Failure After Failure Is A Signal
The S&P closed up 0.35% from last Monday’s open to Friday’s close.
Most importantly the market has continuously failed to accelerate lower, even with supposably bearish catalysts at hand. FOMC on Wednesday is just another example.
I’ll give you the bottom line up front tonight, if the S&P can break over last weeks high, it will be the first weekly higher high on a bar to bar count since the all time high. Over 763.57 and the situation here improves dramatically.
The Fed Proved It Still Has (Dull) Teeth
Kevin Warsh delivered the highly anticipated 25bps hike, but came out considerably more hawkish in the press conference than perhaps the market was expecting.
The updated summary of economic projections (SEP) told the main story though. Markets came into the event pricing in 4 rate hikes into the end of 2027 including the September FOMC. The SEP however detailed one additional hike bringing the median projection for the Fed Funds rate to 4.1%, and then a full years worth of pause at 4.1% for 2027.
By the end of the week however, nothing had changed as it relates to market pricing of projected path. If anything the market became more certain that the Fed would get to 4.6% sooner than previously projected.
The fact that the market is shrugging this off strikes me as being bullish, and another opportunity for the market to, “climb the wall of worry.”
Ten year interest rates are still stubbornly sticky towards 5% instead of offering a large news failure to get back down towards 4.7%, however the S&P 500’s strength to rally in the face of this is notable.
So long as “good news is bad news” but can be shrugged off in terms of market response, I’ll be take this as a bullish improvement until proven otherwise.
Dario Wants To Slow Down, Markets Don’t
Last week we had written about Dario’s desire to “pace the frontier” of AI development and how that was leading to a gap down on Sunday night. Our base case was that the market would have a temporary dislocation and then snap back. Re read that here: Pace The Frontier?
If that happened, we would have a bullish news failure and followup will be watching for a sustained rally to be birthed in the aftermath. Currently that’s what its looking like.
For wanting to slow the pace, quite a bit happened last week as well.
- CoreWeave launched a $3 billion convertible debt sale.
- Nvidia-backed Nscale disclosed more than $103 billion of contracted value in its IPO filing.
- Anthropic and Accenture committed at least $2 billion to independent model evaluation.
- Amazon signed a $2.4 billion generator agreement with Generac, with purchase-linked warrants tied to as much as $8 billion of spending.
The main point may simply be that “slower frontier development” and “lower AI spending” are not the same trade.
Geopolitical Context…
Geopolitical risk rose again Sunday.
Houthis targeted Riyadh and Saudi energy infrastructure, keeping Hormuz and Red Sea supply routes in focus even as diplomacy remains possible.
Europe is worsening too, with major drone attacks around Moscow and Kyiv and renewed spillover toward NATO airspace. Traders now face higher geopolitical risk across oil, inflation and global risk sentiment.
This is the look of /CL crude futures as of 10:52pm EST.
Considering what was said above, this looks like yet again…
… another news failure.
As always the charts will light the way, so lets take a closer look.
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Broad Market Analysis
SPY – Weekly
The weekly chart left us with a green bodied hammer, the third weekly hammer in a row. Each time sellers have broken the prior week’s low, buyers have recovered the range. That repeated failure to accelerate lower is the key insight here to look for the next confirmation to move higher. A break above last week’s high near 763.57, breaks the sequence of lower weekly highs.
The broader structure remains constructive. SPY is still holding above a rising 20-week SMA, sitting near the rising 10-week SMA, respecting the 61.8% retracement, and supporting around the prior all-time high anchored VWAP and weekly high-volume node. I am not calling the weekly trend higher yet, but a break above 763.57 would materially improve the trend.
SPY – Daily
The daily chart has improved, but it is not technically back in an uptrend. We still have a sequence of lower highs and lower lows. On a more granular level, we can see the failure of the sellers post FOMC. Wednesday closed heavily below the 50-day SMA and 760.25, but Thursday immediately gapped back above that level and Friday tested lower before closing on highs.
That makes 760.25 the key inflection point. Holding above it keeps the recovery alive and opens the door toward the range midpoint near 767.85, followed by a potential move back toward the all-time highs. The weekly expected move spans roughly 751.82 to 771.56. A loss of 756.65, the PPI gap down low, would keep the daily downtrend firmly intact.
SPY – Hourly
The hourly chart is where the first real trend change can happen. We already have a higher low developing, but buyers still need a higher high. Acceptance above roughly 763.25 would improve the structure, reclaim important anchored VWAP resistance, and start opening the door toward the 61.8% retracement near 764.64.
On the downside, I am putting more emphasis on 758.75 because Friday’s low also aligns with the 38.2% retracement. Under there, 756.65 becomes increasingly important. The cleanest bullish path would be consolidation above 760.25, a break through 763.25, and then a controlled pullback that establishes a daily higher low.
Market Internals – NYSE
NYSE internals did not confirm Friday’s strong close. Volume flows finished net negative at the exchange level, the advance-decline line failed to push convincingly above zero, and the cumulative build remained relatively flat as price recovered.
Quad witching complicates the Friday reading, so I am willing to give the market some benefit of the doubt. Still, this is not what I would expect to see if broad participation were already firing on all cylinders. A stronger Monday reading will carry more weight.
Market Profile – /ES
The market profile is more constructive. Value never materially shifted lower during the FOMC selloff, moved higher on Thursday, and remained overlapping to higher on Friday. Sellers had a significant catalyst and still failed to establish meaningful acceptance lower.
That reinforces what the weekly chart is showing. The FOMC decline currently looks more like a temporary liquidation event than sustained directional selling. The Tuesday and PPI low remains important because a retracement into that area of single prints could still establish a higher low without damaging the larger recovery attempt.
XLK – Technology ETF
Technology already broke its range high and established a new higher high, making it one of the cleaner pieces of bullish confirmation for the S&P.
QQQ – Impact on S&P
Qs look stronger than SPY, however are now pressing directly into the top of its multiweek range, so just like we don’t want to be maximally bearish at range low, we might not want to be maximally bullish at range high.
The critical area is 722 to 724. A clean breakout followed by support above 722 would be a strong confirmation signal for the S&P because technology is already providing most of the market’s leadership. A pullback that holds above roughly 717.25, or ideally the FOMC high near 711.85, would also preserve the constructive setup.
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: BB, SNX, COST
Swing Stock Scans
A – Daily Chart
Great back to back hammers in an uptrend. Ideally this either goes sideways and flags over the 20 SMA (orange) or gets a quick up and out into the local high.
BBNX – Weekly / Daily Chart
Weekly cup and handle with daily inside on Friday. Large overhead unfilled gap.
BRKR – Daily Chart
Flat top base building with ability to offer tight right hand side over the low cheat and MA stack.
DE – Daily Chart
Bull flag and first test of the 20 SMA (orange) after breaking out. Inside bar on Friday.
FSLY – Daily Chart
Interesting reclaim of the 22.85 level and key MAs. Ideally a look below and fail on 22.85 to hammer the stack, or a break over 25.3 for an inverted head and shoulders neckline break.
HUT – Daily Chart
Look below and fail on the earnings pivot low before making a new high. The WGMI group should come back to life IF the market is ready to flip back towards risk on.
NTSK – Daily Chart
A tight flag on the daily looking for higher if we see holds over 16.55 or breaks over 17.85.
VRNS – Daily Chart
Still in play from last week. Great consolidation over the key MAs and still within flag range.