Iran Strikes Are Back & CPI Is Up Next
The S&P closed up 0.83% from Monday’s open, but most importantly, closed on a new higher high in the daily trend count after setting a daily higher low on Wednesday above the 50 SMA and gap level.
The trend is finally back to up, and we’re trading above all key moving averages. Markets this week have a real chance at proving their strength by holding higher lows on the daily in any pullback, or extending the higher high in the count.
Technology regained leadership, semis bounced, and the Friday headline from Trump about the MoU being effectively over was rapidly absorbed… However over the weekend, the missiles are flying again.
This doesn’t break the rally instantly, but will provide another opportunity for the market to prove what matters most. Is it the Iran weekend tension? Is it the CPI inflation report Tuesday? Is it ASML and TSM earnings?
War Is For Weekends (Again)
Crude prices actually declined on Friday as traders deflected the headline from Trump that the ceasefire was effectively over.
Over the weekend we have new news that the US is responding to Iranian strikes on a commercial vessel. Iran’s response is that the Strait of Hormuz is back to being closed.
Regardless of open or closed… Our job is to simply gauge the futures open on Sunday night to get a sense for if the market is genuinely concerned again about The Strait and another oil shock or not.
Futures that gap down and stay down are notable. The markets done a great job of shrugging off all escalations ever since April 8th. Futures that gap down and immediately recover indicate a lack of concern.
Futures that open unchanged from Friday’s close, or dare I say even a gap up, indicate the market couldn’t care less, full steam ahead with looking forward to the next AI earnings cycle.
Tuesday Has Two Catalysts
June CPI comes out Tuesday at 8:30a EST.
Kevin Warsh begins his congressional testimony 90 minutes later.
After the Fed Meeting Minutes release markets are back to pricing in two hikes. If you read the minutes, you’ll actually get the sense though that no one knows whats right at this juncture.
The language states that “most participants” can see situations where the inflation pressures ease and rates fall, but at the same time “most participants” can also see situations where the labor market remains firm and AI related demand keeps inflationary pressure on, and thus policy should “firm.”
Therefore as traders, we need to read the CPI report as follows:
- Beat: Markets rally on less Fed hiking pressure
- In line: Markets flat to down on sustained Fed two sided pressure
- Miss: Markets down on Fed rate hike validation
Estimates are 2.8% core year-over-year and 3.8% non-core year-over-year.
Good Is No Longer Good Enough
The AI trade remains the markets strongest driver.
Samsung delivered strong earnings results last week, yet traded lower. Very similar to how Micron reported the best numbers ever, and still traded lower.
This matters headed into this week with ASML and TSM.
The market doesn’t want to hear beats from last quarter. It wants to hear that the first two quarters were just the start of what is going to be an insane multi year stretch.
Markets are looking at a 14.5% beat surprise for Q2 so far, after a 16.3% beat surprise from last quarter. This tells us the bar is set exceptionally high.
One of the concerns we’ve discussed about the current market is the pricing to perfection of the AI trade and how the Meta “excess compute” and the Nvidia “rack delay to 2028” provide hiccups that cause short term volatility.
I’m not suggesting markets will follow this exact cycle. The chart is simply a useful mental model for the gap between technological progress and expectations. AI can continue driving productivity and pushing markets higher, but no theme moves in a straight line forever. When stocks are priced for perfection, earnings reactions help reveal whether expectations are still rising faster than the underlying reality. As always, we’ll let the charts light the way, so lets jump in.
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Broad Market Analysis
SPY – Weekly
Green bodied hammer that closed near the top of its range. Sellers created the lower wick, but buyers responded with enough force to reclaim the opening price, expand through it, and close completely above the previous week’s range.
The larger trend remains constructive. Price continues to digest above the 38.2% Fibonacci retracement, the all-time high anchored VWAP supported the weekly lower wick, and SPY closed back above the high-volume node from the all-time high consolidation. I do not see a strong bearish weekly argument unless this becomes a look above and fail of the range high.
The first scenario is a direct breakout. The second is a pullback that forms a higher low above the former flag high before continuing. The bull flag’s measured move points toward 850, although that is a longer-term reference rather than a target for the next five sessions.
SPY – Daily
The daily chart has begun transitioning into a new uptrend. SPY formed a higher low above the 50 SMA and the prior gap-close area, reclaimed the 20 SMA, and then pushed through the previous pivot high to establish a higher high.
This gives the market room to pull back without immediately damaging the trend. The weekly expected move runs from 745.83 to 764.07. Even a move into the lower boundary would still represent a higher low relative to last week. The base case is continuation toward the ATH or a controlled higher-low pullback into the moving-average stack.
The bearish case requires much more than a routine retracement. Sellers would need to push through the major neckline at 739.65 before the daily structure materially deteriorates.
SPY – Hourly
SPY has printed a new highest high in the hourly trend. Friday’s liquidation break created an hourly higher low, with the lower wick testing former resistance that had begun acting as support.
As long as SPY remains above the 749 area, I favor continuation. Price could pull back toward the prior highs, consolidate, and continue toward the all-time high. It could also move directly higher and create the next buying opportunity on a later pullback.
The more important support zone sits near 745.83. That level combines the lower boundary of the weekly expected move, the 61.8% retracement area, Wednesday’s high, the moving-average stack, and developing anchored VWAP support.
An hourly downtrend into that zone would not automatically make me bearish. It could simply create the daily higher low that the new daily uptrend can afford. I would become much more defensive only after a major lower high and a breakdown through 739.65.
Market Internals – NYSE
Wednesday produced one of the more bearish exchange-level sessions we have seen in some time. The important question was whether sellers could build on that damage.
They did not. Buyers returned during the following sessions, and Friday’s internals were mixed rather than decisively bearish. Price recovered from the gap-down volatility, reclaimed support, and pushed into a new daily higher high.
Market Profile – /ES
Value is moving higher, point of controls are moving higher. Great excess low at the liquidation break from Friday’s tweet. Constructive for a new uptrend to resume.
QQQ – Impact on S&P
The Nasdaq is improving, but it has not confirmed the same daily uptrend as the S&P. The weekly candle was another strong hammer, with buyers reclaiming the opening price and expanding into a new weekly high, but QQQ remains closer to the midpoint of its weekly flag rather than the upper portion.
The daily expected move stretches from 708.13 to 742.89. That range allows for both a higher low and a higher high, but the upper boundary does not project a new all-time high. I would describe that as neutral to bullish rather than fully bullish.
The daily chart still has the potential to establish a lower high. However, the look below and fail, partial gap-fill reversal, strong Friday close, and reclaim of the moving-average stack all suggest that an upward resolution is becoming more likely.
The key pivot is 722. Holding above that level, or reclaiming it after a controlled higher-low pullback, would improve the odds of a move toward 726.50 and then the equal high near 735.25.
A failure back below 722 would return QQQ to a more neutral posture. Sellers would gain additional control below 712.35, with a loss of 707 opening a faster path toward 700.
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
- Tuesday – CPI
- Friday – UoM Prelim Consumer Sentiment and Inflation Expectations
Top watches: GS, JPM, AEHR, ASML, MS, TSM, GE, NFLX
Swing Stock Scans
AMBA – Daily Chart
Tight two days over the MA stack. Over the 79.25 can see continuation towards the local highs. Tight risk spot here.
ANET – Daily Chart
Becoming a leader breaking to a new high out of this base before the market does. Tight inside day over the range high. Worth a tight risk try if markets are going to improve here.
BAND – Daily Chart
Might be premature after making a move to the range high without any new consolidation, but liking the relative strength and the bullish 3 bar play forming on the daily.
BE – Daily Chart
Classic power name. 230 look below and fail intraday on Friday and now looking for continuation towards the top of the range by breaking Friday hammer high.
GEV – Daily Chart
Continuing to stay on the watch list from last weeks newsletter. over the balance high here can get going.
LASR – Daily Chart
Bull three bar play back over the 50 SMA. Most notably picking up on the large volume up day from Thursday and getting this on the radar before it makes a new high.
NAVN – Daily Chart
Tight three days in a solid uptrend. Looking for a break over 26 for continuation out of this.