MARKET ANALYSIS
Here’s All You Need To Know

• The market is trying to stabilize this morning after a sharp reset in the AI trade, with futures moving higher as Big Tech earnings helped calm some of the OpenAI-related fears that hit semiconductors earlier in the week.

• The key takeaway from last night’s hyperscaler earnings is that the AI spending cycle is still alive. Alphabet, Microsoft and Amazon all showed strong cloud growth, which is important because cloud revenue is the cleanest real-time confirmation that AI infrastructure demand is still translating into actual business momentum.

• That being said, the market is no longer blindly rewarding AI capex. Meta’s reaction shows that investors are becoming more selective, especially when spending keeps rising without the same level of confidence around near-term monetization.

• This matters because the entire rally has been heavily tied to growth, semiconductors and AI infrastructure. When the strongest part of the market becomes technically extended, even good earnings need to be very good to keep momentum intact.

• The broader macro backdrop is still complicated. Q1 GDP came in at 2%, showing the U.S. economy entered the Iran war on solid footing, but the conflict is now lasting long enough that oil, inflation and Fed policy remain real constraints.

• Core inflation came in at 3.2%, in line with expectations, but still high enough to keep the Fed cautious. Powell held rates steady yesterday, and with oil still elevated, the market should not expect an easy dovish pivot.

• Oil remains the biggest macro variable. Brent briefly touched $126 overnight, and although prices have pulled back, the U.S. blockade and Iran’s response remain a live inflation risk.

• The important point for traders is that even though oil has cooled from the overnight spike, this is not yet a clean risk-on macro backdrop. Energy is still elevated, the Strait of Hormuz remains central to the market narrative, and any renewed escalation can quickly pressure growth stocks again.

• For now, the market is still showing strength, but the character has shifted. We are no longer in the easy breakout phase where everything growth-related can be chased. This is now a more selective environment where pullbacks into strong groups matter more than buying extended highs.

• Today’s focus should be simple: watch whether Big Tech earnings are enough to stabilize the AI trade, watch whether oil continues to back off from the spike, and watch whether buyers defend growth names after the first real technical reset in semiconductors.

S&P 500

48.70%: over 20 EMA | 49.50%: over 50 EMA | 53.67%: over 200 EMA

• SPY remains in a strong but low-volume rally, with relative volume continuing to contract despite a roughly 14% advance over the past 29 days.

• The key positive is that price is still respecting the rising 10-day EMA, with buyers continuing to step in aggressively on weakness.

• Yesterday’s lows showed meaningful buyer aggression, with roughly 14.15M shares traded green versus 9M red, which confirms that demand is still active beneath price.

• A sideways consolidation here would be healthy. A deeper pullback toward the $697–$701 zone would also remain constructive, especially if buyers defend the rising 20-day EMA.

• The main macro trigger for a deeper pullback would be oil strengthening again. For now, oil is giving back some of yesterday’s strength in pre-market, which helps growth stabilize.

Nasdaq

58.41%: over 20 EMA | 55.44%: over 50 EMA | 52.47%: over 200 EMA

• QQQ remains the clear leadership area, with a 70 relative strength rating versus the SPX, but the index is now around 6 ATR multiples above its 50-day EMA, which is technically extended.

• This does not mean the Nasdaq is weak. It means the best entries are no longer marginal breakout highs; they are pullback entries into rising moving averages.

• The early-April transition from Stage 1 to Stage 2 rewarded breakout buying. At this stage of the move, the higher-probability setup is buying controlled pullbacks in the strongest growth groups.

S&P 400 Midcap

53.38%: over 20 EMA | 59.14%: over 50 EMA | 58.14%: over 200 EMA

• MDY has largely completed the pullback we expected into the 20-day EMA near $650, and this level now becomes important demand.

• The volume profile is supportive at that area, with roughly 1M shares traded green versus 600K red at yesterday’s lows, showing buyers stepping in again.

• The midcaps are no longer technically extended, with only around 1.6 ATR multiples from the 50-day EMA, which gives them room to rebuild and potentially push higher if demand holds.

Russell 2000

53.57%: over 20 EMA | 62.64%: over 50 EMA | 58.68%: over 200 EMA

• IWM has filled last Friday’s gap and remains the strongest major equity segment, with a 72.3 relative strength rating versus SPX.

• Small caps may still pull back toward the rising 20-day EMA near $268, which would be around another 1.5% downside from current levels.

• That pullback would not be bearish. It would be the first clean retest of the prior supply zone from January–February, now potentially flipping into demand.

FOCUSED GROUP
XSW: Software Getting Ready For Rally

• Our focus group right now is XSW because software is starting to look like one of the cleanest asymmetrical rotation candidates inside growth.

• What makes software especially important here is that it appears to be transitioning out of a full Stage 4 markdown phase that began in January, with price now showing the characteristics of a completed accumulation base.

• From its September 2025 highs, software declined roughly 35%, making it one of the most heavily damaged growth segments during the correction.

• Since the strong reversal off the $135 level in April, price has tightened materially and is now compressing around the 10-week moving average, while also sitting directly on top of the 50-day, 20-day and 10-day moving averages.

• The daily and weekly point of control are also aligned in this same zone, which is exactly what you want to see when a group is preparing for a potential trend transition.

• Structurally, this is now developing into a clean volatility contraction pattern, with higher lows, lower highs and progressively tightening price action.

• The reason this matters is because software is not extended. Unlike semiconductors or parts of AI infrastructure, software is sitting only around 0.5 ATR multiples above its 50-day moving average, which means the asymmetry is materially better here.

• If growth continues broadening, software is one of the most logical areas for capital to rotate next because it still has room to expand while many leadership groups are already technically stretched.

• The ideal trigger is a clean expansion through recent highs with meaningful relative volume, but the ETF itself matters less than the strongest underlying software names showing early leadership.

• From a risk/reward perspective, this is attractive because the stop distance is relatively tight. A tactical stop can sit below $148.73, or more conservatively below $145.10, depending on how aggressive the entry is.

• On the upside, a successful Stage 2 transition opens the path back toward the prior support zone near $178.50, which offers materially better upside than downside at current levels.

• Even if software pulls back first, the broader structure remains constructive unless the $135 accumulation base fails, which for now is not what price is suggesting.

• With quantum, semiconductors and broader growth still holding firm, software looks increasingly like one of the next groups preparing to participate if the market continues rotating internally.