Bad News, Yet New Highs
The S&P closed up 3.18% from Monday’s open to Friday’s close.
A gravity defying breakout has taken price from the middle of the weekly balance range and hardly closing over the moving average stack to new all time highs in a matter of three explosive sessions higher.
Trend is undeniably up having set a brand new all time high as the higher high in the count. Ideally higher lows would continue to develop somewhere over the prior all time high, though admittedly that may be “too obvious.”
There is room to overshoot on pullbacks towards 754.75 that will feel like the structure is breaking. There is also a real possibility that the market just breaks out of this flag without offering any pullback and it feels like we’re chasing.
Markets won’t make it easy or “comfortable,” but there’s enough supporting evidence for the bull case that these are my first thoughts.
Bad News, New Highs
Stocks ripped in the pre-market Friday morning as the labor report came out. But not because the report was good… it was actually bad.
Payrolls fell by 23,000 in July while May and June were revised lower by another 103,000 jobs combined. Many of these jobs were from the food services sector which makes sense after the World Cup.
Its still the classic bad news is good news, because the market is focused on what this means for the Fed’s dual mandate. Expectations for a rate hike in September dropped sharply and yields eased.
Of note the average hourly earnings increase was only 0.1% vs an expectation of 0.3%. For earners, this might not sound like good news, but for the Fed it sounds like no evidence of a wage price spiral pressuring inflation.
However the Services PMI report came in with hotter prices paid numbers which puts the focus on CPI for this week.
A cool CPI print gives the Fed reason to pause and respond to weaker employment numbers. A hot CPI print puts the Fed right back between a rock and a hard place.
The most important component to watch is shelter. Recently it has seen a modest decline which is important for anchoring expectations.
The latest Zillow expectations come in at a 0.25-0.27% for July month over month prints. Not exactly a decline, but light enough to prevent an inflation concern spiral.
The market can absorb bad news on the labor front; It likely cant absorb bad news on the inflation front. Kevin Warsh has been adamant on his stance that persistent high inflation is unacceptable, and after last meetings Q&A session putting the pressure on, this number will be key.
Corporate is CRUSHING It
Another reason the market may have refused to accelerate lower as the downtrend threat became clear is earnings. They are legitimately on par to be record breaking.
Roughly 85% of companies reported have beaten estimates this quarter. Overall earnings growth has been running near 30% year over year with tech earnings growth specifically closer to 50%.
These aren’t small numbers, and that matters because its easy to get swept up in the hype of doubting the AI trade and calling this a bubble. It isn’t.
Corporate profits are proving the trade is real and leading to material earnings gains. Building on the ability for CPI to cement lower odds of a fed hike in the next meeting, take a look at forward P/Es.
I can envision a world where the Fed gets to lay off of the inflation concern narrative and P/Es which are fairly middled right now have room to expand higher.
An alternative is that CPI comes in hot, inflation narratives persist, but corporate earnings remain strong enough in the short term to look through. This starts to look a bit like late 2021 headed into 2022.
Time will tell as it always does, but for now the fundamental engine of the market is chugging… heck… roaring along.
The AI Trade Is Moving Up The Stack
- First it was, ” Who sells the chips?”
- Then it was, “Who builds the data centers?”
- Now we’re asking, “Who actually makes money using all this stuff?”
Take a look at AMD. Revenue grew 50%, data-center revenue more than doubled, and guidance beat estimates. The stock still fell.
Memory stocks look similar at this point as well. The AI demand remains enormous, but investors have set the expectation bar too high. Meanwhile companies actually monetizing AI are getting a different reaction.
- Palantir raised their guidance again as AI software demand accelerated.
- Cloudflare jumped after stronger growth and guidance tied to AI workloads.
- Airbnb cited AI as helping cut customer service costs per booking by 16%.
- Shopify noted that AI driven traffic and orders both tripled year over year.
- Zeta mentioned 40% of super scaled customers are active on Athena and revenue jumped 44%
Hardware isn’t suddenly broken and useless… its just an expectations reset.
Amazing growth is already expected from the infrastructure layer. The application layer is finally getting a chance to prove what all that spending was for.
As always the charts will light the way with this fundamental backdrop, so lets dig in.
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Broad Market Analysis
SPY – Weekly
SPY closed the week with a strong green-bodied candle near the highs of the weekly range, producing both a higher low and a higher high while closing above the entire bull flag consolidation. That breakout also establishes a new all-time high and keeps the weekly trend firmly pointed higher.
The ideal higher low remains around 760 to 758, where the previous all-time high and the 38.2% Fibonacci retracement converge. There is some room for an overshoot into the weekly high-volume node, but the first real warning would be a weekly lower high below 760. Losing the entire bull flag range would represent a much more serious deterioration.
SPY – Daily
The weekly expected move runs from roughly 763.18 to 783.34, which keeps both ends of the range consistent with a bullish trend structure. More importantly, the selling over the final three sessions was controlled and occurred without elevated volume, which does not look like aggressive profit taking or meaningful new short participation.
Continued consolidation beneath the 776.85 all-time high is perfectly healthy. If SPY loses roughly 769.75, I would look first toward the Tuesday gap close near 758.57 and the prior all-time high around 760. A deeper overshoot toward 754.75, followed by a reclaim of roughly 760.25, could still produce a perfectly valid daily higher low.
SPY – Hourly
The hourly structure underneath current prices is thin. If SPY develops a double top or lower high beneath 769.75, there is not much nearby structure to stop a retracement toward the prior all-time high and gap close.
The opposite scenario is equally important. Consolidation above 769.75 keeps pressure on anyone who attempted to short the Wednesday gap, especially with price above the full intraday anchored VWAP stack. If that support holds and SPY clears the all-time high, removing those shorts and hedges could help fuel continuation.
Market Internals – NYSE
The internals continue to support the idea that sellers have not taken meaningful control. Volume outflows on Wednesday and Thursday were notably weaker than the buying pressure seen Monday and Tuesday, and the advance-decline data spent portions of those pullback sessions above zero despite both days ultimately closing red.
Thursday’s cumulative build came closest to becoming concerning, but the broader picture still does not show aggressive exchange-level liquidation. My takeaway is straightforward: buyers remain in control until the internals start showing something materially different.
Market Profile – /ES
The key area on /ES is roughly 7790. Tuesday’s high, Friday’s high, and Wednesday’s value area high are all clustered near that zone. If value begins shifting and holding above that area early in the week, I would expect the SPY bull flag to make a legitimate attempt at breaking higher.
Thursday’s value formed lower in its profile, which is constructive because buyers from that session are not currently trapped at the highs. There is a poor Thursday low and a mechanical poor Friday high that still may need repair, but building value above 7790 would be the strongest evidence that participants are willing to accept higher prices.
IGV – Software ETF
Software is emerging as one of the more compelling leadership groups, with a double bottom, island reversal, and reclaim of the 200, 50, and 20-day moving averages. Keep in mind the last part of the fundamental section of the newsletter.
QQQ – Impact on S&P
QQQ is consolidating constructively after reclaiming key structure and producing a valid follow-through day, but it is still lagging the S&P structurally. 707 is the ideal higher-low area, while even a deeper move toward 701.70 could preserve the bullish structure. Holding above 726.50 keeps the case alive for the Nasdaq to play catch-up and add confirmation behind the S&P’s breakout.
I am treating QQQ as a balance range, with the upper half carrying the more bullish pressure. 716 to 714.25 is the key lower support zone. If QQQ can hold that area and break higher while SPY remains near new highs, that would broaden the rally and reduce the burden on the S&P to keep advancing without full Nasdaq participation.
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: RKLB, HIMS, CRWV, LITE, NBIS, CSCO, COHR, CBRS, AMAT, FIGR
Swing Stock Scans
AME – Daily Chart
Slower mover, but a huge base breakout last week digesting on highs. Either retests of 243.5 area look great for higher lows, or out of the range for a drift higher works as well.
BAX – Daily Chart
Almost a year long base stoping the weekly downtrend. Big earnings gap up that held the earnings day low. Over the low cheat at 28.30 gets interesting.
FLEX – Daily
Look below and fail at the prior earnings cycle low. Needs to hold over 120 and perhaps trigger inverted head and shoulders through the neckline at 129.5 area.
FORM – Daily Chart
Big reclaim of prior range lows. This one might be better than FLEX because it has a shot at confluence of 50 SMA (blue) and the highs of last week early on Monday. Over 121 gets interesting for longs. Stays in play as long as 111.5 holds.
KN – Daily Chart
This setup reminds me of what TER is doing, and is worth watching as well. Ideal entry is an intraday look below and fail of the 38.45 level that then follows through for a daily higher low over the gap.
PENG – Daily Chart
Dying for this chart to shape back up. Had such a linear frontside move. Its not quite a perfect look below and fail since theres so much overhead supply off to the left… above 59 and this is right back on the radar for improvements.
UNM – Daily Chart
Slower mover, but as picture perfect of a bull flag as it gets. Either over 90.75 for an attempt at momentum continuation, or buying the flag low shake out area near the 50(blue) and 20(orange) SMAs.