MARKET ANALYSIS
Here’s All You Need To Know

• The market is opening stronger again this morning, with the Nasdaq leading as the AI and semiconductor trade continues to dominate the tape. S&P 500 and Nasdaq futures are higher after both indices closed at fresh records yesterday, while the Dow is lagging slightly because this is still primarily a growth and tech-led move.

• The biggest point today is semiconductors. This group is going parabolic. Micron surged 19% yesterday, is up again premarket, and has now pushed above a $1T market cap for the first time. SK Hynix has also joined the $1T club after a huge rally overnight, confirming that the market is aggressively repricing the entire AI memory chain.

• This is excellent news for anyone already positioned in the semiconductor and AI infrastructure trade. Leadership is still being rewarded, volume is flowing into the strongest names, and the market is clearly treating memory chips as one of the cleanest bottleneck plays inside the AI buildout.

• But for traders with no exposure, this is exactly where discipline matters most. As painful as it feels to watch a move like this from the sidelines, do not chase parabolic semiconductor names into fresh highs. The group is extremely extended for fresh entries, and the probability of whipsaw, intraday fades and sharp mean reversion increases materially once price gets this vertical.

• The correct interpretation is not “semiconductors are weak.” They are the opposite. This is one of the strongest segments in the entire market. The problem is that strength and good entry asymmetry are not the same thing.

• Fresh entries now need to be very selective. The best opportunities are not in buying the most extended names after a 20% candle. They are either in existing positions, pullbacks into rising moving averages, or adjacent areas that have not yet gone fully parabolic.

• The AI memory trade is also becoming a global leadership story. Micron, SK Hynix and Samsung are all being pulled higher by high-bandwidth memory demand, with production reportedly allocated deep into 2026. That tells us this move is not just a short-term retail squeeze. It is being driven by real supply-demand pressure across the AI infrastructure stack.

• Oil is giving the market another tailwind this morning. Brent is drifting lower toward the low $90s as traders continue to price in the possibility of progress in U.S.-Iran negotiations, even though the Strait of Hormuz remains mostly closed and the final deal is still not confirmed.

• That matters because lower oil reduces immediate inflation pressure and gives growth multiples more breathing room. If oil were ripping higher while semiconductors were this extended, the tape would be much more fragile.

• The market is also getting some support from the idea that earnings expectations can keep rising. Goldman has lifted its S&P 500 year-end target to 8,000, while Citi is more cautious and sees only modest upside from here because yields and inflation expectations remain elevated. That difference in views is important. It tells us the market is strong, but not universally cheap or risk-free.

• Software is another key area to watch today. Salesforce reports after the close, and the options market is already leaning bullish on the idea that the SaaS reset may be ending. If Salesforce reacts well, it could support the software rotation we discussed yesterday through XSW.

• The clean read is this: the market remains strong, AI leadership is intact, semiconductors are going parabolic, and oil relief is supporting risk appetite. But the exact area everyone now wants to chase is also the area where fresh entry risk is highest.

• Today’s priority should be discipline. If you own the leaders, manage them. If you missed them, do not force bad entries. Watch for pullbacks, watch for software confirmation after Salesforce, and keep tracking whether oil stays contained.

S&P 500

59.24%: over 20 EMA | 55.46%: over 50 EMA | 57.25%: over 200 EMA

• SPY remains in a very strong position, but it is now sitting at a highly extended 7.46 ATR multiple above the 50-day EMA.

• That is excellent for traders who are already positioned in the leading stocks and leading groups, but it is not an attractive point for fresh breakout entries.

• We still suspect higher highs are likely to come. The issue is not the direction of the trend. The issue is the quality of new entries at this stage of the move.

• When SPY is more than 7.5% above the 50-day EMA on an ETF that moves around 0.81% per day on average, it becomes increasingly normal to see choppier intraday action, faded breakout attempts, and higher stop-out rates.

• Yesterday’s drift higher was largely what we expected. We did not expect a clean full-bodied green candle because the index is already extended enough that marginal highs become harder to sustain without tight consolidation first.

• This is a great time for traders already positioned in the leading complexes, such as semiconductors, quantum computing, technology, and high-beta growth, to start thinking about trimming into strength rather than adding aggressively.

• That does not mean the market is weak. Breadth is still very healthy, with roughly 60% to 57% of stocks above their 20, 50, and 200-day moving averages inside the S&P 500.

• That is strong, but not overbought. We generally view overbought breadth as closer to the 75%+ area, so the market still has room to push higher.

• The cleaner read is that SPY remains bullish, but the trade is becoming less forgiving. Expect higher highs, but also expect more intraday whipsaws, failed breakout attempts, and fades from stretched opening pushes.

S&P 400 Midcap

63.50%: over 20 EMA | 59.50%: over 50 EMA | 57.25%: over 200 EMA

• MDY has now delivered the breakout we were looking for and we highlighted the mid-cap complex in the last two reports as our most attractive capitalization group, and that view remains unchanged.

• The setup was extremely clean. MDY built a strong double-bottom structure from the 50-day EMA and 10-week EMA, and then expanded higher from that support zone.

• Breadth is pushing in a very healthy way, which confirms that this is not just a narrow bounce in a few large names.

• MDY is also far from extended, sitting at only 3.66 ATR multiples above the 50-day EMA.

• That gives mid-caps significantly better asymmetry than the more extended mega-cap and semiconductor areas.

• From our perspective, this is the number one capitalization group to be involved in right now, especially for fresh long exposure.

• The reason is simple. MDY has reset, held higher-timeframe support, confirmed the double-bottom bounce, and is now expanding with healthier breadth and much cleaner technical positioning.

Russell 2000

61.80%: over 20 EMA | 65.85%: over 50 EMA | 60.22%: over 200 EMA

• IWM is front-running the mid-caps and rallying hard and the Russell 2000 now has an 82 relative strength rating versus the SPX, which is extremely impressive and confirms that risk appetite is moving down the capitalization curve.

• We are seeing a strong three-candle rally, and price is now gapping higher through what look like runaway gaps that have not yet been filled.

• That is very powerful price action just like MDY, IWM formed an Adam-style double-bottom bounce from its 10-week EMA, around the $271 area.

• This was a textbook intra-Stage 2 pullback into higher-timeframe support, and buyers stepped in exactly where they needed to.

• IWM is still not meaningfully extended, sitting around 3.94 ATR multiples above the 50-day EMA.

• That gives the group room to continue higher, especially compared with SPY, QQQ, and semiconductors, which are much more extended.

• The small caps rallying like this is almost certainly a sign of strong risk appetite.

• This is not defensive market behavior. This is capital moving into the highest-beta part of the equity market.

• Small-cap and mid-cap exposure should now be a top priority, especially because these names generally have higher ADR percentages than large-cap indices, which allows traders to capture faster percentage moves.

• The only caveat is execution. We would still be cautious chasing gap-up highs. In continued Stage 2 rallies, the best entries are usually not marginal breakout highs. They are pullback longs into rising moving averages.

FOCUSED STOCK
GOOGL: The AI Leader Contracting

• GOOGL has an 89 relative strength rating versus the SPX, which confirms that it is acting like a leadership name.

• We are not looking to go long immediately, because the stock is slightly hot at 5.41 ATR multiples above the 50-day EMA and, more importantly, around 6.72% above the 10-week EMA.

• That means the entry is not clean enough yet for aggressive exposure.

• However, GOOGL is clearly one of the most important AI leaders in the market, and we are starting to see the early signs of a base-building period.

• The weekly structure is constructive. Pullbacks have generally come on lower volume, which suggests there is not aggressive institutional selling into weakness.

• Ideally, we would like to see GOOGL hold the 20-day EMA and get tighter from here.

• The issue is the extension from the 10-week EMA. Because of that, there are two likely scenarios.

• The first scenario is a time-based correction, where GOOGL trends sideways for a while, allows the 10-week EMA to catch up, and then expands higher.

• The second scenario is a price-based correction, where GOOGL flushes lower toward the 10-week EMA, finds demand, and then recovers.

• From our perspective, both scenarios are buyable. The key is patience. We want either a tighter base or a clean pullback into higher-timeframe support.

  

  XLC VRVP Daily & Weekly Chart

• This also ties directly into XLC, where GOOGL is one of the largest weighted names.

• XLC is getting very tight inside a 253-day base, which makes it a very important ETF to watch.

• If GOOGL breaks lower, XLC could offer a short setup down toward the rising 200-day EMA around $114.

• If GOOGL expands higher, XLC can also be played long on a primary trend base breakout.

• The clean read is that GOOGL is a leadership stock, but not an immediate chase. We want to see it either tighten above the 20-day EMA or pull back toward the 10-week EMA before pushing long exposure.