AI’s Free Pass Just Expired…
The S&P closed down 1.09% from Monday’s open to Friday’s close.
Price is now in a downtrend having produced a lower low on Thursday’s gap down, which is still only partially filled. Most importantly price is failing to hold above 739.65, the Korea gap level.
Price is below the key 20 and 50 simple moving averages. The weekly MACD has a bearish cross (not pictured above).
The idea here is not to be a mega bear, but certainly acknowledge that although the weekly chart may look like a high tight flag, price is not acting the most constructive.
Its been this way for a few weeks now, but foot remains off of the gas pedal in terms of bullish expectations until the market proves itself in one of two ways.
- Even more sideways… months.
- Sharp decline that completely resets positioning.
AI’s Hall Pass Just Expired
GOOGL saw revenue growth of 24%, delivered its strongest cloud growth on record at 83% Y/Y, and still got punished.
Investors focused more so on the $15B added to its 2026 capex plan which brings the range to $195-205B.
TSLA did the same thing. Revenue was technically up, but an additional $5.8B of capex spend pushed free cashflow $1.1B in the red…
The AI trade isn’t “dead,” and honestly this is no different from what happened in the prior quarter. The new question for hyperscalers has shifted from “how much are you spending,” to, “when is all this spending going to pay off?”
We get another dose of Mag7 earnings this week from: MSFT, META, AMZN, AAPL.
Strong revenue is great, but the biggest mover will be changes to capex guidance. Weak revenue and still higher capex… forget about it. LOWER.
Crude Comes Back To Center Stage
Crude oil is back over $85/bbl. This was an important area of overhead supply that ideally would have offered daily lower highs.
The 10-year Treasury yield hit a high of 4.71% as inflation expectations lifted in tandem with crude prices. Higher rates translate to lower valuations on growth assets.
This relationship is nothing new, but its moved from lurking in the background, back to center stage.
Over the weekend there is some chance of de-escalation with the prior two nights worth of strikes by the US on Iran being cancelled. When the market was more resilient, we’d normally see a V recovery straight back to highs… with the slowdown we’ve seen thus far, its worth managing that expectation.
Sprinkle In The Fed
In addition to the continuation of earnings season, we also have an FOMC meeting on Wednesday.
The Fed is expected to keep rates steady, but with a second wave of the energy shock impacting markets already, the language as always, will matter way more than the decision.
The bullish case when all is said and done this week would look like this: Oil fades lower on de-escalation, the Fed avoids over emphasizing inflation threats, and earnings from Mag7 show incredible revenue growth with modest capex increases.
The bearish case would have to be the opposite: Diplomacy continues to breakdown sending oil higher over $100/bbl, the Fed is more hawkish than expected and Mag7 earnings disappoint on revenue growth while indicating higher spend on capex.
As always, we’ll let the charts light the way, so let’s jump in.
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Broad Market Analysis
SPY – Weekly
SPY printed a solid red weekly candle with a weak close near the bottom of the range. The market formed a lower high, a lower low, and closed completely below the previous week’s range, giving sellers control of both the weekly structure and the bar-to-bar count.
Location is less bearish than the candle itself. SPY remains above a rising 20-week moving average, above the 38.2% Fibonacci retracement, and above the anchored VWAP from the March lows. It did lose the anchored VWAP from the all-time high and closed at the lower boundary of the upper high-volume node. A clean break of that node would create room toward 700-695.
SPY – Daily
The daily trend has shifted from up, to neutral, and now to down. SPY is producing lower lows, has room to establish another lower high, and remains below the 8 EMA, 20 SMA, and 50 SMA. The unfilled gap overhead and repeated upper wicks show that higher prices are being used as opportunities to sell.
The central level remains 739.65, which had been required to hold as support but is now acting as resistance. Another rejection there followed by a break of the recent lows would confirm continuation lower. Acceptance back above 739.65 and a successful gap close would return the chart to neutral. A more convincing bullish shift would require a move above approximately 749.
SPY – Hourly
The hourly chart continues to show failed rallies, lower highs, and weakness into the close. A head-and-shoulders structure has formed with 739.65 acting as the neckline, while multiple anchored VWAPs and moving averages remain stacked overhead as resistance.
As long as SPY remains below 739.65, I am watching the equal lows near 735.85. A break there opens the door toward 732, followed by the lower weekly expected move near 724.54. A reclaim of 739.65 would begin neutralizing the immediate weakness, but I would still respect the possibility of a gap-fill reversal and another lower high until SPY can reclaim 749.
Market Internals – NYSE
Thursday showed a clear change in market tone. Cumulative selling pressure remained below negative 5,000 for much of the session, volume flows became substantial, and the advance-decline line approached the trend-lower zone. That was broad exchange-level selling rather than weakness isolated to a few stocks.
Friday’s morning rebound lacked confirmation. The advance-decline line improved, but volume flows never reached even halfway to substantial, the index score finished roughly flat, and cumulative TICK participation remained weak. I am therefore watching for failed gaps, lower highs, and bearish consolidation rather than assuming every early rally represents accumulation.
Market Profile – /ES
Value failed to move higher before Thursday’s gap down and then shifted lower within the range. Friday showed only a slight overlap higher in value and point of control, but neither returned to Monday’s value-area low and the overhead gap remained open.
The counterargument for buyers is that value is already positioned near the bottom of the profile. That makes the structure bottom-heavy and means the multi-day lows may require real confirmation breaks before they fail. I would not front-run the breakdown solely because value is lower, but acceptance beneath those lows would validate continuation.
Dollar & 10Y Yields
The dollar is breaking out of its range while interest rates are also moving higher. That combination tightens financial conditions and creates another headwind for long-duration growth stocks already struggling with lower highs and earnings-related gaps.
QQQ – Impact on S&P
QQQ is notably weaker than SPY. The Nasdaq closed below the previous week’s low and below its prior weekly range, while the S&P remains more resilient because it can rotate through financials, health care, and other sectors that have little or no representation in QQQ. Nasdaq does not have the same internal rotation available.
The immediate pivot is the prior weekly low near 686.50. A red-to-green move above that level could support a countertrend rally, but it remains a countertrend trade until the structure changes. Below 686.50, I am watching 676 and 664.50. A more meaningful improvement requires a reclaim of the 707 area, where overhead supply and the possibility of another daily lower high remain significant.
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: APLD, NVTS, CLS, FFIV, GLW, BE, STX, KLAC, V, VRT, FLEX, MSFT, META, HOOD, ARM, QCOM, LRCX, FTNT, MA, TE, AAPL, AMZN, RDDT, CCJ, MRNA.
Swing Stock Scans
ABBV – Daily Chart
Flagging at the highs and over the 20 SMA. Tight day with relative strength on Friday. Mind the slow ATR, but setup looks good for higher here if markets remain in a risk off posture.
DDOG – Daily Chart
Can price reclaim the 250 level after holding the first test of the 50 SMA since the earnings gap and go?
HPE – Daily Chart
Liking the inverted head and shoulders relative strength as the market makes lower lows this is holding higher lows. Still needs clearance over 50, and market context isn’t killer, but a name to focus on.
SNOW – Daily Chart
Another name will relative strength to continue tracking as the market gets weak.