Great Earnings Getting Punished
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Before we get into the details, I just want to say we have seventeen swing charts listed at the bottom… huge uptick in available setups this week. Okay, here it goes…
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Markets have continued to pullback and are off the highs by roughly 2.75% as of Friday’s close.
More notably, the overshoot of the daily 20 SMA (orange) and bearish engulfer high threatens the cleanliness of the daily trend.
Monitoring the 674 level will be a top priority headed into this week to determine if the bulls have what it takes to keep daily trend up rather than drifting into equilibrium or even reversing.
Over the weekend, we have the reiterated news of potential dividend checks going out from tariff revenues of $2,000 per person.
Regardless of its feasibility (estimated $300BN payout vs $160BN “collected” thus far) this may be interesting as a catalyst to get markets higher on the Sunday night open.
In the /ES futures, I’ll be watching for over or under 6805 as the equivalent of the 674 SPY engulfer high level.
Is The AI Trade Over Heated?
The market pullback seems to be stemming from concerns over the AI trade reaching bubble territory.
On CNBC, there were over 300 articles into the end of the week centered around the theme of “AI Valuation Fears.”
Notably we have seen strong earnings and forward guidance from AI companies like Palantir go unrewarded from the market. As a matter of fact, actually punished!
PLTR offered a beat and raise, AMD offered a beat and raise, even QCOM and ARM reported decent earnings. Yet all of these names sold off on earnings.
So is that it? Is that the end of the AI bubble? Will the high fliers come down to earth and fade off into the sunset?
Consider the table below, thoughtfully assembled by Ciovacco Capital covering some of the early stage bubble headlines ahead of the Dot Com era crash.
If you sold your portfolio at the early signs of “bubble” concerns in 1985, you missed a 735% gain.
Even getting out after 10 years of hearing about this “bubble” and finally saying enough is enough in 1995, you missed an additional 148% gain.
Not that any trend following system would ever have you nail the top perfectly, the point of the exercise is to remember that the charts and underlying trends of price action should determine actions you take, not the headlines.
So bottom line: Until the weekly trends in the S&P and Nasdaq start to change, markets are experiencing normal, and to be expected pullbacks.
Private Labor Data
As the government shutdown extends to the longest in the history of the United States, labor and inflation data continue to be delayed from the BLS and BEA.
We still have private data coming out, and as of last week, the labor data continues to indicate that the downside risk may be dampening a bit. Note how in ADP and ISM survey reports, labor is curling higher.
Not pictured is the actual vs expected print. ADP and ISM employment is not only up, it beat expectations.
So when it comes to Powell’s commentary last week on Decembers rate cut decision “not being a foregone conclusion, far from it,” there may be some merit in holding off.
Rate cut odds for December moved lower on the labor reports, and the 10-year rate moved higher on the reports.
Higher rates in the short term will continue to put pressure on small caps, which in effect may contribute to further breadth strain.
Not enough to get overly bearish in the broader market, but its one more data point to continue monitoring as an input to the trend strength and resiliency in the S&P.
As always, the charts light the way, so lets take a look through things relevant to this upcoming weeks worth of trade.
Trade Brigade Live Squawk
Make the most of the final trading quarter with live intra-day commentary on breaking opportunities.
Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Onboarding support will be available through the evening and Monday morning starting at 6:30am EST before the 8am premarket-prep kick-off.
Broad Market Analysis
SPY – Weekly
Really nothing to write home about here… pullback from the channel high following an inverted hammer on an exhaustion gap up. So long as the quad lo bottom at 654 isn’t taken out, no major concerns.
SPY – Daily
A perfect pullback would have remained above 674 and daily 20SMA. The overshoot doesn’t invalidate the opportunity for a HL, but it dramatically increases the odds of failure. If a LH emerges below, the risk of H&S reversal appears. If we can reclaim, onward and upward towards ATHs.
SPY – Hourly
So long as price opens on Sunday night futures below 674, neutral is the best stance. On 1h HL over 674 the 1h trend changes back to up, and thus the daily HL is attempting to form. If price stays below 674, the 1h trend remains down, and continuation is the play.
MIND THE JUNK DRAWER™
Worth highlighting how sellers on Friday’s gap down, were unable to preserve a LH under the daily 50, or under Thurs lo for gap fill reversal. In a more substantial shift of market tone with selling regardless of sector, a LH should have emerged sub Thurs lo.
Still maintaining neutral to bearish first, but very open minded to changing tone to short term bullish breaking the 1h trend should signs emerge (green pathing).
Market Internals
Friday’s internals also paint a picture of concentrated selling in tech, not exchange wide weakness. If it was going to be the end of days, you’d expect substantial volume outflows not inflows. AD line to close negative, not positive, cumulative build to go to -5k, not flat…
Market Profile
Value is definitively shifting lower which is bearish. Friday value is lower in the session, meaning that if the EoD rally translates to any higher open, there is a shot at holding VAH as a pullback low, allowing longs to hold comfortable from decent location.
HYG – Junk Bonds
Divergence here has been the best guide to market structure over the last few weeks. Notice the flat lows on junk vs the lower lows on S&P. If this remains then I’d be looking for the market to go counter trend. If the HYG makes a new low… heads up!
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
Monitor for the Sunday night vote as to whether or not the government will reopen.
Based on the contingency plan it may take up to 3 days after reopening to get staff and data in order for proper release.
Read DOL contingency plan here.
Top watches: CRWV, OKLO, CRCL, CSCO, AMAT
Swing Stock Scans
AMGN – Daily / Weekly
Weekly double bottom breakout underway post earnings gap and go. Great double inside bar setup on the daily. Over the 321.5 high should keep the lift moving into 339. Pullbacks that support over 306 also keep bulls in control.
CRWD – Daily
Great cup and handle breakout with higher low retest over the breakout level and daily 20SMA (orange). Looking for continued holds above and breakouts to continue over the ATH 554.6 level. Not interested if the 517.5 fails.
DINO – Daily / Weekly
V shaped off of the weekly low. Nice balance range creating a weekly bull flag having reclaimed prior major weekly lows (the double top neckline from Jan 2024). Over the daily 55.4 breakout level, room into 62.25. Not interested if the 50 level breaks.
EOSE – Daily / Weekly
Elevated out of a multi year base and breaking out of a daily bull flag. This may be a bit late to chase, but continuation gives it some room into 21.90 and then 26.65. The main thing to watch is volume on momentum movers like this. Ideally price would not re-vist the breakout point near 16. Next major move would be a break to make a new high over 19.
ESTC – Daily
Multi-month base with great relative strength into the end of the week. There was no major pullback here. If this can breakout over the 94.75 area there should be room to lift into the 118 prior highs. When and if the chart makes a break for it, ideally higher lows sustain action over 94.75 and don’t look back.
FERG – Daily
Bull flag consolidation near all time highs. Great support over prior resistance now acting as support at 240.6. Interested in daily closes over the 251 level for continuation higher.
FLNC – Daily / Weekly
Daily and weekly bull flag with holds over the resistance downtrend break. Walking up pivot highs as targets. Not interested if 18 fails to hold.
GH – Daily / Weekly
Tight daily range post earnings gap up. The hold higher despite market pullback is interesting for potential continuation. The large watch would just be if prices makes a new high over 99. Even if price starts to close the gap, this should remain on watch due to its relative strength.
GPCR – Daily / Weekly
Weekly double bottom triggering with bullish 3 bar play in force. Over the daily flag high at 34.1 has some overhead supply to battle through, but generally targets 44.75. Not interested if the Friday low breaks.
IMNM – Daily / Weekly
Warning: Not a fan of the weekly inverted hammers / upper wicks. That said, the consolidation area looks correct after a nice daily advance. This may not be in play this week, or even ever (the setup can fail), but its worth continuing to keep an eye on that 17 breakout level. Daily closes above are critical if its going to have the next leg up through thin structure to 21.75.
INSM – Daily / Weekly
Vertical on the weekly chart… so cautious on pullback risk, but the daily bar and flag at the ATH level look great for more consolidation to build out and then potential breaks to new highs to be fueled by volume. TBD on if it actually goes, but the daily flag is high and tight, thus worth keeping on a watchlist.
PARR – Daily / Weekly
Awesome daily bull flag at all time highs with a weekly balance happening over the prior range highs. Great looking weekly hammer with look below and fail for sellers. New record highs should aim to double the range from the daily consolidation first and then a measured move from weekly bull flag.
QS – Daily
Classic daily bull flag over prior resistance highs. Breakouts over 18.5 area should start looking for 22 area as a target. Interested so long as 14.5 holds.
RMBS – Daily
Another classic flag. Over the trendline should attempt to get into ATH levels. Interested so long as the 94 area holds.
SMTC – Daily
Great flag range at the top of a constructive trend. Over the 73.35 high should get it up to 79.45 which is less than a range double. Interested as long as 64 holds.
TJX – Daily
A bit more boring than the healthcare and utility names that have dominated the scan thus far. Over the top of 145.75 unlocks new highs. Simple ascending triangle with strength behind the trend. Would give it room to balance anywhere for a higher low over the support trend line.
ZS – Daily
Pullback off of prior pivot high after rounded bottom base. Looking for 317 holds to allow moves back into 336.85 and then monitoring for continuation towards 375 ATH areas. Not interested on daily closes below 317.