MARKET ANALYSIS
Here’s All You Need To Know

• Friday finally delivered the mean reversion we had been warning about as the Nasdaq fell 4.2%, the S&P 500 dropped 2.6%, and the Dow lost 1.4%, with the S&P 500 snapping its nine-week winning streak.

• The semiconductor ETF was hit even harder, falling around 10%, its worst session in more than six years. That is not normal volatility. That is a proper unwind after a very stretched run.

• The cause was not hard to understand. Growth and semiconductors had become heavily crowded, extremely extended, and priced for perfection. Broadcom was the trigger, but the issue was broader than one earnings reaction. When AI-linked stocks become the default long trade, even a small disappointment can create a much larger unwind.

• That is exactly what happened. Nvidia, Micron, Marvell, AMD, Qualcomm, Broadcom and the wider AI hardware complex all came under pressure. Micron fell 13% on Friday, Marvell dropped 17%, and the weakness spread globally into Asia, where South Korea’s Kospi fell more than 8% and Japan’s Nikkei dropped almost 4%.

• The important point is that this was not just a semiconductor sell-off. It became market-wide. Crypto sold off hard. Mega-cap growth weakened. Asian tech was hit. Gold and silver also fell, which was surprising given the renewed Middle East tension. When risk assets and safe-haven metals fall together, that tells us the move had a liquidity component, not just a sector rotation.

• This morning, we are seeing the first relief bounce. Nasdaq futures are up around 1% to 1.4%, S&P 500 futures are firmer, and chip stocks are rebounding. Micron is up more than 5% premarket after Friday’s 13% drop, while Nvidia and Broadcom are also attempting to stabilize. Marvell is bouncing sharply after news it will be added to the S&P 500 on June 22.

• After a violent unwind, the first bounce is often mechanical. The real question is whether buyers can hold the rebound once the open settles.

• Friday’s strong jobs report forced traders to reprice interest rate risk, with Treasury yields rising as the market pushed back against the idea of easier Fed policy. That is a problem for expensive growth because higher yields reduce the tolerance for stretched valuations.

• We also have inflation back in focus this week. May CPI is due Wednesday, and it matters because April already showed renewed pressure, with CPI running at 3.8% year over year, PPI at 6%, and PCE at 3.8%. The market needs evidence that oil and gas inflation is not spreading further into the broader economy.

• Oil is still a live risk. Iran and Israel traded strikes over the weekend, Brent briefly pushed toward $98, and WTI moved higher before paring gains after Trump said both sides were looking for an immediate ceasefire. Brent is now closer to the mid $90s, but the risk has not disappeared.

• This matters because higher oil and higher yields are the exact combination that can keep pressuring long-duration growth, especially when the AI trade is already crowded.

• The AI debate is also shifting. It is no longer just about demand. It is now about funding, capex discipline, and whether every AI-linked company can justify the money being raised and spent. That is why the upcoming SpaceX IPO is so important. The offering could be one of the largest in market history, and large speculative IPOs have often arrived near moments of extreme sentiment.

• Nvidia’s Jensen Huang is still arguing that the AI buildout is early and that the sell-off is a buying opportunity. Jefferies also pushed back against the bubble argument, noting that capex as a share of free cash flow is still well below dot-com-era extremes. That is a fair counterpoint and the long-term AI theme remains intact.

• The strongest relative areas remain healthcare and financials. That is important. If everything were collapsing together, we would be dealing with a clean risk-off tape. Instead, money is still finding a home in groups with cleaner asymmetry and less technical extension.

• Friday was a real warning shot, not just a random dip. Semiconductors and growth finally mean reverted after extreme extension, the selling was broad enough to include crypto and metals, and the macro backdrop still contains oil, inflation and yield risk.

• Today is about confirmation. If the bounce in Nvidia, Micron, Broadcom and Marvell holds, Friday may prove to be a healthy reset inside a powerful bull market. If the bounce fades, oil stays firm, and yields keep pressing higher, then the market is likely entering a deeper cooling phase across the most extended growth areas.

Nasdaq

49.50%: over 20 EMA | 50.49%: over 50 EMA | 58.41%: over 200 EMA

• QQQ had its highest relative volume day in 197 trading days, with relative volume coming in at 218%.

• That is a major signal as this was an aggressive mean reversion sell-off after weeks of extreme extension across the growth complex. The intraday range was more than 2.2 times the expected average daily range, which tells us sellers were not only active, but aggressive.

• We are seeing a bounce in premarket, but we would be very cautious trusting it. A bounce is expected after such a heavy sell-off. That does not automatically make it healthy. In fact, the first bounce after a high-volume breakdown is often one of the most dangerous areas to chase because traders are trying to buy what might only be a relief rally.

• QQQ is still below the 10-day and 20-day EMAs, and the 10-week EMA remains roughly 3.37% below current levels.

• That matters because the market now has the classic warning signals in place: high relative volume, a high ADR percentage sell-off, a break below short-term moving averages, and major weakness in the leadership complex.

• The MAG7 was hit hard. TSLA, GOOGL, NVDA, AMZN and META all sold off aggressively, which is exactly why we would not blindly trust this morning’s bounce.

• This does not mean the long-term trend has broken. It means the short-term cycle has clearly shifted from clean expansion to caution.

• The correct approach here is not to chase the bounce but to watch whether QQQ can reclaim the 10-day and 20-day EMAs, and whether the MAG7 can stabilize after yesterday’s distribution.

S&P 400 Midcap

54.00%: over 20 EMA | 55.00%: over 50 EMA | 57.50%: over 200 EMA

• The sell-off in the mid-caps was far less intense, with relative volume only around 77% of the 20-day average. That is actually one of the lowest-volume sessions we have seen in the last two weeks.

• Price pulled back into the 20-day EMA, but bounced cleanly and held the level.

  That is clear evidence of relative strength and this is especially important because MDY had already been one of the stronger areas in the market, and unlike QQQ, SPY or the MAG7, it was not carrying the same level of technical extension.

• That is the key difference as the mid-caps can pull back without breaking because they are not coming from the same overheated position as the mega-cap growth complex.

• For now, MDY still looks like one of the healthier parts of the market. If the broader market stabilizes, this is still one of the first areas we would expect to attract liquidity again.

Russell 2000

50.94%: over 20 EMA | 54.53%: over 50 EMA | 57.48%: over 200 EMA

• The IWM was weaker than MDY and mean reverted much more aggressively. The Russell 2000 sold off on 121% relative volume, which is a meaningful spike in participation. Price broke down toward the 10-week EMA, although it did not quite test it.

• That tells us small caps are still showing short-term pressure and across both IWM and MDY, we would not be surprised to see a further downside move toward the 10-week EMA and 50-day EMA area, especially in small caps.

• The difference is that IWM looks more vulnerable than MDY right now and small caps had been acting as the highest-beta expression of risk appetite, so when they sell off on expanding volume, we need to pay attention.

• This is not a reason to flip structurally bearish, but it does mean the cleanest lower-cap long exposure is currently in MDY rather than IWM.

• For IWM, the next important test is whether buyers step in closer to the 10-week EMA. If they do, the broader lower-cap rotation remains alive. If they do not, small caps could continue to weigh on the risk appetite signal.

FOCUSED GROUP
XLF: Financials Showing Relative Strength

• Financials are the only area where we are seeing clear relative strength right now.

• While almost every other sector and group sold off yesterday, XLF, RSPF, KRE and KBE all showed an uptick. That is very different behavior compared with the rest of the market.

  

  KRE VRVP Daily & Weekly Chart

• This matters because when the market sells off broadly and one sector holds firm or pushes higher, that is usually where liquidity is rotating.

• The fact that XLF and RSPF are moving in tandem is especially important. It tells us the strength is not only coming from the largest financial stocks. The equal-weighted financials are also participating.

• Both XLF and RSPF bounced from their 50-week EMAs and moved higher together. That is a strong higher-timeframe signal.

• Regional banks and banks are also worth watching closely. KRE is getting very tight, building what looks like a strong base and an elongated cup-and-handle structure on the 20-week EMA. It is also holding near the point of control, which makes the setup cleaner.

• The key point is that financials are now showing the exact opposite behavior of extended growth.

• Growth is breaking down from extreme extension. Financials are tightening around higher-timeframe support and showing relative strength during market weakness.

• That is where our attention should be and if XLF, RSPF, KRE and KBE continue to hold up while QQQ and MAG7 remain under pressure, financials could become one of the cleanest rotation trades in the market.