The Rally’s Last Test – Major AI Earnings Ahead
The S&P retraced the entire Monday gap, closing down 0.68% from Monday’s open, but technically up 0.68% from the prior week.
The trend has flipped from confidently up, to more neutral with the potential for both a lower high as well as a higher low. Supporting evidence still leans mostly bullish and if buyers can defend 744 (the gap close level) they will prevent threats to the higher low opportunity.
We should keep an open mind and generally thing that this week will be all about which direction the trend takes from this position.
Memory Check!
Last week the Nasdaq lead markets higher, specifically through semiconductors, and even more specifically, through the memory group.
This is going to be your SNDK, MU, WDC, STX. Notice below that ALL of them made new all time highs into the end of last week.
The next major test for the memory group comes from MU earnings this Wednesday, after the close.
The bar is set high with Micron guiding Q3 EPS to $19.15 revenue to $33.5B and gross margins to 81%.
The question is less about if Micron hits these numbers, its more about if their forward guidance can once again exceed the markets expectations and break the old narrative of memory is “cyclical.”
Above is Microns HBM4, designed specifically for Nvidia’s Vera Rubin platform.
Micron has already positioned itself as having fully committed its 2026 HBM4 production, while also working to secure multi-year strategic customer agreements for HBM4E, the enhanced version of the product. They have already shipped HBM4E samples to select customers.
If Micron can show that these commitments are extending further into HBM4E, and that the production ramp is tracking with its timeline, it may be enough to keep the stock repricing from an outdated cyclical memory trade into a longer-duration AI infrastructure story.
Memory is a core bottleneck for AI compute, and every new generation requires more advanced packaging, more capacity, and tighter customer coordination.
The Fed – Task Force Galore
Kevin Warsh sure isn’t Jerome Powell…
Rates were held steady, but everything else was different. The Fed statement was cut from 344 words down to 105 words. Warsh did not participate in the dot plot. Instead of offering answers to questions, he announced five new task forces that will review how the Fed conducts itself.
- Communications – Public statements, press conferences, dot plot
- Balance Sheet – Size and composition
- Data Sourcing – Private sector economic indicators, evaluate lag
- Productivity & Jobs – Evaluating AI impact
- Inflation Framework – What is the best measure
The only clear message from Warsh was that “inflation is a choice” and he remains committed to 2%. But 2% what? When asked if the Fed would move away from PCE as its preferred inflation gauge, Warsh differed to the task force on inflation reviewing it.
It was clear there will be no more forward guidance and the market will be left to price uncertainty on its own.
Generally markets perceived Warsh as more hawkish than dovish. The Fed fund futures priced in two rate hikes, pushing the first one up as soon as September. This seems a bit aggressive and perhaps even miss priced, considering how Warsh did mention he is VERY willing to look through the energy shock.
Bottom line after this Fed meeting to expect less information and communication. For traders, that likely means more volatility around Fed days and economic data releases. Markets will have to price the path themselves, without the same Powell-era roadmap sitting underneath every decision.
Hormuz Risk Is Back… Kinda
Thursday looked decent with the market through the Fed, and coming off the heels of the early signing of the MoU between The United States of America and Iran.
As of Sunday, it looks a bit more mixed with a bunch of conflicting reports suggesting Hormuz is closed until the Lebanon conflict is resolved. Conflicting reports on the status of the Switzerland negotiations have also been released.
Bottom line is to continue watching /CL as the source of truth. If the trend remains down, markets are pricing in de-escalation still.
The two key references to use are:
- $90.85 – The unaffected price before Trump announced the cancelation of plans to strike Iran and take Kharg Island
- $84.3 – The unaffected closing price ahead of the MoU deal framework announcement last weekend
Don’t let the headlines make your head spin and prevent you from trading the leading names in the market. For example… has MU cared about any of the Hormuz headlines? No.
As always, the charts will light the way, so lets jump into the broad market overview.
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Broad Market Analysis
SPY – Weekly
Red bodied doji, however higher high and higher low on the bar to bar count. Really not much to read into here on the high timeframe, just balance and acceptance building out after the higher low from look below and fail two weeks ago on 732.
SPY – Daily
The trouble with the daily trend is that its in the process of compressing. There is a potential lower high after Monday’s gap up, but also a potential higher low after Wednesday’s wash out.
Ideally buyers keep price over 744 which would represent the gap fill reversal level and leave the Wednesday low as an overshoot (excess) secure. With the hammer I tend to remain a bit more optimistic on the trend resuming higher and hold of the higher low.
Should price lose the 744, pressure is put on the Wednesday low, 738.15, and we may find price in a daily downtrend sooner rather than lower if that breaks.
SPY – Hourly
Ideally the hammer high is taken out and we see upward continuation for the hourly trend and daily trend. Holding 744 is ideal for these outcomes.
If 744 is broken, its possible to test the 738.15 hourly double bottom neckline, hold, and reclaim 744 for longs to resume. Wouldn’t be as bullish, but its the final chance for buyers to defend the uptrend.
Losses of 738.15 change the hourly trend to down and even threaten the daily trend flipping to down as well coming from a lower high rather than the highest high.
Market Internals – NYSE
FOMC is hard to weigh too heavily considering the volatility. If we look just at Friday on the inside bar, who had the edge at the exchange level? Bulls. Even Tuesday’s pullback isn’t indicating intense exchange level selling.
Market Profile – /ES
Value shifted lower all week until Thursday’s inside bar. It didn’t shift higher, but it at least stopped going down. Should we take out Thursday’s high on Monday and build value higher, thats a change in tone worth noting.
Wednesday’s FOMC low has great excess and taper. This is how the auction should end.
MAGS – Magnificent Seven ETF
Optimists want this to double bottom out at the daily 200 SMA and offer a reversal over the neckline at the 67 area. If that can happen, perhaps the market remains a bit more resilient… if this is just an ‘h’ pattern after triggering the double top reversal… it gets ugly under the 64.7 area.
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 main event with PCE inflation data coming out… It should be interesting to see how the market responds after Warsh.
Top watches: CBRS, MU
Swing Stock Scans
ADI – Daily Chart
Flat top base breakout available with 438 level. Could tighten up over the 20 SMA or just go early week. In play as long as we keep a higher low against the 385 level.
BEAM – Weekly Chart
Massive weekly base with potential to get over the 34.10 area and have another shot at successfully breaking out. Manage expectations when using a higher time frame chart to derive the idea.
BRKR – Daily Chart
First flag forming with test of the 20 SMA as well. Looking for a higher low double bottom to make up the higher low of the overall flag with neckline break being at 57.4 area. Interested as long as price holds the left side peak 53.35.
FTNT – Daily Chart
Very straightforward bull flag. Needs to keep holding the daily 20 SMA. PANW and CRWD same space.
GH – Daily Chart
If we see a subtle rotation into healthcare ahead of MU earnings to get defensive, this could be a place to look. First flag still in place after breaking out over the cup and handle level.
GLXY – Weekly Chart
Inverted head and shoulders with bullish 3 bar play. This could build out more right shoulder, or just start working as a breakout this week.
PENG – Daily Chart
Low cheat on the bull flag at 68.55 level. A breakout there could keep the party going. Interested as long as we continue to ride the daily 20 SMA.