Trend Strength Is Weakening…
Markets are still off of the highs by about 2.5% as of last Friday’s close.
Most importantly the market closed back under the top of the bearish engulfer high after undercutting the 50 SMA… again.
It’s not the end of the daily trend, but we’re certainly seeing a change in tone coming from a daily lower high rather than the highest high. Much more on this trend analysis lower.
Fundamental Backdrop
It’s easy when markets make a downside move to become enamored with the idea of calling the top.
Especially when its widely believed we are in an AI bubble and nailing the bubble high to become the next Burry can be worn like a badge of honor.
I’d like to briefly touch on the fundamental backdrop, but really let the technical aspect of the newsletter analysis shine.
Remember only price pays… not opinions.
The Fed
- The Fed tracker tool flipped to higher odds of a pause for December rather than a cut. This will continue to pressure the small caps and speculative names.
Labor Data
- Labor data is finally being released on Thursday. If it looks ugly, it may reverse the odds from the prior note about the rate cut in December. However based on the ISM and ADP data we reviewed last week, that doesn’t seem likely.
Earnings
- AMAT earnings beat on EPS and revenue, with okay guidance. Yet the stock was still down in the pre-market Friday morning over 9%.
- This week its all eyes on NVDA.
- Forecasts are for EPS of $1.25 up 60% from year prior. Revenue (not pictured) is forecast to be $54.83B up 56.3% from year prior. For Nvidia to continue being rewarded by The Street, they’ll have to beat and guide much higher than this.
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
Inside bar still within the trend channel and over the weekly 20SMA. No threat at the quad low 654. Trend remains up, but slowing down, notice the majority of the rally is over the 50% channel mark.
SPY – Daily
There is simply one level to rule them all this week. The bear engulfer high strikes again at 674-675. If price remains below, the daily trend is much more susceptible to changing to down. Note the upper wick rejection on Friday.
We already see a lower high from Wednesday, and thus this is no longer a pullback from the highest high with room for a higher low. That ship has sailed.
We’ve seen multiple tests of the daily 50 in short proximity of time. A strong trend will test it once and not look back. Markets had that chance early in the week, but failed.
If the daily takes out the 662.75 lows, the weekly quad low is in play at 654. If that breaks, the depth of the weekly pullback should increase. If it holds, there is very likely some kind of equilibrium that develops.
SPY – Daily
Tops are a process, they don’t happen all at once.
Take for example the top from Dec. ’24 into the new year (bottom pane).
The strength of the uptrend slows. Markets fail to make a meaningful higher high almost two months later. Its not like after the 12/18/24 bar markets moved in a straight line down.
Very similar to how after the 10/10/25 bar, markets did not move in a straight line down.
As a simple illustration via moving averages, I would classify today’s current position stronger than that of the reversal on bottom. Note that the 20SMA is still pointing up rather than flattening. The 20SMA isnt close to crossing the 50SMA or even on a trajectory to do so yet.
While I’m not fond of using moving average crosses as black or white buy or sell signals, they do have a place in illustrating trend strength in a simple manner. These charts are not meant to be aligned timing wise to reflect a forecast path of where we are relative to the example, or what may happen next. It is simply an exercise in looking at trends and their evolution.
SPY – Hourly
We can see the daily lower high after the trend flipped back to up after Monday’s gap up. Thursday flips the trend to down, and most notably at point 1. we do not see a firm gap fill reversal. If buyers were going to battle for a higher low, this is where it should have happened.
Instead on Friday we get the gap down to a lower low and subsequent rejection of the bear engulfer high at point 2. setting an hourly lower high potentially.
This illustrates that we don’t have buyers stepping up on the ideal higher low above the bear engulfer, nor do we have buyers stepping up trying to reclaim it once lost both on Thursday or Friday.
SPY – Hourly
Primary pathing ideas will look for lower highs to be set under the 674 area. Losses of the daily 50 SMA intraday should seek breakdowns.
If for some reason the market gaps over 675 into the Monday open perhaps we neutralize our stance… But for now it is not a primary base case. If price opens above, please understand it changes the dynamic of the short / trend sequence to more balanced and neutral rather than bearish.
Market Internals
At the exchange level, we have more sell side pressure on Thursday than we do buy side pressure on Friday, even after recapturing Thursday’s close.
Market Profile
I’ll give bulls a little bit of credit as value was overlapping on Friday. However, the shape of the profile is a P. Indicating that the A B C period rally is more indicative of short squeeze rather than that of a trending session.
Pair this look with what we just saw in internals, and it does not look like we have new money buyers entering the market.
Sector Posture
Still some bright spots in healthcare and staples. It may still be rotational to some degree, however these are defensive and lighter weight sectors for the S&P. Better rotation would include the XLF as getting bid.
Generally this starts to feel risk off instead of a mixed bag.
Sector Posture – Semis
Semiconductors don’t look horrible, but they are not holding the ideal places for higher lows to emerge.
Sector Posture – Financials
Financials had a decent failure on Friday to hold over the neckline of the double bottom and in the upper range. Lack of rotation after a strong break to new highs on GS JPM MS etc…
Sector Posture – Discretionary
Note the clustered look of the 20 and 50 SMAs and notable slowdown in trend with lack of breaks to new higher highs despite AMZN earnings. This is a heavier weight risk on sector.
Sector Posture – Communications
This is just objectively in a downtrend.
HYG – Junk Bonds
Junk in isolation confirming the SPX daily lower high seems bearish.
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
Thursday is the day. We get the labor report from September to actually come out.
To be decided on when the October report comes out or IF it ever comes out.
Top watches: XPEV, HD, TGT, LOW, WMT, BULL and of course… NVDA
Swing Stock Scans
GILD – Daily
Daily hammer over the breakout point into all time highs. The healthcare sector has been hot recently so this will be a top watch. If it can take out Friday high and markets are not blood red, looking for Thursday high target and then new highs beyond. Not interested on daily closes below 124.5.
GSAT – Daily
Momentum breakout against the backdrop of a weak market. Looks tight in this consolidation up here seeking upside for a move to 68 and beyond for the true continuation. Ensure good volume continues to come into the name. Not interested if consolidation starts failing 54.4 area.
KO – Daily
Cup and handle emerging here with a tight flag retesting the breakout point. Looking for a move over 71.75 and then a hold over Friday low to navigate up towards 74. Under Friday low is not interesting.
MNST – Daily
All time highs await the potential breakout of 72.10 area. Great consolidation up here with relative strength to the market after earnings. Under 68.5 and I lose interest.
TRGP – Daily
Multi-month base with great relative strength into the end of the week. High and tight flag that can potentially recapture the 200 SMA with thin structure to retrace to the left. Interested over 175.5. Not so much if the flag never breaks or finds acceptance above.
XOM – Daily
Great little Brigade Bolt™ starting to form over the breakout point from the ascending triangle. Over Friday hammer high can get interesting into the 12 and then 126.3 ATH levels. Energy has had decent strength to the market alongside healthcare recently.