MARKET ANALYSIS
Here’s All You Need To Know

• The market is seeing a major risk on push this morning, with Dow futures up around 500 points, S&P 500 futures up close to 0.9%, and Nasdaq futures up around 1.5% after reports that the U.S. and Iran are moving closer to a potential agreement.

• The key macro driver is the collapse in oil prices. WTI is down roughly 10% and trading around $91 to $93, while Brent has fallen back toward the $100 area after reports that both sides are working toward a one page agreement to end the war and reopen broader negotiations.

• This is a major shift because oil has been the primary macro risk for equities over the last several weeks. Every time crude has pushed higher, it has pressured growth stocks through the inflation channel, the Fed channel, and the consumer spending channel.

• With oil now pulling back aggressively, the market is quickly repricing the probability that the worst case Strait of Hormuz scenario may be avoided.

• Trump also paused Project Freedom, the U.S. plan to guide ships through the Strait of Hormuz, citing progress toward a final agreement with Iran. That matters because it lowers the immediate risk of another direct escalation in the waterway.

• That said, this is not a finished deal yet. Trump has already warned that if Iran does not agree, bombing could restart at much higher intensity, so the geopolitical risk has not disappeared. It has simply shifted from immediate escalation risk to negotiation risk.

• The market reaction tells us investors are willing to price de escalation quickly, but the deal still needs confirmation. Until Iran formally accepts the proposal, this remains a headline sensitive tape.

• The positive point is that the market is responding exactly how we would expect in a de escalation scenario. Oil is falling, global equities are rallying, European markets are surging, and growth leadership is expanding again.

• European markets are showing the size of the relief move, with the Stoxx 600 up more than 2% and major indices in London, Paris and Frankfurt all moving sharply higher.

• Asian markets also responded strongly, with South Korea’s Kospi closing at a new record after a huge rally driven heavily by Samsung and SK Hynix.

• This matters because the rally is not isolated to U.S. equities. We are seeing a synchronized global risk on response to falling oil and improving geopolitical expectations.

• The second major driver this morning is the continued strength in semiconductors and AI.

• AMD is up sharply premarket after beating expectations and issuing strong second quarter guidance, with expected revenue of around $11.2B, above consensus.

• That is giving another major lift to the chip complex, with SMH up around 3% premarket and Intel also pushing higher.

• This matters because semiconductors have been the leading growth group throughout this rally, and strong AMD guidance helps reinforce the view that AI demand is still translating into real revenue growth.

• The market is still climbing through a heavy wall of worry. We have had geopolitical risk, oil risk, Fed risk, and technical extension risk, but earnings revisions and AI related growth continue to provide a major buffer for the S&P 500.

• Yesterday was also broad based, with all 11 S&P 500 sectors closing higher. That is important because it shows the market is not relying on one narrow pocket of growth. Breadth is improving again.

• The concern remains technical extension. The strongest growth groups have already moved aggressively, and semiconductors are still stretched from their 50 day EMAs.

• Falling oil can absolutely extend this rally, but it does not remove the need for disciplined entries.

• The framework remains the same. This is a strong market, but not one where we want to blindly chase every gap up move.

• If oil continues lower and the Iran deal progresses, growth stocks can keep expanding. However, the best trades will still come from clean pullbacks, tight bases, and the strongest names holding their rising 10 day and 20 day EMAs.

• Watch whether oil continues to stay weak, watch whether the Iran deal headlines remain constructive, and watch whether AMD’s earnings reaction can reignite the semiconductor complex without immediately becoming another overextended chase.

S&P 500

47.31%: over 20 EMA | 52.68%: over 50 EMA | 54.47%: over 200 EMA

• SPY is seeing a very strong premarket rally this morning, up around 0.8% on the U.S. and Iran de escalation news.

• The move is impressive and the market reaction is clearly positive, especially with all 11 U.S. sectors participating in yesterday’s rally.

• The issue is that SPY is now getting hot again from an extension standpoint, sitting around 6 ATR multiples above its 50 day EMA.

• That is a high extension level, which is exactly why we have kept pushing for pullback long exposure over the last two weeks rather than chasing marginal highs.

• The rising 10 day EMA has been the only clean and viable entry tactic recently, because that is where the market has repeatedly given traders a lower risk way to get involved.

• This morning’s gap up is strong, but we still need to see relative volume step up if the move is going to carry real confirmation.

• Yesterday’s session only traded around 48% of the 20 day average relative volume, which is extremely low for a market sitting near highs.

• That low volume does not mean the rally must fail, but it does mean we need to be careful with the quality of entries.

• We suspect the rally can continue and potentially even strengthen from here, especially given how broad yesterday’s participation was across all sectors.

Nasdaq

58.41%: over 20 EMA | 59.40%: over 50 EMA | 55.44%: over 200 EMA

• QQQ remains the beating heart of the U.S. equity rally, but it is now sitting at an even more stretched 8 ATR multiples above its 50 day EMA.

• That is a ridiculous level of short term extension for a major index ETF, and it means mean reversion risk is becoming exponentially more likely.

• We would be very cautious about chasing the gap up this morning, especially with the market already extended and everyone now expecting the rally to continue.

• Often, the point where everyone finally feels comfortable chasing is exactly where disappointment risk rises.

• This does not mean the Nasdaq is weak. It means the Nasdaq is technically stretched and entry quality now matters more than direction.

• The bigger opportunity we are watching is still a potential parabolic short in XSD, the semiconductor ETF that we have discussed consistently in recent reports.

• XSD is now sitting above 13 ATR multiples from its 50 day EMA, which is extremely unsustainable.

• This is not normal extension. This is deep mean reversion territory and the same message is being confirmed by SMH, the other major semiconductor ETF, which is now around 10 ATR multiples above its 50 day EMA.

• Semiconductors remain the strongest growth group in the market, but that strength is now stretched to a point where chasing longs is a very poor asymmetry setup.

• We would not confuse sector leadership with entry quality. Semiconductors can still be the strongest group and still be a terrible place to chase marginal highs.

S&P 400 Midcap

51.25%: over 20 EMA | 61.75%: over 50 EMA | 56.25%: over 200 EMA

• MDY is in a much healthier position for continued long exposure than QQQ or the semiconductor ETFs.

• The midcaps have built a very strong three week base, with support repeatedly showing up around the rising 10 day and 20 day EMAs.

• The key advantage here is that MDY is not meaningfully extended, sitting around 3.25 ATR multiples above its 50 day EMA.

• That is not a dangerous extension level, especially compared with QQQ, XSD and SMH.

• We would still be cautious about chasing the gap up this morning, and waiting out the first 15 to 30 minutes makes sense to see whether the opening strength holds.

• However, as a proxy for midcap health, MDY is telling us to continue searching for long opportunities.

• The broader point is that the healthier setups are now likely to be found away from the most extended mega cap and semiconductor areas.

• Midcaps still offer a much better balance between strength, base structure and remaining upside asymmetry.

Russell 2000

61.05%: over 20 EMA | 71.35%: over 50 EMA | 60.48%: over 200 EMA

• IWM had a huge breakout yesterday, largely in line with what we expected.

• We have been aggressive in our bullish thesis on small caps because this was the area most likely to benefit from a renewed risk on shift.

• Small caps are now showing an 80 relative strength rating versus the SPX, which confirms that this is one of the strongest areas of the market right now.

• The issue is that IWM is also getting a little hot in the short term, sitting around 5.14 ATR multiples above its 50 day EMA.

• That does not mean the move is over, but it does make marginal high breakout entries less attractive.

• IWM should still be viewed as the cleanest proxy for speculative risk appetite.

• When small caps are breaking out with this level of relative strength, it is a very clear risk on signal.

• The message from IWM is still aggressive risk on, but the entry discipline remains the same. We want pullbacks, tight bases, or clean intraday continuation setups rather than chasing emotional gap ups.

FOCUSED GROUP
XAUUSD: Precious Metals Are Next To Go

• Our focused group today is metals, specifically XAUUSD, XAGUSD and XCUUSD.

• Gold, silver and copper are all sitting in very tight bases that have been developing for months.

• This is exactly the type of setup we want to pay attention to because the asymmetry is beginning to become extremely attractive.

• Gold and silver are both getting very tight while sitting around minus 1 ATR multiple extension, which means they are not stretched at all.

• That creates a very strong long exposure setup because the downside is relatively compressed while the upside potential remains meaningful.

• The structure is also constructive, with higher lows forming, lower highs compressing, volume drying up, and price holding above key rising EMAs.

• This is the expected volatility contraction behaviour and the more important point is that the metals are moving in tandem as gold, silver and copper are all starting to show similar tightening behaviour, which adds confirmation to the group setup.

• Copper is also beginning to push, which matters because copper tends to carry a more cyclical message than gold and silver.

• If all three metals begin expanding together, that would be a strong signal that this is not just an isolated gold trade, but a broader metals rotation.

• We see this as one of the most asymmetrical areas in the market right now because the group is tight, not extended, and sitting close to major support.