Peace Deal & FOMC – /ES Higher, /CL Lower
The S&P has finally achieved a peak to trough decline of 5% which typically happens about 3 times on any given year.
In doing so, the market has set a lower low which changes the daily trend count to down. The biggest argument the bears have from here is to call for a lower high to keep the trend down. That would look like a classic head and shoulders.
However, on the higher timeframes, you’ll notice a weekly hammer, with a long lower wick that pierces and reclaims the 732.25 level. The basis of the analysis walking forward is that this move constitutes a look below and fail for sellers. Thus 732.25 is a meaningful line in the sand for the week ahead.
Let The Oil Flow!
As of Sunday morning we have an official deal to end the war with Iran as announced by President Trump on Truth Social, and echoed by Pakistans Prime Minister Shehbaz Sharif.
Trump’s tweet was signed off with the comment “Let the oil flow!” which has /ES futures opening higher and /CL futures opening lower as of 6pm EST.
The idea here is the following cascade:
- Crude oil should move lower on the reopening of the Strait of Hormuz
- Inflation expectations should move lower on cheaper crude
- Lower inflation expectations should allow interest rates to come down
- Lower interest rates leads to a multiple expansion (higher forward P/E)
Oil has been pricing in de-escalation for months, but today’s deal accelerates it. The path back to the unaffected price won’t be linear as war risk insurance premiums don’t fully unwinds after a conflict like this.
But if falling energy pushes June CPI below May’s 4.2% peak, the Fed likely stays paused and hike fears get put on the back burner. Energy was responsible for 60% of May’s monthly increase.
Below is the Fed watch tool after CPI on Wednesday, this likely flattens to a pause at 350-375 for the foreseeable future. When and if June CPI comes in light, expect cuts into the back half of 2027.
The obvious risk, which I would hate to even jinx at this point, is that Iran says, “What deal?” and missiles start flying again. More deal or no deal would likely keep the pressure on the same sectors: energy, travel, consumer discretionary.
Warsh Takes The Helm
The rate decision on Wednesday isn’t the main event… it rarely is.
Markets are pricing in no change to the Fed funds rate with over 98% probability. For the last three meetings, a pause has been the status quo. No one is expecting Warsh on his first meeting to come in and make an adjustment.
Instead, the market will be listening very carefully for Warsh’s tone and the dot plot.
With the backdrop of 4.2% inflation and a labor market thats starting to show cracks (three consecutive weeks of increase in weekly jobless claims) it will be hard for Warsh to be an outright dove, like he was hired to be.
We should be looking for any language in the statement, or votes in the SEP (summary of economic projections) that suggest a bias towards the inflation side of the dual mandate or the labor side of the dual mandate.
If markets view Warsh as neutral, or the war as disinflationary, the green line should start bending lower toward the rate-cut expectations priced earlier in the year.
Come on Oracle…
Oracle beat on every metric: revenue of $19.2B versus $19.1B expected, EPS of $2.11 versus $1.96 expected, and a backlog of $638 billion (up 363% year-over-year).
The stock fell anyway because Oracle also announced it would raise another $40 billion in debt and equity in fiscal 2027. Free cash flow came in negative $23.7 billion for the full fiscal year.
The market continues to ask: when does the spending actually pay off?
This continues to be a dominating theme for the hyperscalers. It becomes clear who the two stand out winners are in the group when looking at the performance from the 2025 all time high to present.
Pretty clear that the place to be is GOOGL growing the cloud at 60% year over year, and holding up well on a relative basis even after announcing a 84B capital raise on June 3.
SpaceX IPO – Not Bad!
I’ve gotta say, I’m impressed with how well Space X traded on Friday.
After the opening drive higher, it traded fairly respectably, almost like any other stock doing $100M+ in volume per day.
No halts, no outright collapse, no insane squeeze on the high of day break after the first counter trend.
Options will list on Tuesday June 16th this week. Let’s see if this does enough volume to be a primary contender for short term trading over the next few days.
General rule of thumb: If you’re about to represent 10% of open interest, or if spreads are more than 5% wide there is absolutely no reason to get involved.
As always, the charts light the way, so lets jump in.
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Broad Market Analysis
SPY – Weekly
Long legged hammer printed off of 732 area. Although on the bar to bar we see a lower high and a lower low, note the close back inside of the prior bar range and above the 732 level. This qualifies as look below and fail, which should trigger a move to the equal high… aka all time high.
If you’re a stronger seller, you’re ideally looking for a break and close below that support to achieve a test of at least 710 and then set lower highs on the counter trend. Simply didn’t happen. This pullback is a weekly higher low. Trend remains up.
SPY – Daily
This is where competing viewpoints come into play. On the daily, the trend did flip to down via the lower low. Bears should be shouting from the rooftop that this is going to set a head and shoulders via lower high at the 20 SMA or 748.75 level, and thus the market is going to crash and burn.
However, the counter that I believe to be more likely is the uno reverse card, setting an inverted head and shoulders via higher low (white path). From there a break over the right shoulder / 20 SMA should satisfy the weekly higher low and then rotation into the equal high, aka all time high.
If the market spends more time below 732.25 early in the week, this thesis will need to be revisited, and perhaps the weekly chart does need the full pullback towards 710. For now lower odds.
SPY – Hourly
The hourly trend has already reversed via the break to a higher high over the double bottom neckline on Friday at 738.15. So long as price is over that you’ve got a perfect hourly flag over the neck, which should produce upside continuation.
A pullback below that level can still yield a higher low over the 732.25 weekly inflection point we’ve been discussing. A rally first over Friday high inherently sets a higher high and thus can still afford to pullback and seek higher lows.
Breaks below 725 seem like lower probability scenarios, but price would be losing the April 8th anchored VWAP in tandem if it did happen.
Market Internals – NYSE
Generally the internals suggest bullish exchange level action on the Thursday Friday sessions, confirming the reversal that happened on news. Even looking at Tuesday’s and Wednesday’s session, internals really didn’t get all that bad. If the market was really going to “crash and burn” these should have been blood red sessions.
Market Profile – /ES
Value from Wednesday and Thursday was overlapping. This really sets the stage for any longs who started to get involved there as having good location relative to the Friday shift higher. A break of Friday’s low, doesn’t put immediate pressure on participants from Wednesday / Thursday value positioning.
Due to this location, its reasonable to think that shallow intraday pullbacks could first be supported. Clearly the danger is when all participants from that location are underwater, aka a new swing low.
XLF – Financials
Financials look great breaking out of this range on Friday and can act as a buoyant force preventing an outright breakdown in the S&P should the tech sector go on to make a lower high and subsequent lower low.
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: JBL, KR
Swing Stock Scans
If many setups gap up on Monday due to the news, the entry tactic to use is a gap fill reversal or morning washout and VWAP recovery intraday to correct overnight inventory.
ADEA – Daily Chart
Inverted head and shoulders over the short term MA stack for a higher low right shoulder. Looking for breaks over 33.6 to move into new highs and break from this weekly bull flag.
AMKR – Daily Chart
Weekly bull flag breakout. Looking for higher lows over the top of the range to keep this in play and offer secondary entries.
KEYS – Daily Chart
Weekly bull flag and great reclaim of the MA stack headed into Friday. Break of the trendline, or a reclaim of horizontal resistance at 358.00 to get back in gear for higher looks great.
MCHP – Daily Chart
Similar setup to KEYS above, weekly bull flag, holding the daily 50 SMA and looking for higher on a reclaim of 99.75 / 100 psych number.
OSCR – Daily Chart
First micro flag out of the larger base break (look at a weekly). Ideally pullbacks over 25.6 or breaks of the 29.35 area get this going for more legs higher.
OUST – Daily Chart
Coming out of a base and holding over a left side peak. Looking for this to set a better “setup bar” and then find some entry tactic to get involved over the 20 SMA (orange.)
SMTC – Daily Chart
Another weekly bull flag setup happening after a massive run. Looking for a higher low to hold over the 20 SMA on any gentle pullbacks, or breaks through 172.35 to trigger higher.
VSH – Daily Chart
What a beautiful high tight flag on the daily… usually these need 3-5 weeks tight, but this along with PENG (from last weeks email) look unstoppable… very much in focus for entries.