Oil, Powell, Jensen. Who Folds First?
The S&P closed under the bottom of the balance range again, confirming a clean lower high on Tuesday under the 20 SMA.
Price is now down over 5% from the all time high made on January 28th.
The largest takeaway is the unfilled gap from Thursday indicating a notable character change. More on this later.
The Problem Is Still Oil. For Now…
Crude prices are still up over 47% from the start of the war after last weeks volatility. And it doesn’t look like thats changing much with the weekend strikes on Kharg Island.
Headlines over the weekend suggest that Iran is willing to let any country other than the US, Israel, and any of their allies through the Strait.
Good luck with that until a peace deal, escort, or something more concrete is in place.
However depending on the markets response to this news, we may be able to build a more compelling technical story. Currently the correlation is almost perfectly negative 1:1 for crude and equities.
If this correlation breaks, its possible the market is interpreting the news as “getting less bad.” Remember markets will move first, and crude will have topped long before the war is officially declared over.
This may alleviate some pressure in equity markets, but there are still other problems to worry about… stagflation anyone?!
FOMC Wednesday. Watch The Dots!
No one is expecting the Fed to move rates. What matters most this Wednesday is the updated Summary of Economic Projections.
The December 2025 SEP outlined one rate cut, however the market as of January 02, 2026 priced in two rate cuts. Thats the blue line from current 350-375 down to 300-325.
Currently in orange, we can see the market is saying, “you’re lucky if you get one rate cut.”
So in the new SEP on Wednesday, watch to see how and if the dot plot shifts:
- Two cuts forecast; risk assets should catch a bid
- One cut forecast; nothing burger, markets unchanged
- No cut forecast; panic mode, risk assets continue getting sold
February CPI came in at 2.4% YoY and 0.2% on core, a slight deceleration, but that data was gathered before the Iran war changed everything.
Fed presidents have stated over the last two weeks stating they are not overly worried about crudes impact unless it becomes more persistent. We’ll see if Powell can define “persistent” on Wednesday.
Below is a chart of WTI crude over CPI and PCE. You tell me if crude and inflation move with some degree of correlation…
Admittedly, not shown is the Fed also printing $3.3T in 2020.
On top of that, January’s core PCE printed 3.1% YoY, well above the Fed’s 2% target. And, February payrolls came in at -92,000, marking a notable contraction.
The Fed seems to be handcuffed on both sides of the mandate still and as we know from history, the Fed will protect inflation expectations and allow a recession before they bend the knee to save the labor market.
Wednesday seems to have more downside risk rather than upside surprise potential.
Will GTC Reignite The AI Trade?!
Oracle earnings last Tuesday beat on revenue and raised forward guidance to $90B, allowing the stock to gap up over 11% from the prior session close. From there the stock faded, but it’s another reminder that the AI trade is not dead.
This week we hear from Nvidia in their annual GTC conference.
GTC has become much more than just a product event over the last few years. The market sees it as a read on how AI spending is progressing, what infrastructure demand looks like, and what partnerships are being forged.
On average prior GTC keynotes have actually lead to lower prices rather than higher prices.
We’ve seen how even knockout earnings can’t get investors excited, so I’m not convinced this event is going to be much different. Jensen needs to live up to the hype he created when stating they will unveil a chip that will “surprise the world.”
From a technical perspective, if NVDA can stay over 171 this week, we coast along. If that level is broken… kiss the market goodbye.
Trade Brigade Live Squawk
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Broad Market Analysis
SPY – Weekly
Last week’s bar is one of the nastiest structures in the recent trend. Monday looked like a genuine recovery (green illustration on right). Price was back above the weekly 20 SMA, above the prior week’s range, and back over the bottom end of the multi-week balance range. By Friday, all of it was gone.
The massive upper wick is a clean rejection of overhead supply. We closed on the weekly lows confirming a meaningful lower low in the trend count. This is the first weekly close below the Fib 61.8 from the 11/20 NVDA earnings low. Price is also more meaningfully closing below aVWAP lines.
The next weekly level to target below is 653. The weekly expected move suggests price can reach that zone in the coming days. Not unreasonable considering how bearish of a bar and location we got.
Though I would prescribe lower odds, if the market flips back over 676, we have to keep an open mind to look below and fail. All time highs should come in short order if thats the case noting the nasty potential for short squeeze.
Monthly Context. The 615 to 612 area aligns with the Fibonacci 38.2 from April lows to the all-time high and represents roughly an 11 to 12 percent correction. That is where a monthly higher low thesis becomes relevant. The weekly chart needs to flip into a downtrend before a monthly higher low can be called firm.
SPY – Daily
The daily chart finally tells the story of a change in tone. Each time the market had tested the 676-75 area prior buyers stepped up trying to defend price. It even happened Monday of this week.
However the notable gap and go Thursday, that was even left unfilled on Friday, tells us those buyers have disappeared and stronger sellers are stepping up.
The daily downtrend is slightly more obvious now with the lower high confirmed from Tuesday under the 20 SMA and a lower low close under Monday’s low on Friday. Lower highs can persist below 675 area, and lower lows should seek to test the 200 SMA or beyond into the weekly low set at 653.
SPY – Hourly
A majority of the pathing outcomes for this week will be seeking lower high short entries. The three major spots for that to happen are:
- Under the 675 overhead supply.
- Under the 664 prior week low inflection point.
- After setting a lower low (if price does) backtest rejections of the 200 SMA.
The only situation that longs can hope for is an exhaustion gap down series through Monday and Tuesday, then seeking a counter trend rally off of 653 area or even 646 on a double gap and go. Pathing still seeks a lower high even on rallies from lower lows.
This could be a likely situation noting that Friday’s selling volume was slightly lighter than Thursday’s and there was no short squeeze derisking into the weekend.
Market Internals – NYSE
The one anomaly is Friday’s volume flow. Selling was persistent all session with a weak close, yet outflows were lighter than Thursday. If a gap down early in the week produces the same muted volume response, a snapback becomes worth watching as noted above.
General interpretation this week even on Monday rally was weakish exchange action. No confidence from longs, and sellers definitely stepped up on the gap down Thursday.
Market Profile
The market was reluctant to close single prints from above Tuesday Wednesday, which seemed bullish at first. Thursday gapped through them entirely. That gap remains unfilled and the market made no attempt to return to the range above.
Friday’s early rally produced no higher value. Value built in the lower direction. Friday also printed a poor low with a lack of material excess at the low of day. A poor low typically requires a break of that level to complete the repair. AKA… not a bullish setup.
Semiconductors (SMH)
Counter-trend rally inside a downtrend. Lower high rejecting the 20 SMA and price below the 50 SMA. Looks like a developing head and shoulders. Equal lows are the target.
Volatility Futures Term Structure
The volatility curve is still in deep backwardation, with the front month contract well above the back month. Money managers do not allocate capital into an inverted curve.
When that curve re-inverts, it will be a significant signal. That is the one indicator I will be watching closely if the market attempts a turn.
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
All about the dot plot this Wednesday as noted above.
Top watches: OKLO, LULU, MU, RCAT, BABA, PL, FDX, FLY, XPEV
Swing Stock Scans
Let me start by saying with the official range low break in the S&P 500, swing trading long only will become increasingly difficult. Scans will become few and far between unless we have a massive failure pattern on the weekly.
CC – Daily
Low cheat setup to get back to highs. Chemicals have been performing well recently with materials offering relative strength to the S&P. Love the tight action over the last three days.
DOCN – Daily
Potentially a new market leader, so must double down and put this in the newsletter alongside the YT video scans.
Great relative strength recently, and offering a great inside setup headed into this week. If markets are strong I would look here.
FLEX – Daily
We’ve had this in the back pocket for a while, but with GTC potentially acting as a catalyst for new chips, and thus new assembly, could be in play early on. Ideally early entries give a cushion before a larger break from range over 67.
SNDK – Daily
Just like DOCN, this remains a leader and has relative strength to the broader market. Note MU earnings on Wednesday will play a key role here, but chart looks great breaking the resistance trend line and reaching back into the 683 area. Over this flag is new all time highs.
As the energy trade continues to boom based on crude, here are a few oil and gas names that look setup in nice consolidations after making decent moves higher:
HP – Daily
MPLX – Daily
NE – Daily