MARKET ANALYSIS
Here’s All You Need To Know

• The market is trying to bounce this morning, but this is still a very fragile tape.

• Futures are higher, with Nasdaq futures leading the rebound as semiconductors attempt to recover from another heavy stretch of selling. Micron, AMD, Intel and the semiconductor ETF are all bouncing in premarket, with the chip ETF up around 3% after being hit hard again earlier in the week.

• That rebound matters because semiconductors have become the market’s main pressure point. The group was destroyed on Friday, bounced briefly on Monday, rolled over again on Tuesday and Wednesday, and is now trying to stabilize.

• The issue is that this still looks like a trading bounce inside a damaged short-term structure, not a clean all-clear signal.

• The chip ETF is still up more than 86% year to date, which tells you how far this trade had run before the sell-off started. When a group is up that much and then starts breaking on high volume, it usually takes more than one premarket bounce to repair the damage.

• The broader issue is that investors are now questioning the sustainability of the AI trade. Not the theme itself, but the price people are willing to pay for it.

• Oracle is the clearest example. The company beat headline earnings expectations, but the stock is down sharply because cloud sales disappointed and management plans to raise a massive amount of capital to fund its AI buildout. That is exactly the concern now: AI demand is real, but the spending required to support it is also enormous.

• This is the change in market psychology. A few weeks ago, heavy AI capex was seen as bullish because it confirmed demand. Now, the market is starting to ask who funds it, what the return profile looks like, and whether the valuation already reflects too much optimism.

• That matters with SpaceX coming public tomorrow. The IPO is expected to be the largest ever, with a valuation around $1.8 trillion. The market is clearly excited, and Wall Street coverage is already coming out with bullish targets. But this is also a major sentiment test.

• If SpaceX trades well, it could re-energize the speculative AI and space infrastructure trade. If it struggles, it could confirm that the market’s appetite for mega-cap growth stories is starting to cool.

• U.S.-Iran tensions have escalated again, with the U.S. launching additional strikes against Iran and Trump saying the U.S. will hit Iran “very hard” again. He also threatened to take control of Kharg Island and other Iranian oil infrastructure points.

• That is a serious escalation because Kharg Island is a critical hub for Iranian crude exports. If the market starts pricing in disruption there, oil can move quickly.

• WTI is trading around $90 and Brent is around the low $90s, but the real risk is not today’s price level. The real risk is volatility. If oil starts breaking higher again, inflation expectations will respond, and that puts pressure straight back onto growth stocks.

• The inflation data adds another layer. Producer prices rose 1.1% in May, above the 0.7% expected, while the annual headline PPI rate hit 6.5%, the highest since late 2022. That tells us pipeline inflation is still running hot.

• Core PPI was a little better than expected, but the headline number matters because energy and supply-chain pressure are exactly what the market is worried about right now.

• This is why the bounce in equities needs to be treated carefully. You have chips trying to rebound, but oil rising. You have futures higher, but wholesale inflation hotter than expected. You have AI enthusiasm around SpaceX, but Oracle warning that AI infrastructure requires massive funding.

• That is not a clean risk-on setup. It is a conflicted tape.

• The rotation message is also becoming clearer. Investors are actively looking for the opposite side of the AI momentum trade. Money is moving toward areas like healthcare, biotech, pharmaceuticals, financials and energy. That is not bearish by itself. It just tells us the market is becoming more selective.

• The Magnificent Seven are also becoming the real problem underneath the index. They have erased roughly $2 trillion in market value this month and account for more than two-thirds of the S&P 500’s total market-cap loss in June. That is the downside of a top-heavy market.

• Semiconductors are trying to recover, but the AI trade has lost its effortless momentum. Oil is still a major macro risk. PPI was hotter than expected. SpaceX is about to test speculative appetite. And capital is rotating into healthcare, financials and energy as investors look for protection against the growth unwind.

Nasdaq

37.62%: over 20 EMA | 44.55%: over 50 EMA | 52.47%: over 200 EMA

• QQQ is still holding its bounce from the 50-day EMA, but the quality of the bounce is not convincing.

• The problem is that we are once again rejecting around the declining 20-day EMA, and yesterday’s rejection came on expanding volume, with relative volume at 145% of the 20-day average.

• If price bounces from the 50-day EMA on declining volume and then tightens, that is constructive. But if price bounces, rejects the declining 20-day EMA and does so on expanding relative volume, that tells us supply is still active.

• This is why we still view the QQQ bounce as extremely fragile. The weakness underneath the surface is also getting worse. Several Magnificent Seven components are not just pulling back anymore. They are beginning to accelerate lower. The MAG7 complex itself has broken below the 20-week EMA on rising relative volume and is rejecting near its point of control and 50-day EMA area.

• That is not the type of leadership behavior we want to see if the Nasdaq is going to stabilize quickly.

• For today, we would still watch for tactical dip-buying opportunities around the rising 50-day EMA and 10-week EMA, but only for short-term traders.

• From a swing trading perspective, this remains a very dangerous area to force exposure. The Nasdaq is no longer extended to the upside, but that does not automatically make it a buy.

• The more important issue is breadth. Short-term breadth is weakening very quickly, with fewer than 38% of stocks above their 20-day EMA. The closer that number gets to the 30% area, the higher the probability of a short-term mean reversion bounce.

• That means we may be getting closer to a bounce setup from an oversold perspective, but this is not the same as a healthy trend continuation setup.

S&P 400 Midcap

51.50%: over 20 EMA | 51.00%: over 50 EMA | 58.75%: over 200 EMA

• MDY remains much stronger than QQQ, but it is not immune to the broader market pressure.

• The mid-cap complex is still holding its structure better, which is exactly what we expected because the real technical damage has been concentrated in mega-cap growth, semiconductors and the MAG7.

• That said, we are starting to see growing supply above $684. The last two weekly candles show repeated failed attempts to push higher, which is a sign that sellers are still active at the top of the range. This does not mean the structure is broken, but it does mean the market is rejecting higher prices for now.

• The strongest support area remains around $664, where the 50-day EMA and 10-week EMA line up.

• That is the level we care about. As long as MDY holds that zone, it remains the strongest area from a capitalization-weighted index perspective. This is still where we would be more interested in buying dips compared with QQQ or IWM.

• But the selectivity has to be much higher now. The focus should be on dips into the 50-day EMA in the strongest sectors only: healthcare, pharmaceuticals, oil and consumer staples. Those are the groups where relative strength is still visible.

• MDY is still a better structure than QQQ, but we do not want to buy the entire index blindly. We want the strongest stocks in the strongest groups, preferably pulling back into support rather than breaking out into a weak tape.

Russell 2000

57.12%: over 20 EMA | 57.85%: over 50 EMA | 59.22%: over 200 EMA

• Small caps are now showing rising relative volume over the last two sessions as price breaks lower. That is not what we want to see. Rising volume on a breakdown means sellers are becoming more aggressive, not less.

• The key rejection area is around $288, near the declining 10-day EMA, where supply has been very heavy.

• Yesterday’s session came on 137% of the 20-day relative volume, and although the 50-day EMA and 10-week EMA are still holding, the rising volume on the breakdown is a poor signal.

• This makes it less likely that the current move is simply a bear trap. If IWM were breaking lower on low volume and immediately reclaiming support, we could treat it as a shakeout. That is not what we are seeing. We are seeing supply increase as price moves lower.

• That should also act as a caution signal for MDY. The mid-caps are clearly stronger, but if small caps continue to break down on expanding volume, it tells us lower-cap risk appetite is weakening. That does not immediately invalidate the MDY setup, but it does mean we should be more patient with entries.

• For now, we would be very careful going long IWM. The better approach is to wait and see whether it can stabilize above the 50-day EMA and 10-week EMA. Until then, IWM is a warning signal, not a leadership signal.

FOCUSED GROUP
XLP: Rotation Into Staples Confirmed

• Consumer staples are the main group to watch today. This is one of the few areas of the market that is not just holding up, but actively beginning to break out.

• Both XLP and the equal-weighted staples structure continue to improve, which is important because it shows the rotation is not only concentrated in one or two defensive mega-cap names. Participation inside the group is broadening.

  

  WMT VRVP Daily & Weekly Chart

• XLP is now moving into a Stage 2 rally, and the structure is becoming increasingly important as growth stocks remain under pressure. Within the group, Walmart is one of the clearest names to watch.

• Walmart is showing a very strong bounce and is beginning to expand higher. That matters because it is also the largest weighted name inside XLP, so strength in Walmart has a meaningful impact on the sector ETF itself.

  

  XLP Top 10 Holdings

• This is exactly the type of leadership we want to see in a rotation tape. Growth is fragile. The MAG7 is under pressure. Small caps are showing distribution. But staples are breaking out from a cleaner base with improving relative strength.

• That does not mean we chase anything blindly after a sharp move. But from a group perspective, consumer staples now look like one of the cleanest areas for long exposure.

• If XLP continues to hold above its breakout area and Walmart keeps expanding higher, consumer staples could become one of the main defensive leadership groups while the Nasdaq continues to repair