The WOW Factor Is Fading…
Markets are closed Monday, May 25, in observance of Memorial Day!
The S&P closed up 0.79% last week, but most importantly, having found a firm daily higher low pullback over the prior weeks low.
Looking at the superimposed weekly bars (light green bars on the right) we can see an inside bar. Over 749.5 seeks blue sky flag breakout. Inside consolidation keeps building the bull flag. Under 732.25 triggers daily double top neckline break, but isn’t the base case.
After the Friday inverted hammer it may be tempting to lean towards the double top reversal. However, last week also proved the sector rotation was not “sell semiconductors; buy software” or “sell software; buy semiconductors”, but rather just… “buy them both!”
To me, this looks more constructive as a daily bull flag building after a historic lock-out rally from the gap and go low April 8th.
Nvidia Double Beat And Raise… So what?
Nvidia earnings on Wednesday continue to prove that the company absolutely prints cash.
Revenue came in at $81.6 billion, up 85% year over year. Data Center revenue hit $75.2 billion, up 92%. Guidance for next quarter came in at $91 billion.
By normal standards, these are unicorn numbers. By Nvidia standards, its just another quarter and investors want to hear whats next.
The most important part of the conference call centered around, not GPU demand, but rather CPU demand and the new Vera chips.
Jensen noted that Vera would plug into the Vera Rubin platform specifically built for Agentic AI application. His estimate is that there is a $200 billion total addressable market, with visibility to $20 billion of revenue coming in the third quarter this year when Vera launches.
This all sounds fantastic, but it needs to live up to expectations. If AMD or INTC continue to dominate the CPU markets, or if the hyperscalers take a custom silicon approach into their own hands (think GOOGL TPUs), there may be problems.
The markets accustomed to hearing the knock out numbers, and the stock doesn’t move well post earnings these last few cycles. Better not miss on that additional $20 billion of revenue expectation in Q3 otherwise disaster could be on NVDAs plate.
This continues to point to AMD, INTC, ARM, MRVL, DELL, MU, SNDK (just to name a few) as all being really great expressions outside of NVDA as the “AI trade.”
Oil Still Dominates The Multiple
The second major theme this week was not just seeing the market react to war headlines, but the chain reaction they caused.
Iran headlines hit crude, which hits inflation expectations, which hits the 10-year yield, which hits equity multiples.
When the 10-year yield was below 4.5%, the market didn’t care so much. After April CPI and PPI came in hot and the 10-year yield broke above 4.5%, the correlation went from watch crude, to watch rates.
Its important to note that earnings are supporting the move higher we’ve seen in equities, and this is not a rally based on the premise of a multiple expansion.
So while the market may be pricing in some kind of a rate hike as Kevin Warsh’s first move, it wouldn’t fully unwind the earnings growth projected here.
Could future expectations take a hit? Yes. But is the foundation underneath us more stable than declining earnings and expanding multiple? Yes.
Also, for what its worth, a rate hike here in the US will have ZERO impact on inflation that is a result of the Strait of Hormuz being closed. So a base case might be higher for longer, but likely not a big rate hiking campaign.
“Crap Cos” Get Bid…
The final observation from last week is the froth thats starting to step back into the market. Speculative money is moving again, and its finding a home in the crumbiest corners of the market.
This isn’t a bad thing, its a sign that the markets are in full bore risk on mode.
The quantum deal was the clearest example. The US Government announced letters of intent tied to about $2 billion in planned quantum computing funding.
Stocks reacted exactly as you might expect… RGTI, QBTS, IONQ all saw massive bids. RGTI on Friday alone was up nearly 20%, IONQ nearly 10%.
IONQ is a perfect example of speculation running rampant. The company guided for $260 million to $270 million of 2026 revenue and still expects an adjusted EBITDA loss of $310 million to $330 million.
The stock has a $20 billion-plus market cap…
Then there is the Space X IPO news… the valuation reported is around $1.75 trillion dollars. The company is fundamentally much different than IONQ. But going public at this valuation means roughly 100x sales. Do the math on the IONQ example above and you get roughly 90x sales…
See where we’re going with this?
As mentioned, this is more of a sign of risk on an euphoria.
As we learned from Stanley Druckenmiller in the dot com bubble, most people will make way more money surfing the trend higher rather than trying to pick a top. Risk appetite is alive and well, and its time to make money while we’ve got one of the hottest markets many traders have experienced in decades.
The catch? Being flexible enough to adapt and pullback the reigns when the time comes.
As always the charts light the way.
Trade Brigade Live Squawk
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Broad Market Analysis
SPY – Weekly
Bulls dominate the trend. Higher highs higher lows. As mentioned in the intro, any outcome here this week keeps the trend up.
Breaks below 732.25 seek 712.4 first stop higher low, and then 700 second stop higher low.
SPY – Daily
Thinking mostly about bull flag breakout continuation rather than double top breakdown. Higher lows are great over the 20 SMA (orange).
If price does spend more time under 732.25 the trend will flip down and the first target is the gap close at 725. Problems would get worse if there is then a daily lower high under 732.25 in which case we look for the 712.4 weekly pullback… remember, not a base case, but a path to have in the back pocket if things go wrong.
SPY – Hourly
Same ideas as the daily pathing. Note that if the market makes a higher high first, and then pulls back under the 749.6 ATH level, sequencing matters. Price can still set a higher low from there and maintain a daily breakout and hourly uptrend. I would not default to calling it a look above and fail.
Market Internals – NYSE
Market breadth was broadly supported at the exchange level all week. Tuesday was a little rough, but all other sessions had a net bullish impact. Great to see coming off of a daily higher low pullback.
Market Profile
Most impressively we have a value area from Wednesday that was not “toppled” on the Thursday morning consolidation. Point of control continued to drift higher with price confirming the willingness of participants to transact at higher prices.
IGV & SMH – Semis and Software Bid
Early in the week it seemed the trade would become take profit in semiconductors and buy software. That lasted for about a day and a half. Into the end of the week, both key components of the AI and tech trade were bid. Bullish risk on appetite.
HYG – Junk Bond Divergence
Junk FINALLY broke the resistance trend line. Sorry bears, data point getting a bit weaker as a topping indication.
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
Not as worried about PCE, rather watching to see how the market receives the revised GDP number or if there is any anomaly there.
Top watches: ZS, MRVL, CRM, SNOW, PLAB, DELL (long), COST, S, NTAP (long)
Swing Stock Scans
AAOI – Daily Chart
Tight four day consolidation right at the 20 SMA. Over the 182.65 level can get back into trend towards the ATH. Tight stop under local lows potentially dependent on Tuesday open.
FLEX – Daily Chart
PEG setup over all key moving averages into blue sky territory. Tight days on Thursday / Friday. Looking for a move over those highs to get into the ATH area and then beyond.
KEYS – Daily Chart
Hammers making higher low and equal highs just below the 20 SMA. Back over the 346.75 level has room to resume the uptrend and navigate towards ATH. It could even build out more of a weekly flag here and then go after another 4-9 days sideways up here.
MXL – Daily Chart
Great look below and fail on Thursday’s range Friday. Looking for a flat top base breakout or Brigade Bolt™ above the 102.2 level for continuation.
OSCR – Daily / Monthly Chart
Multi year range breakout attempt at the 23.25 level. Daily hammers hanging in there over the 20 SMA. Looking to see if there is an early way to get involved on small risk for the larger break. If its really going to go for it, there will be plenty of setups over 23.25 as well
PWR – Daily Chart
Same idea as FLEX from above. PEG into daily higher low near the 20 SMA. Over 729.5 would be great to get back to the ATH.
VIAV – Daily Chart
Need a small reclaim of the 49.4 area for a gap fill reversal to trigger look below and fail. From there looking back to 60 as the target and continuation of the weekly trend after that.