MARKET ANALYSIS
Here’s All You Need To Know

• The market is opening the week in a more fragile position after Friday’s reversal, with the pressure coming from two places at once: oil is still elevated and bond yields are pushing higher globally.

• This matters because the rally into last week was already technically stretched. The S&P 500 and Nasdaq had just hit fresh records, but that move was heavily concentrated in mega-cap tech, semiconductors and AI infrastructure rather than broad participation.

• Friday exposed that fragility. The Nasdaq 100 fell 1.5%, its worst session since March 27, as tech finally reacted to the spike in long-end yields. That is the key shift. Growth was not just pausing; it was reacting to a macro tightening impulse.

• The oil move is still the main pressure point. WTI is trading above $105, Brent is holding around $109 to $110, and the U.S.-Iran path remains deadlocked. Trump’s latest warning that Iran needs to “get moving” keeps the Strait of Hormuz risk firmly alive.

• Higher oil is now feeding directly into the bond market. The U.S. 30-year yield hit its highest level in around a year, while long-dated yields in the U.K. and Japan also moved sharply higher. That is not a small development for a market being led by long-duration growth assets.

• This is exactly why the growth complex looks more vulnerable now. Semiconductors, AI infrastructure, quantum computing and mega-cap technology remain the leadership groups, but they have all had enormous multi-week moves and many are still extended well above their intermediate trend moving averages.

• We outlined this in yesterday’s Weekend Report as well. Leadership is still leadership, but the asymmetry has changed. The best risk-reward was on the original breakout and the first pullback. Chasing the same leaders after a seven-week vertical move is now a much lower-quality trade.

• The fragility is also showing up outside growth. Gold and silver both reversed hard last week after setting up for continuation, and uranium also rejected after a strong move. That tells us the market is becoming less forgiving toward anything extended, not just Nasdaq names.

• Nvidia earnings on Wednesday now become the key event of the week. Nvidia is not just reporting as a company; it is effectively reporting as the market’s AI liquidity barometer. If Nvidia holds up, it can stabilize the entire AI trade. If the reaction disappoints, semiconductors and mega-cap growth have a clean excuse to continue de-risking.

• The more interesting development underneath the surface is the NextEra and Dominion deal. A tie-up between two major utilities directly reflects the scale of electricity demand coming from AI data centers. This reinforces the point that AI is no longer just a chip trade; it is becoming a power, grid, energy and commodity trade as well.

• That is where the market may be rotating. Capital has chased the AI software and semiconductor story aggressively, but the physical assets required to power that buildout are now becoming more important: electricity, grid infrastructure, natural gas, uranium, copper, silver and energy infrastructure.

• The broader market is not broken, but it is now far more sensitive to bad entry points. The indices can still hold up, but late exposure in extended growth groups carries much worse asymmetry than it did a few weeks ago.

• Today’s focus should be on whether Friday’s tech selling remains contained, whether oil holds above $105 WTI and $109 Brent, whether long-end yields keep pressing higher, and whether the market starts rotating more seriously into the physical infrastructure side of the AI trade.

S&P 500

35.18%: over 20 EMA | 43.93%: over 50 EMA | 50.89%: over 200 EMA

• The SPY is still trending higher, but it is now sitting at 6.88 ATR multiples above its 50 day moving average, which is a very extended position and leaves the index vulnerable to mean reversion.

• Friday’s session also showed the first meaningful rise in relative volume for some time. Relative volume came in at 84% of the 20 day average, which was the highest relative volume session since April 30th.

• That matters because we are now seeing volume begin to expand as price starts to show weakness. That is not automatically bearish, but it does tell us the character is changing after what has been a very extended move.

• The SPY is also materially stretched above its intermediate trend. The rising 10 week EMA is now around 4.65% below current price, which is almost two average weekly ranges away.

• The reason SPY still looks stronger than the broader market is simple: it is capitalization weighted. Mega cap technology and the Magnificent Seven are still doing most of the heavy lifting.

• The cleaner read is the RSP, the equally weighted S&P 500. RSP is now breaking below its 10 and 20 day moving averages for the first time since the Stage 2 continuation began on April 7th.

• That is important because it shows the average stock inside the S&P is already weakening, even while the cap weighted SPY is still being held up by the mega cap complex.

• We suspect RSP is likely to trend toward its rising 10 week EMA, which is around 8.87% below current price.

• For the SPY specifically, the group that matters most is still the MAG7, because these names account for roughly 38% of the S&P 500’s weighting.

• The MAG7 still has strong relative strength at around 75 versus the SPX, but this week is critical because Nvidia reports earnings.

• Nvidia is now a $5.7 trillion market cap stock, larger than the equity market value of major economies such as the UK, France and Germany. That makes it more than just a company report. It is a major liquidity event for the entire AI trade.

• Semiconductors remain the key risk area. XSD is sitting at 9.66 ATR multiples above its 50 day moving average, which is extremely extended and leaves it exposed to a parabolic short setup.

• The visible range volume profile still shows strong buying aggression near highs. Between the recent highs around 575 and the 10 day EMA test from Friday, we are seeing roughly 6,400 shares traded green versus around 3,570 shares traded red.

• That confirms buyers have still been active, but the problem is asymmetry. At this level of extension, the long opportunity is largely exhausted.

• Any buyers trapped near highs are likely to become future supply if price fails and then returns to their breakeven levels.

• Our view is that SPY is likely to show further weakness in the short term, mainly because semiconductors and mega cap growth are now extended enough that even a normal reset can weigh heavily on the cap weighted index.

S&P 400 Midcap

31.00%: over 20 EMA | 47.50%: over 50 EMA | 50.25%: over 200 EMA

• The mid cap complex is already showing more weakness than SPY.

• MDY broke below its 20 day EMA on Friday, with relative volume expanding to 66% of the 20 day average.

• This is the first meaningful breakdown below the 20 day EMA since the upside break that began around April 6th.

• The next downside level we are watching is $650.53, where the visible range volume profile shows dense buying activity.

• At that level, we have roughly 1.25M shares traded green and only around 9,000 shares traded red, which makes it a clear demand zone.

• That implies a further downside move of roughly 1.22% from current levels, which looks very realistic given the weakness now appearing in growth.

• The broader point is that MDY is not collapsing, but it is clearly cooling.

• Mid caps do not have the same mega cap support that SPY has, so they are giving us a cleaner read on the broader market’s underlying weakness.

Russell 2000

32.84%: over 20 EMA | 51.86%: over 50 EMA | 53.80%: over 200 EMA

• The Russell 2000 is bouncing slightly this morning, but Friday’s session was still important.

• Relative volume came in at 94% of the 20 day average, which was the highest relative volume session in exactly one month.

• That is significant because this higher volume is appearing after a low volume rally that began around March 30th and ran into early May.

• A low volume rally into extension makes the index much more vulnerable to sharp downside moves once selling pressure finally appears.

• IWM is still stretched above its intermediate trend, with the rising 10 week EMA around 3.16% below current price.

• We suspect the Russell 2000 is likely to test 276.48, where the volume profile from December becomes much denser.

• The key validation level is the dense VRVP zone between 277.54 and 275.55.

• If IWM breaks below that zone with expanding relative volume, we would expect a further downside move of roughly 3%.

• Until that break happens, we would not overstate the bearish case, but the setup is clearly becoming more fragile.

FOCUSED GROUP
XLY: Discretionary & Retail Breaking Down

• Our focus today is a short setup in XLY, consumer discretionary.

• XLY broke down sharply on Friday with 112% relative volume, which is a meaningful expansion and suggests institutional selling pressure is starting to appear.

• The more important confirmation is coming from retail.

  

  XRT VRVP Daily & Weekly Chart

• XRT, the retail ETF, has formed a clear head and shoulders structure and is now sitting directly at the neckline.

• It is beginning to break lower with expanding relative volume, which gives us the two signals we want to see for a valid short setup: higher relative volume and expanding average true range.

  

  Top 10 holdings (71.55% of total assets)

• Retail is likely to be weaker than XLY because XLY is still being held up by Amazon and Tesla, which have too much influence inside the sector.

  

  TSLA VRVP Daily & Weekly Chart

  

  AMZN VRVP Daily & Weekly Chart

• Even those two names are now starting to show signs of mean reversion.

• Tesla in particular is beginning to move lower after forming a gravestone style reversal structure, which supports the short thesis.

• The broader setup is straightforward. XLY and XRT are both showing similar topping structures, retail is breaking down with volume, growth stocks are cooling, and the consumer discretionary trade is losing momentum.

• From our perspective, this is a high probability short setup.

• The cleanest validation would be continued weakness in XRT through the neckline, alongside further deterioration in Tesla and Amazon.

• If that happens, XLY should begin to follow retail lower rather than being artificially held up by its mega cap weights.