical structural area is 742, where the FOMC anchored VWAP, the prior gap-down anchored VWAP, and the 38.2% Fibonacci retracement are beginning to converge.
Above 742, I am neutral to bullish and open to an inverted head and shoulders structure developing. A sustained move above the left-side peak near 749 would represent another meaningful improvement. A break back beneath 742, especially if SPY begins pressing the recent lows again, would make the rally look like an overshoot and increase the resemblance to the violent countertrend rallies seen during bear market transitions.
Market Internals – NYSE
The NYSE internals did not confirm the strength of the index-level reversal. Volume flows were unimpressive on Thursday and remained negative on Friday despite the strong close. The advance-decline line also failed to show convincing expansion.
The cumulative tick finished below 2,000 after the late-day rally, which is weak relative to the visual strength of the move. Price reclaimed important structure, so I cannot remain aggressively bearish, but the internal data still looks more like a sharp snapback than broad institutional accumulation.
Market Profile – /ES
Value did not shift lower during Wednesday’s liquidation, which was an early sign that the auction was not fully accepting lower prices. Thursday left a poor low, while Friday shifted both value and the point of control higher, indicating acceptance toward the upper portion of the range.
The risk is positioning. Buyers finished Friday net long near the highs, creating poor location if /ES opens weak or gaps lower. A soft Monday open could create a toppling effect as those late buyers become trapped, making the market’s response around SPY 742 especially important.
SMH – Semiconductor EFT
Still in a downtrend beneath 568, with the recent bounce looking more like a lower-high setup than the start of a sustained recovery.
QQQ – Impact on S&P
QQQ remains materially weaker than SPY. The July monthly candle was a large red-bodied bar with a lower high and lower low, while the weekly chart remains in a downtrend beneath a declining 10-week moving average. The weekly expected move spans 669.51 to 706.47, but a move toward the upper boundary would still run directly into overhead resistance.
QQQ closed slightly above 686.50, but the larger resistance zone remains between 699 and 703.25, where the gap fill and declining 20 SMA converge. I would view a rally into that area as a potential lower-high short unless QQQ can reclaim it decisively. On the downside, 676 is the final short-term line in the sand. Losing that level would trap buyers from Thursday’s rebound and increase pressure across semiconductors, memory, and other high beta AI trades.
The S&P can remain resilient because financials and select hyperscalers are holding up, but it will be difficult to produce a durable new index rally while QQQ remains in a downtrend. Megacap strength can anchor the market, but damaged growth leadership limits how far that support can carry the broader tape.
If you want the full take, including all of the nuance of breadth, risk appetite and much, much more, check out the weekend episode here:
Economic & Earnings Calendar
Top watches: PLTR, HUT, AMD, SPCX, ANET, ALAB, LLY, SHOP, CRCL, SNDK, WDC, MELI, DDOG, ABNB, AAOI, TXG
Swing Stock Scans
HPE – Daily Chart
One of the best setups in the market right now… this will remain in the newsletter until it either works, or is completely invalidated.
NAVN – Daily Chart
Building a flat base with some tight bars to end last week. Relative strength to the market holding up over the 20 SMA and 50 SMA.
NTNX – Daily / Weekly Chart
Holding up incredibly well compared to the broad market. Inverted head and shoulders / cup and handle on the weekly. Starting to form the first flag over the breakout level. Watching that tight inside ish hammer from Friday to see if we cant get higher here.
NUE – Daily Chart
Steel is strong… literally. Over the two hammer highs and do we see continuation? These are generally harder to get followthrough from in classic patterns and often require deeper than expected pullbacks. Just look left to the prior rally… that flag had to overshoot the 20 and 50 SMA before finding a floor… respect stops if you dare dabble here.
OSCR – Daily Chart
We meet again my friend. Tight action in the flag with healthcare remaining strong through the semiconductor meltdown. Let’s see if it cant get traction over these highs.
PFG – Daily Chart
Similar to NAVN building a flat top base but in an entirely different sector. We’ll see if these breakouts are successful and add them to a list of market feedback. Tight action over the 20 SMA looks good.
RCL – Daily Chart
Very symmetrical move over the last month. Lets see if this base can break higher from these inside bars seeing that we have Iran de-escalation over the weekend which should allow crude to ease.
TENB – Daily Chart
Oops! Didn’t mean to gap down like that on earnings… sorry. Lets see if buyers can step back in after holding over the 50 on Friday.