Tariffs Ruled Illegal!
The market set a new all time high last week, but promptly rejected it on Friday, closing back below the J-Hole high.
The week still closed up 0.16% from Monday’s open.
Tariffs Ruled ILLEGAL
Right after markets closed on the Friday session, it was announced that the Trump Tariffs were ruled unconstitutional by a Federal appeals court. The ruling allows them to remain in effect until mid-October or until the SCOTUS makes a decision.
This is less about inflation ramifications (in the short term) but more about the way the deals have been structured to involve foreign investment in the US.
With some degree of tension still in the air as to how this will all shake out, the forecast is for a short term uptick in volatility as markets respond (again) to a possible policy shift.
It doesn’t help that seasonally, September is also a month more associated with higher volatility and drawdown for the S&P, especially in recent years.
Economic Data
To make matters worse for markets, we are a new month where the incoming economic data may completely throw off the expectations of what the Fed will or will not do.
This week we’ll be getting the monthly labor report numbers from JOLTS, ADP Non-Farm, Non-Farm, and the Unemployment Rate.
As seen above, the government numbers have remained fairly stagnant in the unemployment rate around 4-4.2%. However when considering what the survey data suggests, there has been a rise in labor market softening that is typically associated with a rise in unemployment.
This might suggest if the reported numbers come in weak, markets will become more confident in the prospect of a rate cut… This seems to be the base case.
However, ISM Manufacturing & Services PMI reports are also coming out which oppose the prospect of a rate cut, noting that prices paid has been on a steady increase.
This historically leads PCE and CPI inflation metrics by 6-9 months.
Last week core PCE year over year came in at a 2.9%… This is still off of the Feds target of 2%.
So what hangs in the limbo is the tension of the data points that are scheduled for release this week.
As traders, this means being willing to keep an open mind to a change in market confidence if there are surprises in the data.
Weak labor and unchanged PMI? Expect a cut. Stable labor and hot PMI expect lower odds of the cut, and thus a repricing of market expectations.
Earnings Revisions
But not all hope is lost… The most recent market rally really wasn’t brought to us my multiple expansion.
Calendar year 2025 earnings expectations have been revised higher through the quarter as P/E has remained fairly stable.
Thus the justification for higher prices isn’t explicitly linked to the prospect of lower rates, although I’m sure it is playing a role.
Note that the largest revisions are coming from the Info Tech sector, the heaviest weight risk on sector for the market.
Broadcom earnings on Thursday have the opportunity to sway this number, but generally speaking the bottom line is that as of now data points in hand we have:
- Upward revision to earnings.
- No widespread layoffs or threat to consumer spending.
- An uptick in inflation that the Fed may be willing to look through as a “one time” change in the price level.
With this in mind, we remain cautiously bullish in the overall narrative, but remaining open to a change in tone should the data begin to deteriorate, which wouldn’t be unreasonable.
Let’s let the technicals light the way for the actions we’ll take given this context.
Trade Brigade Live Squawk is here!
This is the final trading week of August. Make it count.
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 – Monthly
Monthlies just closed. No issues here with ATH higher high being produced, and a clear opportunity for a higher low. Ideally it would be over the 610 area, but technically price could even overshoot that.
SPY – Weekly
Candle suggests a failure to higher in the upper wick with close back inside prior week range. After a new ATH, there is plenty of room for a higher low pullback, just like the monthly. The monthly and weekly higher low could potentially be the same at 610.
SPY – Daily
Pullback on Friday is still well within the realm of continuing a higher low sequence. The line in the sand for the daily higher low would be 638.15. Under that the trend neutralizes.
Under 634 the trend flips to down and we start hunting weekly higher lows.
Recovery and holds over 645.25 seek simple trend continuation to new highs.
SPY – Hourly
The base case is that higher timeframe trends are in tact and there is not an overwhelming body of evidence that suggests a trend reversal is imminent. Rather, the potential 1h downtrend is seeking a daily higher lows. Thus, the green and white pathing is preferable.
QQQ – Daily
It would be crazy to not mention the relative weakness in the Nasdaq. The lower high is the talk of the town, and thus, we’re open minded to that breakdown of S&P 634 should sector rotation not keep up.
XLF – Daily
inancials, now the second heaviest weight sector, have been pulling the weight for S&P as money has flowed out of tech. If this fails simultaneously with the Nasdaq, alarm bells would start going off.
Market Internals
On the topic of rotation, it becomes abundantly clear that Friday’s sell off was an isolated incident with semiconductors. Broadly speaking participants were panicking out of “everything,” as noted by breadth and AD line.
Market Profile
One notable data point is that buyers are not all that committal at new all time highs. Note that value shifted lower as did PoC on the ‘b’ profile Friday. This would tend to indicate long liquidation from the highs, not new money sellers.
Bitcoin
Crypto has been one of the early warning signs of this breakdown in risk assets via the failure to sustain the new ATH earlier in August, now that we are under the neckline of the weekly double top this is a more actionable data point.
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:
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Economic & Earnings Calendar
As outlined above… busy week.
Note that ADP Non Farm is not a “red flag” event but will be released on Thursday morning at 8:15am EST.
Top watches: ZS, CRM, AI, AVGO, LULU
Swing Stock Scans
ABBV – Daily
Bull flag with high and tight consolidation as markets fall into rotation. Looking for a break of the highs to get into the pivot high at 217. Not interested if the daily 20 SMA (orange) breaks.
DNA – Daily
Pennant forming that could also be seen as the handle of a rounded bottom on the higher timeframe weekly. Looking for a trendline break to get this started and ultimately clearance of some of the last lower highs to navigate towards 16.75.
ELF – Daily
Fractal versions of the inverted head and shoulders starting to trigger. Weekly has neckline resistance around 143.15. Daily broke out over 123.5 into the end of the week. Ideally a hold there keeps the short term pattern working in favor of the higher timeframe pattern. Unfilled gap above as target closer to 172-181.8.
SRE – Daily
Tight bull flag consolidation over the last few weeks with gap to close overhead as a target. Over 83.25 seeks the closure at 86.75. Not interested if the range cant sustain consolidation over 80.5.