A Supportive Fed & AI Skeptics…
The S&P continues to trade in a very two sided range.
Friday, price rejected an opportunity to make new record highs. This sets up decent odds of testing the moving average stack and critical support over the prior engulfer highs from 10/10 and 11/20 near 675.
Notice however, daily range has meaningfully expanded post FOMC.
The interpretation is that the market should be exiting balance sooner rather than later on heightened volatility introduced by our two main catalysts.
Fed and AI narrative.
FOMC: A Cut And More!
Last Wednesday the FOMC decided to cut interest rates by the highly anticipated 25 basis points. However what was not highly anticipated, was how accommodative Fed Chair Powell was prepared to be.
Recall that just last meeting he confidently said the words, “December’s decision is not a foregone conclusion… Far from it,” seemingly indicating that the primary focus was still on inflation.
So to hear this meeting that the Fed does not want to, “be in a position where we’re not, you know, pushing down on job creation with our policy,” is quite the turn.
In the updated Summary of Economic Projections, the Fed now sees risks to inflation weighted to the downside, and risks to unemployment still weighted to the upside, but perhaps slightly more broadly balanced.
Some of the reasoning for this comes from Powell’s explanation of the Fed assuming the NFP numbers are overstated by a magnitude of ~60k jobs per report, and tariff inflation on goods aside, inflation would be running closer to 2%.
This week we get both the October and November non-farm payroll data, as well as November CPI inflation data. October CPI will not be reported… ever.
In parallel, the Fed announced the resumption of balance sheet expansion.
In summary, the FOMC was not the hawkish cut most thought it would be… it was the doveish support most weren’t expecting.
AI Bubble Fears Return
Oracle and Broadcom both reported earnings last week, and both reinitiated fears of an AI bubble. The only difference this time is we don’t have Michael Burry shorting it.
Oracle started the spark by revealing in the earnings call that they continue to expand capex towards $50 billion, exceeding analyst estimates.
We’ve gone from a period of increased capex being a bullish funnel pushing dollars towards Nvidia, to now becoming a red flag signaling overextension without proof of concept.
Below is the 5-year credit default swap on ORCL bonds moving over 200% as investors essentially take out more insurance to hedge against the return never showing up.
As an FYI, META the other company aggressively spending on capex, has a CDS pricing at 50bps, not 120bps+. META also has more than 2x TTM revenue than ORCL.
The concern might be better visualized when expressed in terms of actual revenue vs backlog commitments.
Notice how the other hyperscalers have much more meaningful revenue.
It may prove to be a wise investment for Oracle in the future, but as of now, markets continue to punish capex without revenue.
The Friday news that there are anticipated delays for the OpenAI datacenter buildout have thus far been rejected by Oracle, so we’ll let that be for now.
Broadcom was the other disappointment, announcing that although earnings and revenue numbers came in strong, margin was lower on rapid growth AI revenue vs non AI revenue. Non AI revenue was forecast to be flat quarter over quarter.
They too suffer from the markets skepticism over capital promised from OpenAI to build custom chip solutions through 2029.
Based on the two earnings reactions, the market is signaling once again, worry over OpenAI not being able to deliver the promises made keeping the AI trade alive.
Sam Altman will have to deliver revenue numbers like never seen before, with more confidence than a longwinded X post.
So where does that leave us?
With a supportive Fed, and a healthy dose of skepticism around AI, I still see the market as risk on. We still haven’t had our ‘pets.com’ moment.
As we’ll see the technical charts align more so with this view also. Let’s have a look.
Trade Brigade Live Squawk
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Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
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Broad Market Analysis
SPY – Weekly
Still looks to be digesting the Thanksgiving rally. Bar to bar is high & tight, compressed, not overly bearish or bullish. Before calling for a double top, acknowledge the possibility of weekly equilibrium.
My stance is that after forming a firm higher low (via daily downtrend) over the weekly 20 SMA and not getting followthrough after the 11/20 bear engulfer, this is actually setting up for a higher high rather than double top.
SPY – Daily
This balance has been in force for two weeks now with little give on either side. Note however the expansion of range coming in FOMC and beyond. This makes me think that with data this week (NFP & CPI) we can easily get a break from range.
Under 679.5 bears start a range break, however to what end? There is immediate support just below at the daily 20 & 50 SMA as well as the engulfer highs which *may* now act as potential support. If the 675 level holds, this can easily stage a daily higher low.
On any overshoot, I’ll be watching closely for 668.5 to be the ultimate line in the sand. Over 689 is fairly straightforward to new record highs.
SPY – Hourly
Trend has flipped to down in the short term here with a lower high and lower low. Not unreasonable that we break the 679.4 level to test the golden pocket daily higher low at 675 area. If that holds, getting back over 679 puts the ATH in play.
If 675 does not hold, there will be a key battle on the retest of it from the bottom side up. Larger concerns will emerge if this ends up yielding a daily lower high, hence the red equal low break deserving a color code.
Please note also that we have an un-repaired all time high that was set in the overnight session at 691.25.
Market Internals
On Friday the sell side pressure intraday seemed intense (relative to the two weeks of chop), however we really didn’t see an overwhelming amount of sell side pressure at the exchange level. Bearish, yes. Armageddon, no.
Market Profile
Clearly a move on Friday that threatens the low of the value based balance range, however PoC is still contained. Mechanical highs at 6905 being so equal. Improper end of the auction on the top side.
VIX / VVIX – Volatility
If lots of folks were reaching for insurance in the S&P the vol index wouldn’t look like this on Friday. It would have closed strong.
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
* Remember Powell has stated that the Fed essentially revises NFP down by 60k jobs per report.
** Watch CPI to indicate if goods inflation is moderating or still picking up. Easing goods CPI is doveish for the Fed into 2026.
Top watches: MU, FDX
Swing Stock Scans
Back to slim pickings… We’ll always opt for quality over stuffing the newsletter with fluff.
AXP – Daily
New all time high breakout on Thursday. Financials generally as a sector are getting some love. Holds over 375.5 that build out a bull flag or higher low setup look okay for continuation.
U – Daily / Monthly
Multi year base high is starting to break out. This setup may not be actionable immediately, but should remain on radar to gauge the opportunity for higher lows to build out. A break over the IPO open price is also one way to action on this chart in the future.
ZM and ROKU look similar on high timeframes, but lack strength on the daily.