MARKET ANALYSIS
Here’s What You Need To Know

• Global markets are currently sending very mixed signals about how seriously investors are treating the U.S.–Iran conflict. U.S. equities have been relatively resilient, while markets across Europe, Japan, and parts of Asia have reacted much more aggressively to the geopolitical risk.

• Since the start of the conflict, the S&P 500 has barely moved, slipping only slightly from last week’s close and still trading not far from its all-time highs.

• Meanwhile, several international indices have sold off far more sharply, highlighting that the stress response is much stronger outside the United States.

• The biggest pressure point continues to be energy markets, particularly the Strait of Hormuz. Roughly 20% of global oil supply flows through that route, and disruptions there have pushed oil prices higher over the past week.

• Brent crude briefly pushed toward the low $80s, but the futures curve is telling an interesting story. Later-dated contracts are trading significantly lower, which suggests that traders do not expect the supply disruption to last for many months.

• At the same time, the U.S. dollar has been strengthening, rising roughly 1–2% over the past couple of weeks. A stronger dollar often reflects a move toward safety, and it suggests that investors are still hedging against a longer or more complicated geopolitical situation.

• The bond market is also reacting as we see the treasury yields have moved higher, particularly on the short end of the curve, which signals that investors are becoming more cautious about inflation risks tied to higher energy prices.

• Because of that, the probability of a Federal Reserve rate cut in June has fallen noticeably over the past month. Higher oil prices can push inflation higher, which complicates the Fed’s ability to ease policy quickly.

• Despite all of these crosscurrents, the equity market itself remains stuck in a broad consolidation which tells us the market is currently looking through the geopolitical headlines, at least for now.

• Historically, wars and geopolitical events tend to create short bursts of volatility but rarely derail the broader earnings cycle unless they trigger a major economic shock.

Nasdaq

57.42%: over 20 EMA | 51.48%: over 50 EMA | 49.50%: over 200 EMA

• The Nasdaq ETF saw another strong defense of the key demand level around $600, with buyers stepping in aggressively and pushing price higher once again from that zone.

• Price managed to reclaim both the 10 day and 20 day moving averages, doing so on roughly 121% relative volume, which shows that participation increased meaningfully during the recovery.

• The rally also pushed price back above the point of control around $608, which is an important technical level that has repeatedly acted as a battleground between buyers and sellers.

• If we look at the daily volume profile, liquidity above current price begins to thin out up toward roughly $620, which could allow price to travel more easily through that range if momentum continues.

• However, when we zoom out to the weekly volume profile, the picture becomes more complicated. There is much heavier supply clustered overhead, which suggests the upside path will likely remain choppy rather than clean.

• Because of that, we would still remain cautious about assuming the worst is behind the Nasdaq just yet.

• That said, there are some encouraging internal signals. Many of the Magnificent Seven components are beginning to bounce, and a large number of Nasdaq constituents are finding support at key technical levels.

• As a result, roughly 60% of the Nasdaq 100 components are now trading above their 20 day EMA, which is actually the highest reading we have seen in several weeks. That type of internal improvement is somewhat counterintuitive given how volatile the broader tape has been.

S&P 400 Midcap

38.75%: over 20 EMA | 48.50%: over 50 EMA | 62.50%: over 200 EMA

• The mid cap index actually performed much stronger than we expected during yesterday’s session, even managing to push back above the 20 day moving average and reclaim the highs from Tuesday’s selloff.

• Despite the strong price move, there are two reasons we would remain cautious here.

• First, the relative volume was surprisingly weak, coming in at only around 96% of the 20 day average, which suggests the breakout lacked strong conviction.

• Second, much of yesterday’s strength is already being erased in premarket trading, which reinforces the idea that the move may not have been particularly durable.

• We would not be surprised to see some additional weakness develop in the mid caps, particularly because this segment had been one of the strongest performers during the previous rally.

• When a group outperforms for an extended period, it often becomes the first area where profit taking begins to appear once volatility enters the market.

• Breadth data also supports that view. Currently only about 39% of MDY components are trading above their 20 day EMA, which means the underlying participation inside the index has deteriorated quite significantly.

Russell 2000

45.98%: over 20 EMA | 50.36%: over 50 EMA | 61.31%: over 200 EMA

• Small caps actually held up surprisingly well compared with the mid caps, recovering nearly all of the ground lost during Monday’s sharp selloff and pushing back toward the $264 level.

• As expected, however, supply stepped in during the closing portion of the session, which pushed prices slightly lower into the end of the day.

• That behavior suggests the market is still very quick to sell strength, which is typical during periods of elevated uncertainty.

• Our expectation for the remainder of the week is that price action across most segments of the market will remain quite erratic, with frequent intraday reversals in both directions.

• The most important level to monitor in the short term is the rising 20 week moving average in the Russell 2000.

• That level acted as support during Tuesday’s deep selloff, and if small caps are going to stabilize, they will need to continue holding that trend support.

• The same principle applies to the mid caps as well. The 20 week moving average in MDY now becomes one of the most important structural levels to monitor in the days ahead

FOCUSED STOCK
GOOG: A Double Bottom Pullback Long

ADR%: 2.92% | Off 52-week high: -13.3% | Above 52-week low: +113.3%

• Google continues to look technically very constructive, especially after forming a clean double bottom structure on the weekly chart around the rising 20 week moving average.

• The first bottom formed during the mid February selloff, and the second test came during the most recent market weakness earlier this week. Both tests held the same demand zone, which is exactly what you want to see when a double bottom begins to develop.

• What makes this structure particularly interesting is that selling pressure has not accelerated into the lows. Relative volume actually began to decline during the selloff, which often signals that downside momentum is fading.

• We are now seeing price begin to stabilize above that support zone, and if the broader growth complex continues to bounce, Google is one of the names that could lead the recovery move.

• The key level to watch on the upside remains the overhead supply area near $306, where sellers stepped in during the most recent rally attempt.

• If Google can break above that level with strong relative volume, the next major area of interest becomes the daily and weekly point of control higher up, where price previously consolidated during the prior uptrend.

• From a structural perspective, the most important takeaway is simple. As long as Google continues to hold the rising 20 week moving average, the double bottom structure remains valid and the probability of an upside expansion continues to increase (especially with the QQQ outperforming).