The Peace Trade Isn’t Over… Yet
The S&P closed up 0.86% last week, making a new all time high and breaking out of a two week balance range. (weekly bars superimposed)
The market on close rebalance to end the month of May caused quite a bit of noise across individual equities, however at the index level, note Friday still produced a bar to bar higher high and higher low, as well as a new all time closing high.
The Peace Trade Isn’t Over Yet…
On Friday the market saw the same old same old:
- US: We’re close to a deal with Iran
- Iran: We aren’t speaking
- US: Iran wants to make a deal
- Iran: We’re rejecting the deal
Over the weekend, we still don’t have any clarity on the US-Iran framework being confirmed. Markets are acting as though de-escalation is the path forward, with crude pricing a Strait of Hormuz reopening.
As we know, that puts downward pressure on interest rates due to inflation expectations being readjusted, and thus helps the market rally broaden out.
This relationship is carrying on in the face of a PCE print on Thursday coming in at 3.3%, well above the Feds target of 2%. So the market is more heavily weighting the reopening of the Strait of Hormuz, rather than backward looking inflation prints.
Pretty clear that any walking back of negotiations, or re-escalation via military action has the potential to act as a headwind to equities. With a deal supposedly being sorted out, “any day now,” having a chart of crude futures up intraday this week probably isn’t a bad idea.
AI Continues To Carry The Tape
Look no further than Dell earnings last week…
AI server revenue hit $16.1 billion, surpassing its PC business for the quarter. A clean example of AI revenue showing up and fundamentally changing how the company is priced.
Shares surged overnight more than 4x the market maker expected move (~$25) up over $100 or 40% at the peak.
DELL post earnings:
Add into the mix a Snowflake beat and raise quarter, topped with the signing of a five-year deal with Amazon AWS directly tied to AI infrastructure.
SNOW post earnings:
So the AI rally continues to be bid where there is hard evidence of revenue showing up.
Looking Forward: Jobs, Yields, Broadcom
Next week, the market has more opportunities to prove what matters most.
The May jobs report comes out on Friday, but we’ll get a little taste via JOLTs and ADP non farm earlier in the week. A hot (stronger than expected) non farm payroll number could bring us back to “good news is bad news.”
Strong labor numbers mean that the Fed should be in no hurry to cut rates especially with inflation still running hot due to Hormuz. If yields rise to compensate for the strong number, markets will go right back to being sensitive to crude.
The ADP numbers for the month of May show a mostly unchanged labor trend, but for the last week, a small decline. It wouldn’t be unreasonable for the market to have an unchanged print from April, from what it looks like.
Broadcom also reports next week.
Confirmation of strong custom chip and networking demand, supports the idea that AI leadership is still spreading beyond Nvidia into servers, memory, software, and the “not so glorious” parts of the data center.
If their $22.0B projection for Q2 revenue is met, their TTM should come in closer to $75.278B netting a 10.25% increase vs last quarters 6.88% increase.
That just might be enough to keep the koolaid flowing.
As always, we’ll let the charts light the way.
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Broad Market Analysis
SPY – Monthly
Unless you’ve been living under a rock, its no surprise that the monthly bar was a massive green bodied stick with strong close, higher high, and higher low. This is the highest high in the monthly trend, and thus the trend will remain up even if there is a pullback towards the prior all time high 700 level.
Not saying we get to the measured move of this bull flag in the next month (although at this rate… its possible), rather showing that the next place to think about a slowdown would be ~850.
SPY – Weekly
On the weekly, we can clearly see the monthly expected move for June with the upper bound roughly confluence at the yearly expected move 784. For the last two months, markets have exceeded the expected move.
SPY – Weekly
There’s no indication of it, but if the market decides to pull back, these two levels seem the most important… the last two week balance range extremes. Holding over 749 keeps breakout buyers in tact. Under 749 with a lower high on the daily and a failed breakout starts to shape up. Target range low at 732.25.
SPY – Daily
The base case is to remain bullish on continuation or higher low pullbacks to continue the trend so long as price is over 758.75. Fairly straight forward to respect the left side peak from prior resistance to new support.
Things get tricky if we overshoot that level. Depending on market context (internals, sector posture, rates, crude, catalysts etc…) the ideal would be supporting near a rising 20 SMA and still sticking a higher low in the trend count. If however price struggles to reclaim that level and a lower high develops below 748.75, it would seem the weekly look above and fail is in play to target the bottom of the range after sweeping the red line equal low.
SPY – Hourly
Before focusing on the pathing, notice that on Thursday (especially if you look at the overnight session), sellers failed to meaningfully produce a break under Weds/Tues range low. That was their time to shine if PCE, GDP, Jobless Claims, Durable Goods data was going to be a bear catalyst. Didn’t happen. Note also, Friday although balanced and noisy, remained completely above the Thursday range.
On pathing, only difference here vs the daily chart is the availability to short a failure at the high (red dot with white circle around it).
Market Internals – NYSE
Bears don’t have much to lean on here. Yes, bearish on the Friday session, but not enough to make me think that the markets going to crash and burn. Volume flows, flat to down; AD line, not even close to -1500; cumulative TICKs, not -5k. More importantly, Thursday’s break higher happens on improving internals through the session rather than offering a divergence.
Market Profile
Relative to the breakout level, value is higher on Thursday and Friday. Really nothing to complain about here or read into beneath the surface.
XLC – Communications
The largest sector threat I can see is this 115 level on the communications sector… if this fails, theres a real shot it acts as a major headwind to the S&P considering its now the second heaviest weight sector by market cap.
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
In addition to the labor data, let’s keep an eye on ISM Services PMI and specifically prices paid component. If that sees a downtick, it would give more leeway to the doveish argument for the Fed.
Top watches: CRDO, HPE, PANW, AVGO, CRWD, CIEN, RBRK, PL, IOT, TTAN
Swing Stock Scans
AKAM – Daily Chart
Great looking PEG setup with clean breakout pivot at 149.75. Over that level and the local high at 165.40 is in play. Don’t want to see much testing or acceptance under the daily 20 SMA (orange).
ALAB – Daily Chart
Bullish inside bar on Friday, however mind the extension here. Would love to see a week or two sideways to digest the gain and then setup a higher low pivot over the 20 SMA (orange). With the notable recent leg higher, have to have this back on the radar.
CGNX – Daily Chart
Great daily higher low opportunity with a daily 20 SMA offering support as well. Over 66.6 can get going towards the local highs and then the left side historic pivot of 73.45 area. Would also allow this to continue building right side of the chart over 60.
COHU – Daily Chart
Monster move recently that may offer a new setup after the recent gap and hold. So long as this can digest over 50, looking for a flag to continue the momentum over 55.15. Under 50 and I would become much more hesitant about continuing to watch this.
FLY – Daily Chart
Gap down and “panic” on the Blue Origin explosion Thursday. Looks like a higher low pullback opportunity over the prior left side peak. This setup looks similar in RKLB ASTS LUNR as well. PL has earnings, so caution if you use that vehicle.