US Strikes Iran – /CL Fading & /ES Bouncing
The S&P closed right back down 0.27% last week, closing once again… right in the middle of the range.
The lack of conviction from buyers and sellers is astounding at this point, but perhaps this week is the week we break from range.
AI Was So Last Week…
Over the weekend we have news of strikes on Iran as the US carries out operation “Epic Fury.” It appears to be more than the targeted strikes on the nuclear sites from last year.
The market will fixate on this, and likely forget about the entire AI trade for a week unless a new groundbreaking paradigm shift occurs.
Pay close attention to crude oil and energy stocks as the most sensitive to this development.
Equities tend to be a coin toss, as seen below in the 1 month return column at 46.5% higher with a median loss of 0.2%.
This week, be looking at the two situations:
Situation A – Contained and Brief The Strait of Hormuz reopens in days, not weeks. Oil spikes to $85 and fades back to high $60s by Friday. This is the 2025 targeted strike playbook.
Situation B – Sprawling and Prolonged The Strait of Hormuz remains closed for more than a week, a 20% premium on crude becomes the norm and price stays north of $80. Global growth, and inflation expectations must shift changing the entire macro backdrop.
** As of Sunday 8pm EST, /CL is already backing off and /ES is already bouncing higher from the gap down… it seems like situation A could be more of a reality than situation B.
Please also note that the sketch of Situation A is not meant to reflect the correct time duration of a fade lasting all the way until May.
What this does to the week’s other narratives.
The PPI stagflation story just got a lot more complicated. A sustained oil spike feeds directly into the inflation print the Fed is already watching nervously.
The gold remains bid, and now has a new, harder catalyst. The flight to safety trade that was already underway just got a fundamental reason to continue.
NOTE: I am not a geopolitics expert. The /CL chart will tell me what I need to know as it relates to any market turbulence, not random opinions online.
The NVDA Paradox
This is going to be like ancient news as this point, but Nvidia reported Q4 results of $68.13B with guidance for next quarter at $78B. EPS came in at $1.72/share. So a double beat and raise.
And yet the stock is down over 8% over the last two sessions.
From a positioning perspective, the market is telling us that everyone who wants to buy, has, and is even taking profits.
Jensen tried his best to explain how “compute = revenue,” (basically saying hey hyper scalers, keep spending on capex!) but the market wasn’t buying it, literally.
As the heaviest weight stock still in the S&P and Nasdaq, the neckline of the weekly head and shoulders must be watched, and respected.
Fundamental Forces
Before Saturday night changed the conversation entirely, the economic data was already getting a bit dicey.
Friday’s core PPI came in at +0.8% against a +0.3% expectation. The spike was almost entirely in wholesaler margins, which is a sign of tariff pass through more than genuine inflation.
With trade policy back in the air due to the SCOTUS ruling, its hard to say yet if this will become more sticky. The ISM PMI reports this week may provide slightly more clarity.
This week we get the unemployment rate data, which based on weekly jobless claims may come in just fine. The trouble is the non-farm payroll gain may continue to stagnate, making the labor situation vulnerable to any shocks.
… speaking of shocks, Block just laid off 40% of its workforce citing AI efficiencies as the core reasoning. Whats “worse” is that Dorsey sees other firms doing similar.
All eyes on Friday.
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Broad Market Analysis
SPY – Monthly
The February monthly bar closed as a red body doji with an equal high and an equal low to prior. It is about as neutral as candle structure gets.
Zooming out, the higher time frame trend remains intact: higher lows, higher highs, sitting at the highest high in the trend count. If the market were to pull back meaningfully, the logical landing zone is the previous resistance high that now acts as support, confluent with the monthly 20 SMA.
That zone is loosely 615 to 610, which equates to roughly a 10 to 11% pullback from the highs. That would be well within normal corrective territory for a trending market.
SPY – Weekly
The weekly bar is a red doji just like the monthly… indecisive. Price is grinding along the weekly 20 SMA and other major references (VWAP, Fib, HVN etc…).
The key breakdown level on the weekly is 676 to 675. A confirmed close below that flips the weekly trend to down, which is actually a requirement for the monthly chart to begin building a higher low. You can’t get a monthly pullback without the weekly trend breaking.
Above 676 zone and the balance remains. A break over 697 unlocks blue sky, but weight of the evidence leans towards lower odds of that.
SPY – Daily
The levels have shifted a bit but generally still represent the same things:
- 697.85 is the major range highs
- 689.75 is the top of the micro range
- 686 is the midpoint of the total range
- 680.25 is the bottom of the micro range
- 676.50 to 675 is the major range low that unlocks weekly downtrend
The upcoming week’s expected move sits at 699.97 on the upside, which would technically be a new all-time high, and 672.01 on the downside, which would be a lower low down and out of the balance range. The fact that both bounds project outside the current range suggests we can get a break as soon as this week.
The range is starting to compress. What looked like a megaphone pattern earlier in the consolidation is now tightening, raising the possibility of a diamond top. I would still want a decisive break below 675 to 674, not just a trend line break.
What I will note is that if the market has been printing lower highs coming into equal lows, the probability of an actual breakdown rather than a mean reversion bounce increases. Not a prediction, just a general truth of technical analysis to be open minded about.
SPY – Hourly
Sellers had The Gift™ on Tuesday, failed. Buyers had The Gift™ Thursday after the gap and go for a higher low, failed. Sellers had The Gift™ Friday for a lower high after the gap down… failed.
Both sides failed repeatedly. We closed at the midpoint of the micro range. No edge until over 689.75 or under 680.25.
Market Internals – NYSE
Lets focus on Thursday considering it was the big down day post NVDA earnings.
Volume inflows, AD line positive, TICKs flat… Really not what you’d expect on a nasty session. It continues to point to breadth expansion, rather than contraction.
NASDAQ internals – A touch more bearish than the S&P on Friday. Volume outflows confirmed. Advance-decline in trend lower zone. Cumulative read near 6,700 to the downside, beyond the 6,000 threshold.
Market Profile
Buyers from Wednesday’s value on the false gap and go are trapped. Value shifts lower on Friday confirming the rotation back into the balance range.
SMH – Semiconductor ETF Basket
Look above and fail here is concerning after the NVDA earnings gap failure. If we lose semis, the broader market can finally move lower. Bears need price to remain under the 418.40 area.
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: CRDO, BBAI, MDB, ASTS, ACHR, TGT, CRWD, AVGO, RGTI, BULL, CIEN, KR, MRVL, COST
Swing Stock Scans
AXTI – Daily
Inside bar forming a bull flag after breaking out of the base on an earnings beat. All time highs above.
NSC – Daily
Recent breakout of a long base higher, now forming a bull flag over the 50 SMA. Looking for a continuation to new all time highs. Other similar charts: CSX, UNP.
PEP – Daily
Bull flag after a nice controlled pullback over the 20 SMA. Looking for prior pivot high to act as target.
SOLS – Daily
Hot new IPO with look below and fail on Friday of the lower bound of the flag. In play as long as pullbacks keep holding over the 20 SMA.
TXT – Daily
Bull flag at all time highs with inside bars to end last week. In play as long as price remains over the 20 SMA.