MARKET ANALYSIS
Here’s All You Need To Know

• The market is still holding up well this morning, but the tape is starting to split underneath the surface. The S&P 500 closed above 7,600 for the first time yesterday, the Dow also hit a fresh record, and futures are only slightly lower this morning. That is not weak price action, but the leadership mix is becoming more important.

• The biggest warning sign yesterday was the breakdown in XLC, with communication services falling 2.61% and acting as the weakest sector in the market. That move matters because both GOOGL and META sold off hard, and those are two of the most important stocks inside XLC and the broader mega-cap complex.

• This does not mean the entire market is breaking. It means one of the key mega-cap leadership areas is starting to show pressure. When GOOGL and META weaken at the same time, it can weigh on both the Nasdaq and S&P 500 because those names carry major index weight.

• At the same time, the charts still show expansion in other areas. The market is not moving into a clean risk-off tape. Industrials, materials and utilities all closed higher yesterday, and Japan’s Nikkei hit another record overnight. That tells us capital is rotating, not disappearing.

• Quantum computing still looks very strong, and that is important. Quantum is one of the highest-beta expressions of speculative growth appetite. If traders were truly de-risking across the board, quantum would usually be one of the first groups to get hit. Instead, the group continues to act well, which tells us risk appetite is still alive beneath the mega-cap volatility.

• The issue remains technical extension. Growth is still very stretched in several places, especially across AI, semiconductors and high-beta tech. We have been saying this for days now: the trend is strong, but fresh entries into extended highs are lower quality.

• That is why yesterday’s XLC breakdown matters. When a market is this extended, it does not need a major macro shock to create pullbacks. Sometimes all it takes is profit taking in a few heavy-weight leaders.

• The AI trade is still intact, but it is becoming more selective. The market continues to reward infrastructure and compute-linked names, but it is punishing weaker reactions in software and communication services. GitLab falling after guidance and restructuring news is another reminder that not every AI-adjacent name is being treated equally.

• The macro backdrop is also still not clean. Iran headlines remain messy, with U.S. forces intercepting Iranian missiles and drones, while Trump said Iran had agreed not to pursue nuclear weapons but could still “change their mind.” The market is looking through this for now, but the geopolitical risk has not gone away.

• Labor data was firm, with ADP private payrolls rising 122,000 in May, better than the 110,000 expected. That supports the soft-landing argument, but it also gives the Fed less reason to rush into support if inflation stays sticky.

• The clean read is that the market is still strong, but less uniform. XLC breaking down through GOOGL and META is a real warning, but quantum, industrials, materials and parts of AI infrastructure still show expansion.

Nasdaq

56.43%: over 20 EMA | 57.42%: over 50 EMA | 53.46%: over 200 EMA

• QQQ is becoming increasingly vulnerable in the short term. The Nasdaq is now sitting around 9.76 ATR multiples above its 50-day moving average, and we are still seeing a major divergence between price and relative volume.

• Since the rally began on March 30th, QQQ has now climbed for roughly 63 days while relative volume has continued to decline. That is not something we can ignore.

• Price can absolutely continue higher on declining volume, especially in a strong momentum market, but it does create fragility. The higher price pushes without expanding volume, the more exposed the index becomes to sharp pullbacks, failed breakouts and air pockets.

• That risk is now becoming more relevant because we are also seeing weakness in two of the most important mega-cap names: GOOGL and META. Both broke down, and that puts pressure on the broader communication services complex, the MAG7, and ultimately the Nasdaq itself.

• For that reason, we would not be taking fresh naked long exposure in QQQ here. Existing long exposure can still be trailed, but the current setup does not offer clean long-side asymmetry.

• The trend is still strong. The issue is that the Nasdaq is extended, volume is diverging, and key leadership names are starting to show short-term weakness.

• The MAG7 complex is now the main concern for QQQ and SPY and the group has broken below its 20-day moving average for the first time since the Stage 2 rally began roughly 56 trading days ago.

  That is a significant character shift. Price is now also rejecting the 10-day moving average, and yesterday’s visible range volume profile showed clear seller aggression at the highs, with roughly 1.5M shares traded red versus only 800K shares traded green.

• That tells us sellers are becoming more active at the upper end of the range. From our perspective, the MAG7 is now likely to push lower toward the 67.15 area, where the visible range volume profile becomes denser and where the 10-week EMA and 50-day EMA are both clustered.

• That level is the key support zone. If MAG7 moves into that area and holds, it could create a very strong pullback-long opportunity. But if that level fails, it would likely weigh heavily on both QQQ and SPY.

• This is the most important group to watch right now because it remains the main engine behind the cap-weighted indices.

S&P 400 Midcap

53.75%: over 20 EMA | 56.25%: over 50 EMA | 57.00%: over 200 EMA

• The mid-caps are behaving much better than the mega-cap complex. MDY broke out yesterday on expanding relative volume, with the rally coming on 94% relative volume.

• It is also only sitting around 3.8 ATR multiples above its 50-day EMA, which means it is not extended in the same way as QQQ, SPY or the leading semiconductor names.

• That gives MDY far better long-side asymmetry. The most likely scenario is that liquidity continues rotating down into the mid-cap complex as the larger mega-cap names become more technically stretched.

• This is exactly what we want to see in a strong but maturing rally. Leadership does not have to disappear. It can rotate.

• Right now, MDY still looks like one of the cleaner capitalization groups for fresh long exposure.

Russell 2000

57.45%: over 20 EMA | 61.09%: over 50 EMA | 59.51%: over 200 EMA

• IWM remains the key barometer for the mid-cap thesis. Small caps attempted to break out yesterday, failed, and are pulling back in premarket, but price is still holding above the 10-day moving average around $288.

• That is important. IWM has a much stronger relative strength profile than MDY, with an 82 relative strength rating versus the SPX. It is also acting as the higher-beta expression of risk appetite.

• If IWM holds the 10-day EMA and starts expanding again, that would strongly support continuation in MDY as well.

• If IWM fails to expand and starts breaking lower, we would expect the mid-caps to struggle too.

• For now, the structure still supports the rotation thesis. Liquidity appears to be moving away from the most extended mega-cap areas and into the lower-cap complex, where the technical asymmetry is cleaner.

FOCUSED GROUP
URA: Uranium Rallies on 187% Rel. Volume

• Uranium had a very powerful breakout yesterday, with the highest relative volume we have seen in 46 trading days.

• The move was also significant from a volatility standpoint. The group moved around 8%, which is roughly 2 times its 20-day average daily range of around 4%. That is a major expansion in both price and participation.

• The structure is also clean. Uranium has formed a double-bottom pattern from the 200-day moving average, with the first major test on March 30th and the second test on May 19th.

• Now we are seeing price expand from that base with volume. That is exactly what we want to see. The uranium theme also ties into the broader nuclear and energy infrastructure trade, which remains one of the most important secondary themes behind AI power demand.

  

  UUUU VRVP Daily & Weekly Chartm

• From here, we would be watching the full nuclear reactor and uranium-related group very closely and our favorite stock in the group right now is UUUU.

• The key is not to chase indiscriminately after a huge candle, but the breakout itself is valid. When a group breaks out from a double-bottom base on its highest relative volume in 46 days and with a 2 times ADR move, it deserves immediate attention.

• Uranium is now firmly back on the watchlist as one of the highest-interest rotation trades in the market.