5% Yields Couldn’t Break It
The S&P closed up 0.67% from last Monday’s open to Friday’s close, but up 1.26% from Friday to Friday if to count the gap.
It might seem like all we’re doing is forming a new area of balance between 774.85 and 760.25, but recall last weeks key trigger.
We have a weekly break over prior bar high, a break of the resistance trend line, a partially unfilled gap below us, and all key moving averages reclaimed. This is notable progress for the bulls after bears failed to do anything meaningful with the FOMC breakdown.
5% Yields Couldn’t Break It…
Normally we’d think a +5% 10 year yield is supposed to break markets.
Higher yields compete with equities, tighten financial conditions and put pressure on growth stocks. Add on $100/barrel oil and another potential Fed hike and the fundamental backdrop doesn’t exactly scream risk on.
Yet thats exactly what the markets have shrugged off.
September Flash PMIs from S&P Global came in much hotter than expected, signaling the fastes US business growth in more than five years. Inside the numbers, employment accelerated and input costs rose at nearly the fastest pace over that five year span.
Yields SURGED on this news, and yet the market was able to recover just a day later.
This could have been due to the positive developments around Hormuz with Iran proposing the Strait could be reopened in as little as 7 days should the US agree to terms. This narrative looks a bit shakier headed into this week with Trump directly rejecting the proposal and more tankers being targeted and struck over the weekend.
Despite this, on the Sunday night reopening of crude oil futures, we can see that prices are still below the unaffected price from the Friday technical talk headline (94.2) and certainly well below the Thursday Hormuz reopening headline (96.5).
This seems to be another opportunity for market to prove it can continue to shrug off bad news.
AI Is Why Growth Won’t Break
For most of the year, the AI debate has been centered on the supply constraint.
How many GPUs can hyperscalers buy? How many data centers can the finance? At what point does the capex become excessive?
This week we had the opposite side of the equation come to light with Meta’s Muse indicating clear DEMAND.
Muse reached 2.8M downloads in its first 12 days, across both app stores. On a more comparable U.S. + Canada iOS basis:
- Muse: 1.8M downloads in first 12 days
- ChatGPT: 1.3M downloads in first 12 days
Muse also set a new U.S. daily download record of 264K on Sept. 19, its 3rd straight day above 200K. ChatGPT didn’t cross 200K U.S. daily downloads until roughly a year after launch.
Engagement is also running ahead (DAU = Daily Active User):
- Muse reached 448K U.S. DAUs by day 10
- ChatGPT took 49 days to reach roughly 450K U.S. DAUs
- By day 12, Muse was at 642K U.S. mobile DAUs vs. 231K for ChatGPT at the same point
Muse may be showing us how the next leg of the AI trade works.
More agents, more usage, more inference, more CPU / cloud demand, more memory, more capex.
This is why names like AMD, ARM, INTC, had phenomenal weeks. The agentic opportunity shifts the balance of compute from strictly GPUs for inference back to a better equilibrium of GPUs AND CPUs.
If Muse is an early sign that consumers are ready to use AI agents at scale, the AI capex cycle may still have a lot more room to run.
As always the charts light the way, so lets take a look.
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Broad Market Analysis
SPY – Weekly
The weekly SPY candle repaired itself dramatically into Friday. What looked like an ugly inverted hammer after Thursday’s gap down finished as a mostly green bodied bar in the upper third of the weekly range, with a higher low, higher high, and close completely above the prior week’s range. SPY also reclaimed the full weekly anchored VWAP stack while remaining above rising 10 and 20 week moving averages.
The weekly structure remains more bullish than bearish. The chart increasingly resembles a base on top of a base (similar to the XBI pre breakout), and this week’s higher high could mark a change in character. If that structure begins to accelerate, the market may be transitioning from consolidation into another leg higher.
SPY – Daily
The important short term line in the sand is Thursday’s low near 763.25, which also lines up with the rising 50 day SMA and gap fill reversal. So long as price remains above that or offers an IMMEDIATE look below and fail markets aren’t deteriorating.
The cleaner bullish scenario is continued digestion above 766, followed by a break of 774.85 and a retest of the 779.25 all-time high. Friday held the 8 EMA, 20 SMA, Monday’s gap-up low, and the broader 766 support area which is also close to the CPI high. As long as SPY can maintain a higher low above Thursday’s low, I am treating this as a developing daily uptrend rather than a failed breakout.
SPY – Hourly
The hourly trend remains constructive with a sequence of higher lows and a major higher high. A pullback that holds around 768.75, or even a deeper test of 766, would keep the bullish path intact. The anchored VWAP stack and 38.2% Fibonacci retracement from the FOMC low also converge around 766, making that the most important level to judge pullback health. Above there, consolidation followed by a break of 774.85 points directly back toward 779.25.
Not pictured but very healthy for bulls would be a market that rallies first, and then pulls back for hourly higher lows over 774.85 or 772.75.
The character changes if SPY starts accepting below 763.25. That would break the developing daily higher low structure, lose the 50 day SMA area, and force me to question where the buyers who showed up aggressively last Monday have gone.
Market Internals – NYSE
Internals remain the biggest contradiction to the price action. Wednesday produced substantial sell side pressure, but the Thursday and Friday recovery did relatively little to unwind that damage. Price repaired itself far more aggressively than breadth did.
That does not automatically invalidate the rally, especially if I am trading the liquid leaders that continue to outperform. It does tell me that additional sideways digestion would not be surprising at the index level.
An oversold rebound in RSP could improve the breadth picture quickly, and if the heavyweight leaders remain strong while the rest of the market begins to recover, that combination could be enough to push the S&P back through all time highs.
Market Profile – /ES
The profile gives the bulls a more constructive read. Thursday opened sharply lower, yet value did not migrate materially lower. Instead, Thursday’s value overlapped Wednesday and Friday progressed overlapping to higher again. That tells me sellers were not willing to establish meaningful acceptance at the lows.
The remaining naked point of control around 7,835 becomes a reasonable upside magnet if the market rotates through Wednesday’s single-print structure. More importantly, the profile confirms what price showed late in the week: lower prices were offered, but new money sellers failed to take control.
Breadth – Percentage of S&P Companies > 50/200 SMA – NYSE New Highs vs Lows – RSP – Equal weight S&P500
Breadth looks objectively poor, with the 50-day breadth measures and new highs versus new lows already deeply compressed. My question now is how much worse they can realistically get before producing some sort of countertrend recovery? RSP has already failed to extend beneath its FOMC low.
The real danger comes if breadth remains weak and the current leaders (semis and memory) begin to fail at the same time.
QQQ – Impact on S&P
QQQ remains the strongest argument for staying constructive on the broader market. The daily chart has broken back into an uptrend, the Thursday selloff held prior resistance as new support at 734.25, and Friday formed a quiet resting bar above the breakout area. The weekly expected move spans 729.02 to 759.98, while the larger weekly bull flag carries a potential extension toward 775.
On the hourly chart, 741.65 is the cleanest support reference. Holding above that area keeps the inverted head and shoulders structure intact and leaves Qs positioned for another attempt at blue sky territory. A deeper shakeout toward 734.25 could still repair itself through a look below and fail.
Acceptance below 734.25 would be the first meaningful sign that the short term structure is deteriorating. Although frustrating, a deeper pull to test the gap would still form a firm daily higher low.
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: MU
Swing Stock Scans
AXTI – Daily Chart
Great little flag over the MA stack and with very equal highs. Over 81 has tight risk against Friday’s low.
BRKR – Daily Chart
Still on radar after last weeks higher low over the MA stack. No breakout yet, but great inside day on Friday.
DOCN – Daily Chart
Over the flat top base and showing the first flag. Look below and fail of Friday low or breaks through the 151.5 level may try to get this back in gear.
GEV – Daily Chart
If we need more power for this AI buildout, and nuclear comes back into the conversation, this looks like its balanced long enough. Nice double hold of the 200 SMA, and now the break of range high coincides with the break and reclaim of the 50 SMA.
MRAM – Daily Chart
Not necessarily in play immediately, but if this can build out more right hand side of the base, over 20.25 can get going. This chart has an insane move of sharp linear moves higher.
MRVL – Daily Chart
Acting as a clear leader in the semi space. Flagging out over this little base above all key MAs. Over 266 or look below and fails of 252.5 get interesting for long ideas.
PWR – Daily Chart
Great little base with higher lows and reclaim of the 50 SMA. Over the 655 level potentially gets going again.
STX – Daily Chart
Great looking base if you ignore the failed breakout. Over the inside bar highs from Friday and this can potentially lift. A higher low shake out into the MA stack isnt unreasonable either.
TER – Daily Chart
Great hammer over the double bottom neckline. Over 399 or even the 400 psych number can get this thing going. Higher lows need to hold the MA stack.
TGTX – Daily Chart
Great flat top base building, or classic bull flag. Over 59.25 is the trigger. Very rare that I would include a biotech name, but this fits the criteria of positive net income and EPS (although volatile).