MARKET ANALYSIS
Here’s All You Need To Know

• The pressure is coming from two places: renewed semiconductor weakness and the continuing U.S.-Iran escalation around the Strait of Hormuz. Both are important because they hit the two most sensitive parts of the market right now: AI leadership and oil inflation risk.

• U.S. futures are weaker, with S&P 500 futures down around 0.4% and Nasdaq-100 futures lower by roughly 1%. Dow futures are holding closer to flat, helped by a strong reaction in UnitedHealth after the company beat earnings expectations and raised its full-year outlook.

• The key drag is semiconductors and TSMC reported better-than-expected second-quarter results, but the stock still fell after the company raised its capital expenditure forecast to $60B-$64B, up from prior guidance of $52B-$56B. That tells us the market is no longer rewarding AI capex automatically. Investors are now asking whether the scale of spending can keep generating enough return.

• That is the same problem we have been discussing for the last two weeks. AI demand is not weak. The issue is the market’s tolerance for spending, valuation and forward expectations. When the leading foundry beats numbers but sells off because capex is rising, the message is clear: the AI trade has moved from excitement into scrutiny.

• The semiconductor pressure is broad. SMH is down more than 2%, Arm is lower, SK Hynix fell heavily again in Seoul, and European chip names including STMicroelectronics, ASMI and Infineon are also under pressure. This is not isolated stock weakness. It is another global reset in AI hardware positioning.

• Retail sales rose 0.2%, in line with expectations. Jobless claims fell to 208,000, below the expected 218,000, and the Philadelphia Fed manufacturing index surged to 41.4, its strongest reading since 2021. The New York Fed services gauge also turned positive for the first time in almost two years.

• That data mix supports the soft-landing argument. The consumer is not collapsing, the labour market is still firm, and manufacturing momentum is improving. The risk is that stronger data also reduces the urgency for Fed easing, especially with oil still elevated and inflation risk back in the tape.

• Treasury yields reflect that tension. The 10-year is back around 4.57%, the 2-year is above 4.15%, and the 30-year remains above 5.10%. Those levels are not panic, but they keep a ceiling on long-duration growth if the market loses confidence in the AI trade.

• Oil remains the macro ceiling. Brent is still trading around the $85 area and WTI near $80 as U.S.-Iran hostilities continue. The U.S. carried out fresh strikes against Iranian targets tied to threats against commercial shipping through the Strait of Hormuz, while Iran is warning that Hormuz remains a red line. That keeps energy risk alive even if crude is not accelerating aggressively today.

• This is the market’s problem: CPI and PPI helped calm the inflation story earlier in the week, but oil is now moving in the opposite direction. One cooler inflation print does not fully offset a persistent energy shock if Brent stays above $85.

• The safe-haven reaction is also still unusual. Gold is lower and Treasurys are not catching a major bid despite the escalation. That tells us investors are not treating this as a pure fear event. They are treating it as an inflation, rates and earnings-quality event.

• Earnings are still providing pockets of support. UnitedHealth is helping the Dow after beating expectations and lifting guidance. Eli Lilly is expanding its neuroscience pipeline through the AtaiBeckley acquisition.

• ABB is pursuing a major industrial acquisition. These are not signs of corporate stress. Capital is still moving, deals are still getting done, and earnings are still strong enough in key areas to prevent a broad breakdown.

• China adds another layer of mixed global data. Hong Kong is stronger, helped by Alibaba and Baidu after their Apple AI partnership, but mainland China is weaker. The broader read is that global growth is still uneven: AI-linked pockets are alive, but domestic demand and cyclical confidence remain inconsistent.

• For traders, today is about avoiding the wrong part of the tape. The broad market is not breaking, but semiconductor leadership is under pressure again. That means we need to be more selective with Nasdaq exposure and pay close attention to whether buyers defend the key 50-day and 10-week EMA zones in the strongest names.

Nasdaq

48.54%: over 20 EMA | 50.48%: over 50 EMA | 65.04%: over 200 EMA

• QQQ remains inside the same Stage 2 consolidation structure. On the weekly chart, this is still a volatility contraction pattern forming above rising intermediate support.

• Yesterday brought another sharp intraday pullback, but price once again bounced above the 10-week EMA and 50-day EMA area. That is exactly the type of price action we expected to see inside this base.

• The key level remains the $706.26 area, where the 50-day EMA and 10-week EMA are clustered. As long as QQQ continues to hold that zone intraday, pullbacks into support remain viable long opportunities.

• This consolidation may continue for some time. That is normal after the size of the rally we saw earlier in the year. The important point is that the index is still holding the level it needs to hold.

• MAGS broke out aggressively yesterday on 172% relative volume versus the 20-day average. More importantly, the inverse head and shoulders structure that formed between June 9th and July 14th has now been validated and is expanding higher.

• That matters because MAGS remains the most important leadership group inside the Nasdaq. If MAGS is breaking out while QQQ is holding its 50-day EMA and 10-week EMA, the broader Nasdaq structure remains constructive.

• The only caveat is that semiconductors and XLK are not yet following with the same strength. XSD has pulled back toward its 20-week moving average, but we are not seeing expanding relative volume on the decline.

• That makes the pullback more constructive than bearish. From our perspective, a test into the $522 area, with deeper risk toward $500, remains buyable if buyers defend the 20-week moving average.

• XLK is showing a similar message. The ETF is holding its 10-week EMA, and the pullbacks are not coming with aggressive volume expansion. Instead, we are seeing hammer candles form near support, with buyers stepping in on yesterday’s session. That is a positive sign. Sellers are not taking control. Buyers are defending weakness.

S&P 400 Midcap

58.29%: over 20 EMA | 64.57%: over 50 EMA | 68.84%: over 200 EMA

• The mid-cap complex is still choppy, erratic and not giving clean swing entries. Pullbacks into the 10-week EMA can be viable, but from a risk allocation perspective, this is not the area we would prioritise while the Magnificent 7 is breaking out aggressively.

• The issue is not that mid-cap breadth is terrible. In fact, from a pure breadth standpoint, MDY is still relatively healthy. The issue is trade quality. The price action has lacked clean linearity for months, and that makes exposure harder to manage.

• When an index keeps chopping around support and failing to create clean continuation, even correct long ideas can become difficult to hold.

Russell 2000

56.74%: over 20 EMA | 63.14%: over 50 EMA | 66.26%: over 200 EMA

• IWM is slightly cleaner than MDY, but still not the preferred area. Small caps are showing more linearity than mid-caps, and the latest pullback has also come on low relative volume into the 10-week EMA. That keeps the structure alive.

• But the same issue remains: we want the cleanest expression of risk-to-reward and right now, that is not broad small-cap exposure. It is the Nasdaq, the Magnificent 7, and the strongest individual names inside large-cap technology.

• Tesla, Nvidia, Google and the other major MAGS names remain better areas to focus on pullback entries, though earnings risk now needs to be respected.

FOCUSED GROUP
KCE: Capital Markets Lead Into Breakout

• KCE broke out strongly yesterday, with relative volume reaching 126% of the 20-week average. That is very high for this ETF and confirms real participation behind the move.

• The ETF is made up of companies tied to capital markets activity, including broker-dealers, asset managers, trust and custody banks, exchanges and related financial infrastructure businesses.

• Inside the financial sector, this is currently one of the strongest groups. KCE has now broken out to all-time highs, trading around 0.6% above prior highs. More importantly, the weekly structure shows a fresh Stage 2 rally beginning after a base-building period that lasted roughly 364 trading days.

• That is a major structural breakout. The setup is clean because it combines strong relative strength, all-time-high price action, high relative volume and a long weekly base. This is exactly the type of structure we want to see when identifying fresh sector leadership.