The Price Of Money Problem
The S&P closed down 1.35% from Monday's open to Friday's close.
The market has shaken out the bottom end of the flag, and now the question becomes, is this the pullback that buyers needed to launch the next leg higher from the prior all time high retest?
One notable thing from last week was that the downside really only came in the form of overnight gap downs. Monitoring price intraday there was really no downside follow through from the choppy session on Tuesday.
Thursday the market moved lower and closed on lows, however Friday, inside and in the upper 50%… where are the sellers to punish all the late longs?
The Price Of Money Problem…
The Treasury announced that it will at least double the maximum size of its long-duration liquidity-support buybacks from $2 billion to $4 billion per operation beginning September 9.
Markets initially celebrated the announcement, but the rally in long-duration bonds (which pushes rates down) did not last.
The Treasury can improve market plumbing by purchasing older, less-liquid securities. It cannot erase the federal deficit, reduce the total debt burden or force investors to accept lower yields when they believe inflation and future issuance justify something higher.
The weekend added two more potential sources of inflation pressure.The proposed U.S. and Canada agreement collapsing, and new sanctions announced on Iran.
July PCE will be released Wednesday morning, but it obviously will not capture an oil disruption or tariff escalation that occurred in late August. A cool report could still calm yields temporarily, but the bond market (and its vigilantes) will have the last laugh.
The AI Trades New Balance Sheet
Jensen has repeatedly argued that, "compute is revenue." Last week we learned about their $500B financing circle with large institutions.
Google and Marvell just introduced another version of this model.
Google received warrants that could eventually allow it to acquire approximately $12.2 billion of Marvell stock. Full vesting is tied to Google purchasing as much as $120 billion of Marvell products through fiscal 2033.
For Marvell, that could provide extraordinary long-term revenue visibility. For Google, it helps secure access to custom AI chips, networking and memory technology while providing equity upside in a critical supplier.
For investors, it creates another circular relationship in which the customer, supplier and potential shareholder are increasingly the same party.
Marvell remained an interesting and in play chart on this announcement while AVGO the previous supplier of ASICS for GOOGL was punished with a gap down below the 200 SMA.
Then came the weekend news of that Nvidia’s largest customers AI-server prices could increase by more than 15% for certain systems shipping in early 2027 because of rising memory costs.
This is where the financing question becomes critical. If infrastructure costs rise without a corresponding increase in revenue, expected returns fall just as higher interest rates increase both borrowing costs and the minimum return investors require.
Vendor guarantees and circular financing can bridge that gap temporarily, but they cannot eliminate the underlying economics. At some point, if the cost of capital exceeds the expected return on the compute, projects get delayed or canceled and the circular financing machine begins to run out of fuel.
Let's see what Jensen has to say with earnings coming out on Wednesday after the close. We'll be streaming it live on YouTube if you want to join the watch party.
Curing Cancer: A True Episodic Pivot
While traders questioned the economics of future AI profits, healthcare delivered something far more revolutionary.
Moderna and Merck announced positive topline results from the Phase 3 INTerpath-001 trial evaluating an individualized mRNA cancer therapy in combination with Keytruda.
I'm not going to become a biotech expert, but the stock responded exactly how you'd expect.
Sure there are likely some things that need to be confirmed, and again, as a non-expert in the space I'm not trying to say that all cancer was literally cured.
More importantly as traders, I think its more of an opportunity to address the healthcare sector, specifically the biotech and genomics names that have been acting incredibly well.
XBI and ARKG are the ETF baskets, but look within and you'll find a number of names that are surprisingly strong. As with any individual biotech, understand the risk associated with trial success and failure, revenue growth, institutional ownership, and the ability for them to raise capital via offerings.
As always the charts light the way, so lets take a look.
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Broad Market Analysis
SPY – Weekly
Sellers won the weekly candle with a solid red body, a weak close, a lower high, and a lower low on the bar to bar count.
However overall location keeps me from becoming overly bearish. SPY pulled directly into the previous all-time high near 760, which also aligns with the 38.2% retracement, while the weekly 10 SMA, prior all-time high anchored VWAP, and additional volume support sit closer to 754. A higher low in this area would preserve the weekly uptrend and keep roughly 800 in play over the coming weeks.
SPY – Daily
The expected move spans 755.39 to 776.49, which leaves room for SPY to test deeper support without invalidating the weekly setup. We've shaken out the bottom end of the bull flag, but are still poised to produce a daily higher low.
A reclaim of 767.50 would put SPY back above the flag low and likely target the original flag high, but a look above and fail of Friday's high that then breaks the Friday low puts the focus on 760.25, 758.57, and potentially the daily 50 SMA near 754. There, I'll be looking for buyers to respond and set the daily / weekly higher low.
SPY – Hourly
The hourly chart has already taken the first step toward a reversal by establishing a higher low. A move through 767.50 would complete the hourly higher high, resemble a small inverted head and shoulders breakout, and formally confirm the daily higher low.
Failure at 767.50, followed by a loss of 764.15, would keep the hourly downtrend intact and reopen the gap below as a potential target. First thought when we get there is for a gap fill reversal daily higher low. On the rebound back towards 767.5 there will be a threat for a daily lower high, but we'll deal with that when and if it happens.
Market Internals – NYSE
The NYSE internals were bearish, but not bearish enough to confirm liquidation. Volume flows and the AD line never entered the trend lower zone. The most negative cumulative TICK reading reached roughly -4,000, short of the -5,000 reading I would call substantial.
Most of the week's damage happened through overnight gaps rather than sustained RTH selling. If internals improve as SPY reclaims 767.50, I would be inclined to follow that confirmation higher.
Market Profile – /ES
Value moved lower with Tuesday's gap, but sellers failed to extend that progress during the remainder of the week. Thursday and Friday developed largely overlapping value, with a good excess low and little evidence that sellers were gaining acceptance at lower prices.
IGV – Software ETF
Software is outperforming the S&P and holding a gentle five-day pullback, with 103.50 and 107.70 as the next upside references. This looks great and is the dominant theme in the charts that scans have returned this weekend.
QQQ – Impact on S&P
Qs remains weaker than SPY but they are holding the final meaningful support from the follow through day at 707. A move through 715.50 would reclaim the 50 SMA and daily 8 EMA, opening up a move toward 722.20 getting into the gap. Acceptance above 727 would really improve the broader market outlook getting out of the Junk Drawer™.
Losing 707 is not a complete disaster for the Nasdaq, but we cant keep moving the line in the sand… Gap fill reversal off of 701.7 would need to be violent and get back over 707 in the same session. Acceptance below 707 after a gap fill to 701.5 is nighty night for the Qs.
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:
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Top watches: XPEV, INTU, ZM, NVDA, CRM, CRWD, OKTA, MRVL, IREN, ADSK, AFRM, WDAY, S, RBRK, ESTC.
Swing Stock Scans
AXON – Daily Chart
Ascending triangle over the 20 SMA with great look below and fail on Friday.
CNK – Daily Chart
Classic bull flag at the highs. Same setup as last week.
ECL – Daily
Nice compression of volatility building out the right hand side of the range. Over all key moving average.
FAST – Daily Chart
Great flag, but slow mover… right over the prior left side peak.
FIVN – Daily Chart
Perfect looking flag after an ignition bar post earnings.
MDB – Daily Chart
Higher low pullback and hammer over the prior left side peak. Great linear move recently, but has been a headache in the past.
QMCO – Daily Chart
Huge move up, gentle pullback over the left side peak, hammering out. Worth watching due to the huge volume, but mind the liquidity constraints.