MARKET ANALYSIS
Semiconductor Selling Carries Into Fed Week

US equity futures pointed lower on Tuesday after the semiconductor selloff intensified across Asia. Oil continued to fall on renewed US-Iran talks, while the dollar held near a four-week high as the Federal Reserve began a meeting with an unusually uncertain outcome.

Asian technology shares carried Monday’s US weakness into a much larger regional decline. South Korea’s KOSPI fell 10.8%, with Samsung Electronics down 13.4% and SK Hynix down 14.7%. Kioxia lost 18.3% in Japan, and Nvidia and Micron traded lower before the US open.

Several developments are weighing on the sector. Investors are questioning the financing behind the next phase of AI infrastructure spending after a report that Nvidia may provide roughly $250 billion of guarantees for an OpenAI data-centre project. Reports of Chinese progress in deep-ultraviolet lithography have added concern over future manufacturing capacity, and the market debut of Chinese memory producer CXMT has increased attention on competition in DRAM. Details around the new Chinese equipment remain limited, and CXMT is still considered well behind the Korean manufacturers in high-bandwidth memory.

The Federal Reserve begins its two-day meeting with futures markets pricing roughly a one-in-three chance of a quarter-point increase on Wednesday. Most economists still expect no change. Inflation eased in June, and the latest fall in oil has weakened part of the case for an immediate increase. Several policymakers are expected to favour tighter policy, leaving the possibility of dissents and a September move even if rates are held this week.

Brent crude traded below $87 a barrel after the United States paused air strikes and reported progress in talks with Iran. Oman has proposed a mechanism for reopening trade through the Strait of Hormuz, although vessel traffic remains restricted and attacks on Saudi energy infrastructure continue. Traders are responding to the negotiations even though shipping conditions have not normalised.

The US session opens with two separate pressures on technology: lower earnings confidence across semiconductors and the possibility of tighter monetary policy. Falling oil eases the inflation pressure without addressing the financing and competition concerns behind the chip selloff.

SPY Is Testing the 50-Day From Below

SPY closed Monday at 739.12, leaving it 0.79% below its 50 simple day average near 745. Relative volume was 0.86, and the fund remains inside the range defined by 716.58 support and 755.58 resistance. Monday’s close did not contain the volume associated with a decisive break, but SPY has yet to recover the moving average.

Weakness is considerably more developed in the Nasdaq. QQQ finished 4.95% below its 50-day average and below the low of its recent 20-day range.

RSP closed 2.33% above its 50-day average and remained near the top of its own range. Seven of the eleven S&P sectors advanced on Monday despite losses in Technology and Energy.

Breadth is stronger over the medium term than the latest momentum readings. Within the S&P 500, 68.34% of constituents remain above their 50-day averages and the McClellan Oscillator is positive. The Nasdaq 100 oscillator is negative, with 46.53% of members above the 50-day. The Russell 2000 also has a negative oscillator, although 59.77% of its constituents remain above the same average.

Financials and Health Care have the strongest participation among the major sectors, with more than 80% of their members above the 50-day average. Technology stands at 37.84%. These figures explain why SPY and RSP have held up better than QQQ. They do not show that Financials, Health Care or the defensive groups have taken over as durable market leadership.

Monday produced one session of broad sector performance on below-average index volume. Confirmation would require continued relative strength outside technology, improving short-term breadth and successful price action from the leading stocks within those groups. Further losses in QQQ accompanied by deterioration in RSP, mid-caps and the stronger sectors would mark a broader change in market conditions.

Oil, Rates and the Dollar

USO fell 8.86% on Monday as crude surrendered part of the premium accumulated during the latest escalation with Iran. Longer-duration Treasury ETFs advanced modestly, and the ten-year yield fell by about four basis points. Shorter-term rates moved less because the upcoming Fed decision remains unresolved.

The dollar’s move above its recent range is consistent with the repricing of US interest-rate expectations. Continued dollar strength would tighten the backdrop for equities and add pressure to growth assets. A sustained decline in oil would work in the opposite direction by reducing the inflation impulse from energy.

Gold and Bitcoin made smaller moves and do not alter the equity assessment. Rates, oil and the dollar are relevant this morning because they influence the policy outlook; the evidence determining exposure still comes from SPY, breadth and market leadership.

The Next 48 Hours

SPY’s 50-day average near 745 is the first test. A close above it on stronger volume, supported by RSP and improving Nasdaq breadth, would repair part of Monday’s weakness. Resistance at 755.58 becomes relevant after the moving average has been recovered. A break below 716.58 on expanding volume would indicate that selling previously concentrated in technology is spreading into the broader market.

Technology requires separate confirmation. A short rebound in QQQ would be insufficient after the recent breakdown. Improvement would include a positive turn in the Nasdaq 100 McClellan Oscillator, a rising share of constituents above the 50-day average and several sessions of stability across semiconductors and the megacap earnings leaders.

The Federal Reserve announces its decision at 2 p.m. ET on Wednesday. Microsoft reports after the close, with Meta, Amazon and Apple also due this week. KLA Corporation reports on Tuesday evening and will provide an earlier update from the semiconductor supply chain. Core PCE and GDP follow on Thursday.

Exposure should remain selective ahead of those events. The broader S&P 500 has not followed the Nasdaq into the same degree of technical weakness, but there is no basis yet for assuming that the damage in technology has finished or that another group is ready to replace it.