Inflation Cools, But The Math Is Wrong
The S&P closed up 0.48% from Monday's open to Friday's close.
Yeah markets made a new all time high, but considering all of the tailwinds, this looks like a totally lackluster breakout attempt.
Markets got a lower and at expectation CPI inflation number, Jensen, secured another $500B in investment, and memory stocks ripped higher into the end of the week. You're telling me this is all the S&P could do?
The Fed's Problem Just Changed
July CPI rose just 0.1% month over month bringing annualized inflation from 3.5% to 3.4%. Core CPI also cooled from 2.6% to 2.5%.
Shelter provided the anchor we were looking for, rising only 0.1%, but I'm not convinced… Both rent and owners equivalent rent increased 0.3% while a 2.8% decline in hotel prices pulled the broader shelter number lower.
I understand some traveling professions might feel this lodging relief, and even those who actually live in hotels and motels. But the math just isn't mathing. The headline number should have been a 0.2 and I even had my good friend Claude double check the work. Below is Claudes response when I raised this exact question:
Good catch — let's check the math.
Quick weighted-average check on "Rent of shelter" (Jun–Jul 2026):
- Rent of primary residence: weight 7.716, change +0.3
- Owners' equivalent rent: weight 25.849, change +0.3
- Lodging away from home: weight 1.450, change –2.8
Weighted sum = (7.716 × 0.3) + (25.849 × 0.3) + (1.450 × –2.8) = 2.315 + 7.755 – 4.060 = 6.01
Divide by the combined weight (35.016) → ≈ +0.17%, which would round to 0.2, not 0.1.
I mean we're not off by much, but our sneaking suspicion isn't completely unwarranted. So without going full macro, what does this mean?
The report was good enough to reduce the immediate need for a hike, but not good enough to put cuts on the table.
Then came retail sales which completely missed, coming in at -0.6% for July indicating some slowing growth. At the same time, oil was up about 5% this week, and PPI inflation showed that much of the disinflation was a result of easing energy in July.
Just take a look at the nearly inverse relationship in the blue (PPI) and green (Core PPI) line below.
Tough look for Mr. K. Warsh here… No wonder why the 10 and the 30 year yields remain elevated even after the prints.
As they say, bears sound smart, but bulls make money. And thats how I want to frame this conversation. S&P 500 price action is in a bullish uptrend trading near highs. We have enough reason to be bullish based on that alone, but counting on rate cuts as an added boost should likely get tabled for now.
Jensen Gets A $500B Credit Line
Jensen partnered with Apollo, Blackrock, Blackstone, Brookfield, Goldman Sachs and KKR on financing platforms intended to round up north of $500 billion for AI infrastructure.
Its not yet $500 billion of committed capital, but the direction here is hard to ignore. MORE.
The trouble with this move is the deal structure treats GPUs like infrastructure, not a pile of depreciating chips waiting to be replaced by a new generation model.
The market started to sniff out concerns of "circular financing" again with NVDA Credit Default Swaps surging over 10% into the end of last week.
We've seen this before, and it came in the form of Oracle getting absolutely taken to the woodshed on doubts of the Open AI commitments. Is Nvidia, the one stock to rule them all, up next?
If NVDA lost $165 support on the weekly chart, perhaps, but for now… no.
Earnings Are Huge… But The Bar Is "Huger"
Hardware demand isnt fading, but the stocks in the basket are having a hard time getting over the extremely high expectation bar.
Super Micro nearly doubled quarterly revenue. Cisco collected $9.3 billion of annual AI infrastructure orders. Applied Materials guided next quarter revenue $700 million above estimates.
Only one of these companies went higher after earnings.
Would you be shocked if I said its the one with a history of fraud and breaking the law? Insanity.
Software outperformed semiconductors during the week, helped by Workday’s 18% rally on reported Silver Lake acquisition talks. The thesis of software taking the baton from hardware as the next phase of the AI trade mentioned in last weeks newsletter seems to be playing out.
Next week we get Home Depot, Target, Lowe’s, and Walmart earnings. The Fed also releases minutes from its divided July meeting Wednesday afternoon.
Those earnings reports should tell us whether the consumer is truly weakening and whether the Fed’s three hawkish dissenters still have a case to make.
As always the charts light the way, so lets take a look.
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Broad Market Analysis
SPY – Weekly
The weekly candle produced a higher low and an incremental higher high, but it closed back inside the prior week's range with a small green body. That is technically bullish progress, although there is still no momentum at the highs. Price remains above the full anchored VWAP stack, and the bull flag breakout remains intact.
The ideal weekly higher low sits near the prior all time high (pATH) at 760, while an overshoot toward 754 would add confluence from the high-volume node, rising 10-week EMA, and 50-day moving average. If price accelerates high instead, the 61.8% extension sits near 800, followed by the larger 100% extension near 850.
SPY – Daily
This week's expected move runs from 767.94 to 784.74, with either boundary preserving the broader series of higher lows and higher highs. Thursday moved above the prior high, Friday pulled back into an inside bar, and consolidation above 774.85 would continue to look constructive.
A break of 769.50 could shake out the bottom of the flag and still produce a valid daily higher low, particularly if price tests the lower expected move and quickly reclaims the range. The more concerning path would be a lower high followed by a decisive failure of 769.50, which would shift the focus toward a larger weekly pullback and the 760 area.
SPY – Hourly
My base case is a brief look below the recent lows 774.85, followed by a reclaim, consolidation, and another attempt higher. The anchored VWAPs and 38.2% retracement are gathering near the flag lows, giving buyers a logical area to respond if 769.50 is tested.
An equal low followed by a failure through 769.50 would be the first short-term alarm and could complete a lower-high structure resembling a right shoulder. Until that develops, the hourly path still favors trading with the prevailing upward trend and using tight risk around the obvious pivots.
Market Internals – NYSE
Volume inflows were mild throughout the week, but Thursday's move to a new S&P high produced the week's best volume flow, advance-decline reading, strongest index-score build, and only green close in the cumulative tick. Friday did not show the type of internal deterioration that would confirm aggressive selling.
The message is not that momentum buyers have arrived. They have not. It is that sellers have also failed to take control, leaving the market digesting its rally while the supporting evidence gradually improves.
Market Profile – /ES
Value was relatively unchanged through the balance range before shifting slightly higher, although Friday's individual value area moved lower. Breakout buyers still have acceptable location and should not feel meaningful pressure unless price moves back inside the flag and begins churning there.
For a true toppling effect, sellers need to break through the lower portion of the flag with aggression. Until that happens, the profile looks more like balance near the breakout than trapped longs at the highs.
$DXY & TNX – Dollar and Rates
The dollar appears vulnerable to a bear-flag breakdown after a double top, which would help earnings and ease pressure on equities. The problem is that rates are not confirming that message. The 10-year yield continues to push highs even after CPI and PPI came in lower than prior and in line with expectations.
Rates remain the clearest threat to the bullish case.
QQQ – Impact on S&P
QQQ has broken out of its congestion above 727, but unlike the S&P, it has not yet reached a new all time high. Sustained higher lows above 727 followed by a break of 735.25 would give the S&P a stronger tailwind. A failure back into the range would put 716 to 714.35 in focus, while a deeper test of the 701.70 gap and 707 area would need a sharp reversal to remain constructive.
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
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Swing Stock Scans
ALAB – Daily Chart
Trying to breakout of an inverted head and shoulders under the neckline of the head and shoulders that topped the stock. Tight price action over the 20 SMA is interesting for an attempt, however this really gets much better over 373.
CNK – Daily Chart
Classic bull flag at the highs. Entertainment stocks have been doing well recently, and we'll see if this wants to break out to continue. Tight action into the end of last week with the hammer indicating failure of sellers to go lower.
FAST – Daily
If you look left this is the prior left side peak at 50.65. Hammering out over the 50.65 level really get this compelling for higher out of a multi month consolidation.
GD – Daily Chart
Slow mover, but one of the better looking defense names in terms of setup. Over the 396.75 level is fairly straight forward. Tight inside bar on Friday.
GPN – Daily Chart
Inside day with momentum out of a range. Can this keep the burst going for a classic follow through?
HNGE – Daily Chart
Microscopic cup and handle forming with tight action into the end of last week on the right hand side. Over the 88.85 level has a shot at making it towards local highs if not higher.
LLY – Daily Chart
Great base forming up here with the hold of Friday at the 50 SMA (blue) for a higher low. Looking for a move over 1200 to get into highs, and then the real fun to begin if price can clear the 1240 hurdle.
MA – Daily Chart
Slower mover, but great bull flag with a break on Friday and hammer action offering a tight risk spot to try. Over 571 can attempt getting back to flag highs and then beyond.
OMDA – Daily Chart
Classic bull flag at highs, but caution the low sweep. A quick shakeout is fine, but needs to hold over 22. If that can happen, looking for a move back toward 25 and then the bull flag to attempt going to ATHs in this new IPO.
PAY – Daily Chart
Very linear move higher recently getting extended from the 50 SMA (blue). Nice post earnings rest looking to tack on more to the move. Over the inside day high can try to get to earnings highs, but again, mind the extension. Needs to hold over the 39.4 level to remain in play.