Markets LAUNCH After A Follow Through Day
The S&P rallied 3.60% last week, reclaiming all of the moving average stack as well as leaving a MASSIVE gap in its wake.
This marks a notable shift in tone from the prior weeks where markets faded into lows on Thursday and Friday after a earlier week pop.
The most important thing to do from here on out is to not remain overly bearish for the sake of “being right” about the downtrend, and carefully evaluate how the supporting evidence either continues to suggest buyers have made a successful turn, or not.
21 Hours… and No Deal
The bounce last week was build under the assumption that things would go well in Islamabad. But by Sunday, news broke that there was no deal, and the U.S. initiating a blockade on the Strait of Hormuz starting Monday at 10:00 AM.
Brent crude is gapping back up over $100/barrel (colored candles) and /ES futures are gapping down right to the low of Wednesday (blue candles).
Reading the headline along might make it seem like markets aren’t getting what they want, and price should be crashing.
However the reality is, we’re still well above the unaffected price before the negotiation talks were announced. If the market believed we were NOT making strides in the right direction, price should be below 6665.
The bottom line here is to continue watching the gap this week VERY closely as news breaks about the status of negotiations and the status of the Strait. Everything should be measured against Tuesdays high, 6665.
CPI Too Hot? Or Just Right?!
While the headline numbers notoriously are looking hot with the energy shock finally showing up as a 0.9% month over month read core told a completely different story.
- Core YoY – 2.6% act. – 2.5% est.
- Core MoM – 0.2% act. – 0.3% est.
So while energy could spill over and inflate other areas for the consumer, things are actually holding fairly steady.
In the chart below, note that the energy “intensity” of the U.S. GDP has been on a steady decline, simply suggesting that the U.S. economy is less dependent on energy now than it was in the past.
Thus while we expect food and travel prices to reflect some of the volatility in energy, corporate earnings really aren’t tied to this metric unless we get a wage price spiral which currently there is little evidence of.
Powell has been famously quoted as saying, “one read doesn’t make a trend,” so we’ll see how next months numbers look.
Earnings Season… A Worthy Distraction?
The headlines have been dominated by the Middle East conflict and now we finally have an opportunity for the market to focus on something else.
The expectation for earnings growth from Factset for Q1 is 19%. Historically, markets tend to beat estimates, but the million dollar question is always, “by how much?”
Seen below in 2025, expectations were almost doubled each cycle.
The bar is high.
Banks are set to kick things off this week, so we’ll watch the actuals vs expectations but additionally, we’ll get an insight into financial activity.
A healthy market and economy has plenty of deals being done, so Goldman earnings will get us straight to the point on Monday morning with their M&A numbers.
The stage is set for us this week… its time to sit back, relax, and watch the show with price action being the ultimate arbiter of truth.
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Broad Market Analysis
SPY – Weekly
Considerable reclaim of many key reference points over the span of the second half of the week. Anchored VWAP set, 20 SMA, fib 61.8, 675 overhead supply level.
Could this just be an overshoot that pulls back? Yes. Would I be looking for a higher low. Also, yes. Over 653 is in good shape.
SPY – Daily
The large gap up reclaims the daily 20, 200, 50 SMAs. It also suggests that there is now room for a higher low on the daily above all of those reference points.
To get long the most bullish idea would be a look below and fail on Wednesday’s low at 671.2. After that would be a weekly higher low pullback that closes the gap, supports above 653 and makes a turn back towards the 676.25 area.
From there the market has a choice, either continue the bull ascent, or turn for a daily lower high in which case the daily trend flips to neutral, and threatens moving back down… TBD on this case.
SPY – Hourly
A closer look at the pathing on the hourly reveals the stack of anchored VWAP sitting right at the gap close area for the weekly higher low thesis at 659.5.
Note that the risk reward profile favors some kind of a pullback. Longs from the highest high in the trend count typically are not great location. It would be best to start leaning into it more heavily when and if we have a higher low develop.
Acceptance below the gap and 653 really gets me re-evaluating the situation, especially if the supporting evidence rapidly deteriorates.
Market Internals – NYSE
Main note on internals is the lack of bullish exchange level data on Friday when the market more so tried to balance and digest rather than pullback. I wouldn’t call this bearish, just a small indication that pullback first might make sense.
Market Profile
Only looking at the Wed/Thur/Fri sessions here. Single prints still not closed even after testing on Friday. The fact that sellers didn’t accelerate there makes me think that short term traders are in control of the market still.
If that’s true, we might have better odds of the OTF stepping in as buyers once we see nuanced reference points being disrespected.
“Deal To Make A Deal” Analog – May 2025
If we recall the 2025 gap up AFTER the tariff tantrum, we know that the gap was on the premise that there was a frame work to make a future deal on trade with China.
Similarly, the gap in the present day was caused by the premise that there is a frame work from which to negotiate, not that negotiations are complete.
Markets will bottom before the ‘conflict’ resolves, as they have started to do so in each of these situations.
Should this prove not to be the case, the only way to know will be monitoring the supporting evidence as the week wears on. Staying nimble is likely the best outcome (and in my view with a slight bull bias).
Semiconductors (SMH)
New all time highs after failing to make a lower high move under the 376 neckline or the 385 over head supply… hard to be bearish the broad market when this exploded like a pent up bull.
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: GS, JPM, ASML, MS, BAC, TSM, NFLX, AA
Swing Stock Scans
As we emerge into a potential new uptrend, be sure to focus on the best groups and themes, not just the best isolated chart setup.
This is a list of all of the stocks I am highly interested in getting involved in on the long side when and if they pullback to offer daily higher low setups.
If the market starts proving that buying breakouts through flat top bases is going to work better than it has the last six months, that will also become a viable strategy.
This list likely ebbs and flows this week as we see proof of relative strength and relative weakness.
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Disclaimer: I do own some of these names long already.