OVERVIEW
Microsoft Q3 Earnings in Focus as AI Investment Faces Tariff Headwinds 🧠

Microsoft is set to report its Q3 earnings after the bell on Wednesday, with Wall Street watching closely to see whether the company’s heavy investment in AI infrastructure is starting to pay off — or being derailed by growing global economic uncertainty.

President Trump’s “Liberation Day” tariffs have introduced new headwinds, with analysts warning that up to 15% of cloud and AI projects in the U.S. may be delayed as enterprise customers hesitate to spend. Microsoft itself has begun scaling back some of its early-stage AI efforts, pausing projects and canceling some data center leases, even as demand outpaces current capacity.

Despite these pressures, Microsoft is expected to post solid quarterly results: analysts forecast earnings per share of $3.21 on revenue of $68.4 billion, up from $2.94 and $61.8 billion a year ago. Commercial cloud revenue is projected to reach $42.2 billion, with Azure continuing to grow — AI-driven Azure revenue is expected to rise 15.6% quarter-over-quarter.

However, growth across Microsoft’s segments is expected to slow compared to last year. Revenue from its Productivity and Business Processes unit is projected to grow 9.8%, while Intelligent Cloud and Azure are forecasted to grow 18.2% and 30.9%, respectively — both down slightly from 2024 figures.

Microsoft’s More Personal Computing division, including Windows and Xbox, is expected to remain relatively flat. But with support for Windows 10 ending in October, analysts predict a wave of upgrades to Windows 11 could give PC sales a lift.

Investors will be paying close attention to Microsoft’s forward guidance, looking for signals on how the company is preparing for the next wave of AI adoption amid mounting trade uncertainties.

MARKET
Overhead Supply Is Looming…

As we head into today’s session, we’re entering what’s shaping up to be one of the most important — and potentially volatile — stretches of the entire quarter. Between now and next week, we’ll be hit with a wave of major earnings reports and key economic data that could drive significant shifts in market direction. For those who’ve been trading long enough, this kind of setup is familiar: volatility rises, price action becomes unpredictable, and the market often chops around as it tries to make sense of conflicting signals.

We’re already seeing signs of this uncertainty in the latest ADP employment data, which showed that U.S. companies added just 62,000 jobs in April — the slowest pace of hiring since July 2024. In plain terms, this tells us that businesses are getting cautious. With so many unknowns on the horizon — from economic slowdown fears to potential fallout from new tariffs — companies are pulling back on hiring as they wait to see how things unfold. It’s a signal that corporate confidence is starting to waver.

This makes the upcoming earnings reports even more significant than usual. The market won’t just be watching whether companies beat or miss expectations — the real focus will be on the outlook they give for the next quarter and beyond. These forward-looking forecasts will likely factor in current uncertainties, including the impact of trade disruptions, cost pressures, and shifts in consumer demand. If companies show hesitation or cut guidance, markets could react swiftly.

We also saw the GDP numbers come in this morning, with US Q1 GDP coming in negative at -0.3%. This marks the first negative GDP print since 2022, pushing the odds of a recession to a new high of 74%.

All of this is happening as the broader market has been rallying for six straight days, with key names like Palantir, Crowdstrike, and MicroStrategy finally breaking out of long consolidations. That’s bullish action — but also means we’re now technically extended in the short term. And with this much newsflow on deck, momentum can fade fast.

Bottom line: this is not the time to be aggressive. The potential for volatility is high, and until we get through this data-heavy stretch, protecting gains and managing risk should be the top priority.

Nasdaq

The Nasdaq is reacting negatively to the -0.3% GDP growth number released this morning, as expected. This reaction is coming at a key technical resistance level — the point of control (POC) — where we also see the declining 50- and 200-day EMAs lining up. While the recent rally was encouraging, it was always going to be fragile, especially considering it came on low volume, which typically doesn’t bode well for sustainability in an uptrend.

We anticipate some downside pressure today, but the key focus will be whether the market can hold above the rising 10- and 20-day EMAs. If we can maintain this support, it would signal that the market is potentially overreacting to the GDP and recession odds.

For those holding open positions, it's important to avoid panicking. Intraday fluctuations can create a lot of noise, and it’s common for traders to sell good stocks prematurely simply because they see some profit erosion during the day. Stay patient and wait for the close — it's a much more reliable indicator of the overall trend.

S&P Midcap 400

The midcaps are under significant pressure, mirroring the struggles of large-cap stocks, and they’re showing the same technical characteristics. The critical factor right now is whether the rising EMAs that are being tested in the premarket hold strong, or if we break down below these levels, which would heighten the chances of further downside.

It’s crucial to recognize that midcaps, along with small caps, are by far the weakest segment in the equity markets right now. This isn’t just a technical observation — it’s rooted in the fundamental realities of these companies. Smaller businesses are much more sensitive to economic stressors, such as rising borrowing costs and inflationary pressures on production. These businesses are typically more reliant on cheap debt and low-cost production, both of which are becoming increasingly difficult to access in the current macroeconomic environment, particularly given the tariff uncertainties and the broader global trade challenges.

Russell 2000

The IWM is set to open directly on its rising 20-EMA, and we’ll be watching closely to see how an intraday test of that level plays out. The critical area of concern is an unfilled gap between $189.70 and $188. If the rising 10-EMA and 20-EMA fail to hold, there’s a high likelihood that this gap will get filled, which is something we definitely want to avoid.

A failure to hold these key levels would signal a potential breakdown, and that could trigger further downside action, especially with the broader market sentiment still under pressure. The gap fill could act as a short-term catalyst, adding more weight to the bearish momentum if it plays out.

The low-volume rally we’re observing now would suggest that it’s a "spring" or "backup" within the larger distribution structure. Essentially, this rally lacks the necessary volume and broad participation to support further upside, which is often the precursor to a significant breakdown.

The failure to hold above the reclaimed 20-EMA, particularly with consistent rejection since February to April 2025 across all major indices, would indeed be a clear sign that the market is more likely to head into a markdown phase. After the distribution phase, markets typically enter a phase of weakness where prices fall back down, as the selling pressure that was building during the distribution phase now overwhelms the market.

In Wyckoff terms, we could be looking at the early stages of a “Markdown” phase, where the supply begins to outweigh demand, and price begins to fall. If we break down from here, it will likely signal that the distribution phase has fully played out and the market is now heading lower.

DAILY FOCUS
Always Prepare For The Worst Case Scenario

No matter how bullish a setup looks or how strong the momentum feels, the best traders operate with one core principle in mind: risk comes first. Market conditions can shift in seconds — a surprise headline, a weak earnings guide, or a macro data miss — and without a plan for the downside, you're left exposed.

Preparation doesn’t mean pessimism. It means realism. Before entering a trade, ask:

• Where could this go wrong?

• How much am I willing to risk if it does?

• Is my size appropriate for the volatility ahead?

Having conviction in your analysis is important — but assuming you're right is where most traders blow up. The best trades aren’t the ones where everything goes perfectly; they’re the ones where the downside was controlled and the upside took care of itself.

It’s much easier to get aggressive after strong earnings than to try to predict them beforehand. Waiting for the confirmation of solid numbers — and more importantly, guidance — makes the decision to enter far clearer, and with a much higher chance of success. Being reactive rather than predictive often leads to better entry points and less risk of getting caught in false moves.

At the same time, we have to acknowledge the other side of the coin — a bullish scenario where these mega-cap reports come in better than feared. That could catalyze a major re-risking moment, especially if forward guidance clears what are now fairly muted expectations. If that happens, expect capital to rotate hard back into equities, particularly in tech and growth.

WATCHLIST
Nothing To Declare