An Earnings Rug Pull
Yes. We missed you the last two weeks.
Those weeks were spent traveling with other traders and trading together in the same space. An opportunity I would suggest anyone takes if they get.
You’ll push each other towards the best ideas, and everyone is held accountable on following the rules of their system. A win win win.
On markets… The S&P closed down 0.97% from last Monday’s open to Friday’s close after failing to take out the prior Friday bar high and meaningfully close above on Wednesday.
This comes on the heels of a failed breakout through the all time high and a major breakdown through the daily 50 SMA (blue).
The action over the last few weeks has been frustrating to say the least as the market seems unable to string together multiple days of consistent directional trend.
In times like this, its important to no only preserve literal capital in the trading account, but also mental capital. If you are a trend following trader, recognizing there is no trend and dialing back activity is so so key.
Here’s your official reminder that cash is indeed a position.
An Earnings Rug Pull
For just a moment, it looked like earnings might actually be what the bulls needed to get this market in gear.
SpaceX kicked things off with quite an optimistic report, delivering 161% year over year rev growth and its first profitable quarter since going public. Shares were up nearly 8% helping lift the Nasdaq more than 1% on wednesday.
Further than that, the way Elon spoke on the call, gave lots of optimistim about reigniting the AI trade. Power and cooling bottlenecks, 440k NVDA chips being brought online in 2027… it was all there.
Then came the rug pull…
META, TSLA, LRCX all disappointed in terms of price action. Reasonable when Meta refused to provide 2027 guidance, Elon started talking about how difficult building Optimus is, and Lam attributed 35% of revenue to China with expectations of that segment disappearing in the next quarter.
BE however was the most concerning… Revenue grew 138%, full-year guidance was raised, on the SpaceX call Elon directly called out the need for more power… yet shares were down 12% on Friday.
Back on August 16th we wrote, ‘Earnings Are Huge… But The Bar Is “Huger”‘. At the time, Super Micro, Cisco, and Applied Materials delivered impressive fundamental results, yet only one managed to rally after earnings.
We’re dealing with the same thing two months later. When good news consistently produces bad price action, that’s a warning to take notice of.
Oil Continues To Be Problematic
Its almost annoying to even talk about at this point, but we have yet again a whiplash in the energy market messaging.
From a deal being within reach, to organizing new strikes after mid terms, to over the weekend walking back statements on strikes… the narrative has been all over the place.
Yet what has that chart continued to do? Looks like an uptrend to me.
And that uptrend in /CL is spilling over from a short one time energy shock to inflation, to more sticky inflation as we’ve seen in the last CPI report where shelter came in at 0.4% increase month over month.
Heck the University of Michigan inflation expectation numbers just came in revised to a 4.7% on Friday.
Inflation expectations rising doesn’t create a friendly backdrop for rates and its my belief that the only reason rates have come down in the last few weeks is due to the bond mechanic.
The current cycle looks like:
- Sell high beta AI names
- Rotate capital into bonds
- Bonds being bid lowers yield
So its the correct direction out of interest rates, but its for all of the wrong reasons.
This Weeks Big Test
Last week the markets reaction exposed that yes… we’re actually still worried about capital cost and return on investment in the AI theme. Crude isn’t helping. Inflation expectations are moving the wrong way.
This week we get to see continued confirmation or a flip of the script.
Wednesday brings us the FOMC (we’ll live stream the event on YouTube), along with earnings from Google and Microsoft. Thursday follows with GDP, PCE inflation and earnings from Amazon, Intel, Sandisk.
The stakes are high, and all that matters is the markets reaction.
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Broad Market Analysis
SPY – Weekly
The weekly candle gives the bears the edge on both structure and location. We printed a red bodied inverted hammer, made a lower high and lower low, and closed slightly underneath the prior week’s low. The larger weekly trend has not fully broken, but the failed breakout near the highs is starting to resemble a double top with a neckline around 750.
We also closed beneath the 10-week SMA, which lines up with the daily 50 SMA, and parked at the weekly 20 SMA. Price is underneath both the breakout anchored VWAP and the last weekly higher low anchored VWAP. I am not calling for an aggressive collapse, but this is not a weekly chart that makes me think new highs are right around the corner. A test of 750 looks increasingly reasonable. Losing 760 opens that door.
SPY – Daily
The weekly expected move reinforces the asymmetric look for downside. The upper bound near 775.47 would only retest last week’s highs, while the lower bound near 744.7 would create a meaningful new lower low. The level I care about most is 760.25. Continued acceptance beneath it leaves buyers from the recent balance trapped overhead and strengthens the case for another leg lower.
The daily trend is already producing lower highs and lower lows. A rally can travel surprisingly far and still remain counter trend, including back toward the 768 gap close, or 771 OpenAI retest low. The more important question is whether a rally can eventually create a higher low. Until then, I am treating upside as a potential lower high first rather than assuming the downtrend has ended.
SPY – Hourly
Wednesday’s inverted head and shoulders breakout failed almost immediately. Thursday opened beneath the moving average stack, never fully repaired the gap, and pushed back toward the prior lows. What stood out was how controlled the selling was. This looked more like old longs reducing exposure than new shorts aggressively pressing the market.
My base case is a failure to go lower, followed by a reclaim of 760.25 and a rally into the 767.70 to 768.35 area. That zone contains the gap repair, key moving averages, Fibonacci resistance, anchored VWAPs and Wednesday’s low. A rejection there would be the lower high I would prefer to short. Acceptance back under 760.25 opens 756.65, followed by 749. If we instead reclaim 771, the odds of this simply remaining a larger range increase substantially.
Market Internals – NYSE
The internals were weak, but they were not nearly as aggressive as the index price action might suggest. Thursday’s index score spent much of the session around -10 rather than reaching the -22 to -23 readings seen during the more aggressive selling the prior Friday. Volume flows and the advance decline line told a similar story.
That supports the idea that this was old money exiting longs rather than a wave of aggressive new shorts entering. RSP was actually green on volume while AI leaders were being sold. The money did not disappear. It rotated into bonds, consumer staples and healthcare. That is better than indiscriminate liquidation, but it is still defensive rotation and not the type of capital flow I associate with a healthy S&P.
Market Profile – /ES
Value has been consistently migrating lower. Wednesday established the lower high, Thursday shifted value lower, and Friday overlapped to the downside. Friday did leave a poor high that could eventually be repaired, but there is plenty of room for that repair to occur while still producing another lower high.
Wednesday’s value area is now important overhead supply. Anyone who bought that session expecting the market to resume higher was immediately trapped by Thursday’s gap. As price revisits that area, some of those longs may simply look to exit around break even. The value area low near 7770 on /ES is therefore an important reference for overhead resistance.
SMH – Semiconductor ETF
Semiconductors look like a major weekly double top, and I think a sweep of the prior Leo low may be necessary before a more durable bottom can form. We’ve talked about and observed similar overshoot patterns on the SMH for most other bottoms.
QQQ – Impact on S&P
QQQ remains the bigger problem. The NASDAQ failed to generate the multi-day relief bounce that an extended market would normally produce. The daily trend is down, rallies have lacked volume, and price is underneath the major anchored VWAP stack. 700 to 702.50 is now the major decision area. A failure there opens the possibility of an excess low, with 686.50 becoming an important downside area.
If Qs continue breaking lower, it becomes much harder for SPY to hold 760.25. If QQQ can overshoot the lows, reclaim 702.50, form a higher low and eventually clear 722, the probability of SPY remaining inside its larger range improves considerably.
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
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Swing Stock Scans
EMR – Daily Chart
Ascending triangle base building. Higher lows over the 50 SMA (blue) look constructive.
GTLB – Daily Chart
Great relative strength in the software sector. Looking for a move over the bull flag trend line or general price acceptance and bullish setups over 55.6 area.
MMM – Daily Chart
Classic Brigade Bolt™ shaping up right over the prior left side peak. Look below and fail of Friday’s low, or building a flag over roughly 170 keeps this bullish setup in play. Great relative strength post earnings in a market that is rotating into defensives.
NOW – Daily Chart
Classic breakout of a base, now looking for higher lows above the base. Cant chase new longs at this high, but looking for the software group to lead within the tech sector rather than hardware.
NTAP – Daily Chart
Looks great on the weekly chart. Higher low over the prior left side peak and relevant to the AI trade without being a semiconductor trade. Sustained holds over the 50 SMA (blue) and a break over the Wednesday high might be asking for higher.
P – Daily Chart
Exact same concept as the NTAP chart.
VSXY – Daily Chart
Inverted head and shoulders forming. Retail has been acting OK in the market downturn, so watching to see if this can perform in the face of a trickier market environment. Would want to see another tight day on the right hand side to risk against rather than Fri low.