AI’s First Margin Call
The S&P had a peak to trough drawdown of about 3.25% last week, making a new all time high and yet closing near prior two week balance range lows after Friday’s rout.
This is notably a character change from the market which had been finding relentless dip buyers on prior gap downs.
Some are crediting the newly eliminated pattern day trader rule for giving retail a cushion to get and stay long into Friday… only to get rug pulled by the market’s worst session since November 2025. In our view, it’s probably one of these things though:
The AI Trade’s First Margin Call
Broadcom put up strong numbers on Wednesday night, but the forward guidance coming in flat was not strong enough for a market priced to perfection.
The gap down on Thursday morning was bought, but in a weak way. AVGO was unable to reclaim the daily bull flag highs, and rejected the daily 20 SMA (orange).
That was just the start with Friday being the real doosy. The stronger than expected labor report showed Non-Farm Payroll coming in at 172k vs the 85k expected.
From there rates went higher, the US dollar went higher, and foreign markets took a hit. The hardest hit market of course was the over leveraged KOSPI. South Korea’s meteoric rise has largely been fueled by Samsung and SK Hynix which are acting like high beta memory names for the AI trade.
The KOSPI fell about 10% from peak to trough, just about 3x worse than the S&P 500.
Memory may have been one of the strongest themes coming out of the April low, and perhaps even went too far too fast.
Another glaring example of valuations actually needing to matter is Marvell. Jensen called it the “next trillion-dollar company,” and the stock ripped about 30% overnight.
The point isn’t to say that the AI trade is dead. Far from it. It’s to say that perhaps… just maybe… the “easy money” phase of “buy anything AI related and it’ll go up,” is over.
The Fed Spooks The Market
The sell off wasn’t due to a weakening economy. It sold because perhaps the economy is still stronger than the market thought, and thus the Fed won’t need to be supportive.
We covered how the Non-Farm Payroll data came in hot, and rates went higher. However this week is the real test of if rates will ACTUALLY go higher.
CPI comes out on Wednesday morning with forecasts of 4.2% headline and 2.9% core. A cooler than expected print gives bulls the chance to argue that Friday was overblown and just a positioning flush. A hot print makes the rate hike conversation real, and puts the pressure on anything that’s already priced to perfection.
Fed watch tool odds suggest that the hike has been bumped up from January 2027, to December 2026. In addition, odds have now priced in a second hike for June 2027.
FOMC member Hammack said on Friday that “It may soon be appropriate to act on rates.”
Kevin Warsh has his first FOMC meeting June, and as we know, the market loves to test a new Fed chair.
SpaceX IPO – A Generational Money Grab
If semis and the Fed weren’t enough to deal with, now we get SpaceX, the largest IPO in history.
Its expected to go public at a $1.75 trillion dollar valuation.
Ticker SPCX was originally supposed to bypass the S&P 500 seasoning and profitability rules and be granted immediate inclusion. However into the end of last week confirmation of the normal requirements was announced.
This might imply that Friday’s sell was actually less about raising cash to fund SPCX purchases, and more about the other two mechanics listed above.
The derivatives instrument is trading lower last week ahead of the broad market sell off but still priced to come in over the IPO forecast of $135 / share.
Though I won’t be trading it personally, rather just observing, just remember that many IPOs have a rough starting track record.
It might be fun to participate with a handful of shares to tuck away and forget about, just to say you were a part of it, however don’t look for super star performance.
Many people think its too overvalued and it must go down, many people think its a unicorn company and is bound to go straight up. All I know, is I won’t let the stock hurt my portfolio because of a stubborn belief I “know” is right.
If you want to trade IPOs read this book: The Lifecycle Trade
As always, the charts light the way, so lets jump in.
Trade Brigade Live Squawk
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Check out this recording for a taste of what each morning session is like: 07/09 Live Squawk
Broad Market Analysis
SPY – Weekly
First red weekly bar since the rally began. Note that we are pulling back though from the highest high and have plenty of room for a higher low to form. If 730 breaks, looking for about 710-712.5 area for the ideal higher low. Under that level the line in the sand is 700 area.
If you look back to last October 10th week (cyan arrow), you’ll see a similar two week range, with bearish engulfer from the highs of the trend count. Point is, this doesn’t guarantee the pullback deepens, and to keep an open mind to two sided trade. Balance over 730 will prevent a deeper pullback.
SPY – Daily
There was ZERO support at the ideal higher low locations on the Friday session. Nothing off of left side peak, 20 SMA, reversal neckline… nothing. Volume was slightly more than twice the average amount.
If price opens weak on Monday, looking for 732 equal low support and initiating counter trend attempts on red to green moves. Re-evaluate at 748.75 retests for head and shoulders lower high vs reclaim. If 732 breaks, looking to let price go, and then seek the lower high below for daily trend reversal and price to seek a weekly higher low.
On opens higher towards 743.5 or the 20 SMA, looking for fades off of 748.75 to pullback and test the bear bar low. From there re-evaluate. Acceptance above 748.75 should be a big tell that the sell is not sustained, and the “infinibid™” is back on.
SPY – Hourly
A closer look at the pathing. Generally want to be looking at the main inflection points of 732.25 on the bottom of the two week range and 748.75 on the top end of the two week range to get a stronger indication of what the market is likely to do.
Remember a top priority here is to keep a more open mind to two sided trade returning to markets. Pullback buyers couldn’t get the job done on Friday.
Market Internals – NYSE
Strong volume outflows and cumulative TICK on Friday. The AD line didn’t get into oversold / trend lower zone though. The ADQD (Nasdaq Advance Decline Line) did though. The over correlated Nasdaq read could imply that a counter trend is coming (red to green) or at least fair game for early next week as outlined earlier as well.
Market Profile
Triple distribution on Friday with value mostly centered, and PoC literally at halfback. Should make for an easier time judging the open come Monday. If in upper third, than the lower high first pathing makes sense as shorts are stuck and the frist impulse may be squeeze. If in the lower third, shorts emboldened and only stuck on a red to green move.
XLF – Financials
Big change in character here after the move lower Wednesday. Notable that banks are holding on, scooping up the fees pre SpaceX IPO. Generally if financials are sideways to up, markets will struggle really breaking into an aggressive higher timeframe downtrend.
XLC was the threat that broke last week, but this will counter balance that slightly.
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: SAIL, ORCL, ADBE
Swing Stock Scans
After a day like Friday, lots of things will look like pullback setups. Give the charts the respect they deserve, and more importantly broad market environment the respect it deserves, early this week to determine how aggressive to be on these opportunities.
AEVA – Daily Chart
Higher low pullback after breaking the cup and handle. Looking for a break of the inside day high to get things going. Great relative strength on Friday.
CDNS – Daily/Weekly Chart
UGLY weekly bar, however lots of things were ugly after Friday. I like the left side peak retest and 20 SMA on the daily. Needs to set something up, but in the right neighborhood to be on watch.
DOCN – Daily Chart
Great daily higher low opportunity with a daily 20 SMA offering support as well. Relative strength to the broad market on Friday’s sell off and a recent PEG winner. A must watch if markets firm back up.
FLEX – Daily Chart
Still on watch just like DOCN. PEG winner and good Friday relative strength. Holds over 147.4 keep this in play.
FROG – Daily Chart
Great daily bull flag, relative strength, PEG winner… the list goes on. Watching for the inside bar breakout or move over flag highs at 88.5 if the market is strong.
PENG – Daily Chart
For a high beta name, this was a very orderly pullback in terms of structure (don’t get me wrong, down 15% is rough…). Looking to see if this can find support around the 55.55 area and let the 20 SMA catch up. If so this would be a great spot to catch a higher low and keep the trend in tact.
STT – Daily Chart
Financials have been strong as of Thursday. Nice inside bar completely disjointed from the semiconductor sell off. Slower name of course, but nice break from a weekly bull flag. Holds over 156 or breaks over 163.8 could get interesting.