MARKET ANALYSIS
Here’s All You Need To Know

• Today’s macro setup is more mixed than the headline futures move suggests. The market is not breaking down, but it is also not getting the clean risk-on confirmation we had earlier in the week.

• The biggest positive is the inflation data. Core PCE came in at 0.2% month over month, below the 0.3% forecast, which is a relief after the recent CPI and PPI prints both showed renewed inflation pressure.

• That matters because Core PCE is the Fed’s preferred inflation gauge. A softer monthly print gives the market some breathing room, especially after several weeks where higher oil prices, import prices and long-end yields have been the main pressure points.

• The problem is that the rest of the data was not clean. GDP growth came in at 1.6%, below the 2% expected, while personal income was flat at 0% versus the 0.4% forecast. Spending was still firm at 0.5%, but that mix tells us the consumer is still spending while income momentum is weakening.

• That is not immediately bearish, but it does reinforce the idea that the economy is becoming more uneven. The market can live with slower growth if inflation cools, but it does not want to see inflation stay sticky while income growth fades.

• Durable goods were the standout upside surprise, rising 7.9% versus 3.5% expected. That is a strong headline number, but it does not fully offset the softer GDP and income data. It does, however, support the view that industrial demand and capital spending are still holding up.

• Oil is the bigger near-term issue again. WTI and Brent are bouncing after fresh U.S. strikes in Iran, which has temporarily challenged the peace-deal optimism that drove crude lower earlier this week. Brent is still below $100, but the move higher is a reminder that the Hormuz risk is not gone.

• This is why the market is not reacting with a full risk-on move to the softer Core PCE print. Lower inflation helps, but higher oil can quickly bring the inflation problem back into focus.

• Growth is still being supported by earnings. Snowflake’s huge premarket move after strong guidance and its $6B AWS spending agreement shows that AI-linked cloud spending remains very much alive. Marvell, HP and Best Buy also helped support the view that AI, chips, cloud and hardware demand are still holding up.

• The caveat is software. Salesforce beat expectations, but the reaction was muted because investors remain concerned that AI may disrupt the traditional SaaS model. That is important for our XSW thesis. Software can still rotate higher, but the market is going to be selective. It will reward companies that show AI is an accelerator, not a threat.

• Today’s tape is therefore a tug of war. Softer Core PCE supports equities, strong AI-related earnings support growth, but fresh Iran strikes and higher oil keep the market from getting too comfortable.

• The clean read is this: the macro backdrop improved slightly on inflation, but not enough to remove the oil and growth concerns.

• For traders, this is not a day to blindly chase the open. Watch whether oil fades back lower after the initial spike, whether yields respond positively to the Core PCE miss, and whether AI-linked growth names can hold their earnings-driven strength.

S&P 500

55.86%: over 20 EMA | 55.06%: over 50 EMA | 57.85%: over 200 EMA

• SPY is still sitting at a hot level, now around 7.49 ATR multiples above the 50-day EMA.

• The important change is that we are finally starting to see dense selling aggression appear near the highs.

• Across yesterday’s full candle range, the visible range volume profile showed roughly 7.25M shares traded red versus only 4.7M shares traded green.

• That is the type of profit-taking we expected to appear once the index became this extended.

• We are still inching closer to a mean reversion, but this remains one of the strongest momentum markets we have seen since the March to April 2025 period.

• That means we would be extremely selective with short exposure. The market is extended, but it is not weak.

  

  MAGS VRVP Daily & Weekly Chart

• The most important thing to watch remains the MAG7.

• Yesterday, we saw META break out, AMZN continue higher, and dips in NVDA were still bought up. That is not bearish behavior.

• GOOGL also still looks tight as of yesterday’s close, which supports the idea that mega-cap leadership remains intact.

• As long as the MAG7 complex holds its structure, SPY can continue grinding higher, even if the index becomes more prone to intraday fades and choppier price action.

• The cleaner read is that SPY is extended enough to make fresh breakout entries poor quality, but not weak enough to justify aggressive shorting.

S&P 400 Midcap

59.00%: over 20 EMA | 62.00%: over 50 EMA | 57.75%: over 200 EMA

• The MDY still looks very strong though we did get a pullback yesterday, but it came on only 61% relative volume over the 20-day period.

• That is not the type of high-volume selling we would expect to see if institutions were aggressively exiting the mid-cap complex.

• MDY is also still only around 3.34 ATR multiples above the 50-day EMA, which is far healthier than SPY, QQQ, or semiconductors.

• We are just as bullish on lower-cap names as before. In fact, the more extended the mega-cap and semiconductor complex becomes, the more likely it is that liquidity starts rotating into areas with cleaner asymmetry.

• MDY may experience some short-term volatility because supply is building around the $683 highs.

• For that reason, we would not be chasing breakout long exposure here.

• The better work is underneath the surface: find the mid-cap names forming the tightest volatility contraction patterns, ideally with price tightening and volume drying up.

• That is where the highest quality fresh long exposure is likely to come from.

Russell 2000

55.86%: over 20 EMA | 55.06%: over 50 EMA | 57.85%: over 200 EMA

• The Russell 2000 is still powering ahead and is now around 4.91 ATR multiples above the 50-day EMA.

• That is elevated, but not yet extreme relative to the strength we are seeing in the group.

• Yesterday’s pullback came on 72% relative volume, and buyers were active on the lows.

• The buyer imbalance was not huge, but buyers still slightly outweighed sellers throughout the pullback, which tells us demand is still present.

• More importantly, IWM is not yet in the kind of extreme extension zone where we would be uncomfortable looking for continuation exposure.

• Any current pullbacks inside small-cap stocks should still be treated as viable long opportunities, provided the individual setup is clean.

• IWM continues to represent one of the clearest expressions of risk appetite in the market.

• If small caps keep holding up while mega-cap tech becomes more extended, that supports the idea that the rally is broadening rather than narrowing.

FOCUSED GROUP
XLI: Industrials Contraction Ready To Go

• Our focused group today is XLI, the industrials ETF and it is getting very tight on the weekly structure.

• Last week, price pulled back into the 20-week EMA, and that dip was bought up.

• This week, we are now seeing price drift higher from that support area.

• The important level is around $175 as the visible range volume profile shows supply quickly fading above that level, which makes $175 the key breakout area for us.

• This is exactly the type of group we want to monitor in a strong market and we all know that in powerful rallies, leadership rotates as asymmetry changes dynamically.

• When the obvious leaders become extended, money often starts rotating into groups that are still contracting, tightening, and beginning to show improving relative strength versus the broad market.

• XLI is not the same explosive high-beta trade as semiconductors or quantum, but it is building a cleaner structure.

• The ideal setup would be continued tightening below $175, followed by a breakout through that level with improving relative volume.

• If that happens, XLI becomes a strong rotation candidate as extended leadership areas cool off.