A Strong Week Across the Board

Continued positive momentum for quarterly earnings pushed the S&P 500 and Dow to record highs, with the S&P 500 up 3.6% for the week and the Dow gaining 3.0%. The Nasdaq surged 5.2%, although it remained 1.5% shy of the historic peak it reached more than two months earlier. Year to date the indexes are now up 13.3% for the S&P 500, 14.7% for the Nasdaq Composite, and 22.3% for the small-cap Russell 2000.

The technology sector continues to outpace the main indexes with a 23.4% gain for the information technology group year to date, but the biggest gainer for the year so far remains energy, driven by restricted supply from the war in Iran. Oil prices fell amid on-again, off-again developments in efforts to ease tensions in the Middle East and increase shipments through the Strait of Hormuz. On Friday, U.S. crude was trading around $78 per barrel, down from nearly $85 a week earlier. As recently as July 23, crude briefly traded above $92.

Precious Metals Break Out, Volatility Drops, and Housing Feels the Rate Pressure

Precious metals had a significant week with important chart breakouts for both gold, which gained 7.46%, and silver, which surged 10.44%. New uptrends may have started for both metals.

An index that tracks investors’ expectations of short-term U.S. stock market volatility fell to its lowest level in seven months. The Cboe Volatility Index closed at 14.9 on Friday, down from a recent high of 20.7 reached on July 29.

The recent rise in bond yields continues to weigh on the U.S. housing market, as the average mortgage rate rose for a fifth consecutive week to its highest level in just over a year. The average 30-year fixed rate rose to 6.69%.

Key SPX Technical Levels to Watch

Support near 7,610-25, 7,495-7,500, 7,370-75, and 7,313-15. Resistance lies near 7,792-95, 7,875, and 8,250.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

Strong earnings results lifted the three major U.S. stock indexes to gains of 1% to nearly 2% last week, largely offsetting the previous week’s modest declines. Despite the rebound, the S&P 500 and the Nasdaq remained below the record levels they set over the past two months.

July marked the second slightly negative month in a row for the S&P 500, which slipped 0.1% for the month. The Nasdaq sustained a bigger decline of 3.2%.

Magnificent 7 Earnings Deliver Mixed Results

Four of the Magnificent 7 companies reported earnings with mixed market reactions. Microsoft and Amazon shares rallied following stronger cloud-computing revenue, while Meta’s stock moved lower as markets focused on an earnings miss and softer guidance amid elevated capital spending. Apple shares also declined as cost concerns and the company’s cautious outlook disappointed investors.

Overall, second-quarter results have been quite strong. More than halfway through earnings season, 86% of S&P 500 companies that have reported have beaten analyst estimates, with an average upside surprise of 31%. Earnings gains have also been broad-based, with 10 of the 11 sectors reporting year-over-year increases.

Concerns about long-term inflationary pressures pushed the yield of the 30-year U.S. Treasury above 5.20% on Wednesday, near its highest level since 2007. By Friday afternoon, the 30-year yield climbed further to 5.25% and the 10-year yield rose to 4.71%, the highest in more than a year and a half.

My Technical Read: Crossroads After 12 Weeks in a Range

The S&P 500 has now spent about 12 weeks in a high-level trading range. The key question is whether this is a bullish pause consolidating before the next leg higher, or a distribution phase before the indexes crack support and tumble to new pullback lows.

The underlying technicals, including the McClellan Oscillator, the VIX, and the percentage of stocks participating, are somewhat neutral and not giving distinct signals. The majority of pressure continues to come from Nasdaq AI and semiconductor leaders that saw parabolic gains in recent months and are now working off those extraordinary moves.

This has resulted in a nominal break of support on the Nasdaq that has not been confirmed by any S&P 500 break. Positive divergence? Or is the Nasdaq weakness signaling a potential spillover into the rest of the market that could trigger a broader capitulation? The next several sessions may yield important clues.

Key SPX Technical Levels to Watch

Support near 7,370 and 7,313. Below that, the 7,225-35 zone could be tested. A sharper break might reach 7,050. Resistance lies near 7,575-80 and the June 2nd all-time high at 7,620.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

A Difficult Week as Stocks Alternate Between Gains and Losses

The S&P 500 finished 1.3% lower for the week and the Nasdaq dropped more than 2%, extending a pattern of alternating gains and losses that dates to early June when both indexes set record highs. Energy led all sectors with a 3.8% gain while utilities added 2.4%. Year to date gains were pared back to 10.15% for the Nasdaq and 9.6% for the S&P 500, though the small-cap Russell 2000 remains above 20% for the year.

Escalation in the Middle East conflict and further shipping disruptions in the Persian Gulf and Red Sea sent oil surging to around $90 per barrel on Friday, up from roughly $82 the previous week and $69 as recently as early July. Precious metals were firm, with silver leading the way at 4.6%, gold up 1.3%, and copper gaining 1%. Bitcoin finished near $64,500, off less than half a percent.

Prices of U.S. government bonds fell for the second week in a row ahead of a Federal Reserve meeting, pushing the 10-year Treasury yield to a peak of 4.70% on Thursday, the highest level in more than 18 months, before closing at 4.68% on Friday.

Critical Support Tests Arrive Early Next Week

The S&P 500 finished the week right on key chart support and faces an important test heading into Monday. Support sits at 7,375-80, 7,235-40, and 7,050. Resistance appears near 7,460-80, 7,520-25, and the 7,620-7,680 zone at the all-time high set nearly seven weeks ago on June 2nd.

The Nasdaq 100 closed at 28,128, its lowest close since May 5th, finishing slightly under key chart support. A break below that level could put 27,500 and 26,875 in play.

Despite the surface-level damage, the McClellan Oscillator sits at a fairly neutral -20, reflecting the fact that recent selling has been concentrated in tech rather than broadly spread across the market.

The oscillator would need to reach the -150 to -200 zone to signal a more severely oversold condition and the possibility of an important technical rebound. However, several other oscillator readings and DeMark counts are signaling a possible short-term bottom and pending bounce near here rather than an immediate breakdown.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com

Indexes Post Back-to-Back Weekly Gains

Last week the S&P 500 finished more than 1% higher and the Nasdaq added nearly 2% as the indexes recorded their second positive week in a row.

AI Sectors Fade While a Quiet Rotation Takes Shape Within Tech

At the sector level, AI-driven sectors like technology have underperformed while more cyclical and defensive areas have held up better. This has been the case not only over the last week but since early June.

The parts of the market that had the sharpest rallies earlier this year, including semiconductor stocks, have seen the biggest pullbacks as well. This is not too surprising, given that parabolic moves in the market tend not to be sustainable, as there is some natural profit-taking and consolidation that brings these sub-sectors down again. Keep in mind however that despite the recent pullback and rotation, many of these sectors are still up for the year. The SOX Semiconductor index is down about 20% from its June highs but is still higher by around 64% for the year.

Within the technology sector, we are also seeing a rotation. The semiconductor and hardware parts of tech are lagging, while the software and cloud sectors seem to be recovering. Names like Microsoft and Salesforce are rebounding while AI infrastructure stocks are lagging.

Oil Climbs on Middle East Escalation as Volatility and Small Caps Tell Their Own Story

Oil prices jumped on Tuesday and Wednesday as an escalation in the Middle East conflict reinforced the fragility of the U.S.-Iran ceasefire agreement. The price of U.S. crude briefly climbed to about $76 per barrel on Wednesday before pulling back to around $71 by Friday afternoon.

The VIX fell for the second week in a row, slipping to its lowest level in more than six months, finishing the week at 15.0, down from a recent high of 22.2 reached on June 10. Meanwhile a U.S. small-cap index lagged its large-cap peer by a wide margin for the week, eroding small caps’ year-to-date outperformance. The Russell 2000 Index fell 0.6% for the week while its large-cap counterpart ended 1.26% higher.

Key SPX Technical Levels to Watch

Support near 7,420-30, 7,320-25, 7,235, and 7,040-50. A strong downside move might even violate 7,000 and reach the 6,750-6,800 zone. Resistance appears at 7,575-80 and 7,620. A break to new highs could accelerate to around 7,850.

In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”

— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com