When This Breaks, the Market Won't Like It

Hey folks, welcome to the weekly wrap-up. My name is Gareth Soloway, chief market strategist here at verifiedinvesting.com and I'm going to deep dive into the market action, into the charts. As always, we focus on charts and data. No BS, no hype, nonsense like that. All right, so first and foremost, we saw the market, the S&P closed today, but the futures were open for a half day of trading and they were a little bit lower. In fact, in the overnight, we saw a big sell-off in the S&P. Ultimately, we did bounce back by this morning, only down slightly. S&P futures ended the session today down about 10 points. The NASDAQ was down about 60 points. Now, what I think is so fascinating is that we live in a world now where the stock market, if it goes down one day, the president of the United States gets upset and he releases and pushes news out to make sure that the markets go up the next day. Now, again, that's okay in the near term, but it does build this bubble in the markets that inevitably will come crashing down. Granted, none of us know when, but it is not a healthy way to have a market. The market needs to be able to live and breathe naturally with ups and downs for a healthy environment. Now, what am I talking about here? Well, we saw on on Wednesday, the Federal Reserve had their statement, FOMC statement, Kevin Worsh, his first press conference, and the markets freaked out. We saw a big sell-off on Wednesday afternoon, culminating with a close sharply lower on the S&P and the NASDAQ. What happens is on Wednesday night, remember the big deal with Iran was supposed to be signed on Friday. The president moved up the signing to Wednesday evening so that the narrative of what is the Fed doing? Oh my goodness, this is crazy with the Fed and the Fed is being more hawkish. It got flipped over to oh, we just signed the Iranian US peace treaty at least the extension of 60 days. the straight of Hormuz is open now and everything is fine. So, it was a narrative shift on purpose pushed forward to get it done on Wednesday evening to distract away from the Federal Reserve and Kevin Worsh's statement. Now, again, that's part one. There was a second part. On Thursday morning, actually in the overnight, it was announced that there was a deal between Intel and Apple for Intel to supply Apple with chips. Now, normally in the history of the markets, this would be PRs released by Apple and Intel. No, not this time. This was something that the president pushed out. Now, why would the president do that? Well, because he's looking to distract and get the markets to bounce back into a three-day weekend going into obviously after the the Federal Reserve caused the markets to sell. I mean, this is just amazing stuff. We've never had a president that has released news on publicly traded companies themselves. it's always been companies releasing it. So again, just incredible. Now granted, also you might say, well, how does he know? Well, remember the government owns a huge chunk of Intel. So, you know, he's using Intel and pushing this news. And by the way, we had already heard about the Apple likely. It was rumored 6 weeks ago, Apple and Intel. We saw reaction, especially Intel went up. Then about 3 weeks ago, we heard another rumor, it went up again. And then here, he used this to push that news out. So now you had the deal with Iran Inc. All right, that was after the Federal Reserve caused a sell-off and an AI Intel chip deal with Apple and before you knew it, you had a you had the stock market rallying on Thursday going into a market that was closed on Friday. Now, what we see here in the futures, check this out. The futures in the overnight last night, they sold off sharply. Now, why did we sell off? because all of a sudden the negotiations that were supposed to start this weekend between Iran and the US got cancelled. So again, you know, it's just and what's crazy about this is listen, the markets kind of bounced back because again, the the right things were said, oh, we'll we'll we'll have the negotiation. But ultimately, again, you can still see the futures ended a little bit lower. This is where we closed on Friday. You can see we're down about 10 points here. Um, and now the futures are closed for the weekend obviously until Sunday night when they will reopen at 6 pm. But again, it's just it's one of those things where if the markets are down on Sunday night into Monday, you probably get the president to come out and say, "Oh, well, the negotiations are going to start this week or something to boost it." Um, it's kind of alarming, at least to me, how much he cares about the stock market. Now, you could argue that the stock market is so big at this point with so many trillion dollar companies and so dependent on the stock market is the US economy that the president has to be this concerned about it. Just a thought. All right? You know, literally if the stock market drops 10 or 15 or 20% and doesn't bounce back immediately, we'll have a recession. That's how big the stock market is now in terms of market cap. That's how important the AI trade is to the markets. Pretty remarkable stuff. All right, let's go to the charts here, guys. S&P 500. Again, this doesn't take into account the futures being slightly down, but again, we had the first big roll over here, the first lower low. So, low, lower, low. We had a bounce here. Again, I said we needed three down days to solidify a lower high. We did not get that. So, I'm still reluctant to say we have a lower high. Let's wait and see next week what the market does. Now, the NASDAQ here is fascinating, right? We had the the low lower low, big drop on the NASDAQ here, the bounce, and then obviously the bounce back. But what I want to do is I want to flip over here. We're going to go to the bigger time frame. I flipped over to the weekly chart. Now, the reason I'm bringing this up is if we flip to the logarithmic chart and we look at the markets here. One of the things we can see is here's your high from 2007 before the financial crisis, right? And just to put it in perspective, the markets fell during the financial crisis from the 2007 high to the lows of 2009, 56% on the NASDAQ. All right, so that was a pretty significant pullback. In fact, percentage- wise, that was the biggest pullback. The second biggest pullback we had COVID, which was about 33% and then the bare market of 2021 into 2022 was about 37%. So if we take that high on the logarithmic the high from 2007 and we connect it through this high this is what gets my intrigue my intrigue right. So you could either put it and connect it through these current highs here right high pivot high pivot where it pierces a little bit in which case we touched it and that created this little sell-off or if we put it to the high this would tell us the NASDAQ still can go a little bit higher maybe as high as around 28,500 or so. And so the point is is that it's really a matter of where we're putting our trend line here. If we connect highest to highest, which is usually what I like to do, then it does show the NASDAQ still has legs for another, let's see what percentage-wise move that would be. That would be another 7 to 8% upside in the NASDAQ. All right. Now, on a downside move, any sort of corrective move on the logarithmic chart, very easy to spot here. This would be your worst case at least near-term uh reaction. This again low pivot from 2020 perfectly connects through the low pivot of 2022 to the low pivot of 2025 on the logarithmic scale and that would be a draw down from current levels to of about 32% which by the way is kind of the standard right we've seen you know the the draw down during COVID was in the 30% the 2022 draw down etc all the way through it's basically averaged the bigger pullbacks since the financial crisis have averaged about 30% on the NASDAQ all right so there just an interesting thing there. Now, I want to go over the 10-year yield. The 10-year yield here, folks, is very, very interesting because we continue to show that it wasn't just about oil of why rates were up. And that is very important because it tells us that the debt of the US is still an issue here for the bond market. Now, if we look at this, we can see very clearly that we've come back into support after a breakout. Now, again, we are making a low and we basically made the flat low here. uh we did make a lower high but notice how this is more bullish in in my opinion I I call this a bullish wedge pattern or a flag pattern right so a little bit of this type of pattern now if we break below here then it fails and rates can go a lot lower but I would say if look to see in the coming week we're coming to the head of this wedge are we going to break out or are we going to break down if the we break out on yields the markets are not going to like that if we break down the markets probably do like that in the near term unless it's coexisting with a weaker economy and then that's an issue. All right. Now, another really important chart is the US dollar. The US dollar continues to fight inside of this range here that goes back to 2015. It was resistance, then it broke out, then it became support, right? And look, resistance, resistance, resistance, resistance. And look at this move here. And today, the dollar was open for a period. It was up and it came back in. And so, we're starting to see this weakness. Now, this again to me is resistance until proven otherwise. In other words, if we break above here, okay, now we're in breakout territory like we saw over here, right? Where we went all the way up and we had a strong dollar, but that's not where we are. So, the dollar to me still is weak unless it breaks above this 10150 level on the DXY. Now, a couple issues here, right? So number one, you would assume with the dollar pulling back today, gold would have actually gone up. No, gold actually fell again today. So again, gold continues to act very weak relative even to the dollar. Now, the last couple days, the dollar was up, so it made sense why the why gold pulled back. Today, not so much. Granted, a weird day because the stock market was closed, but nonetheless, something to keep an eye on. All right, the other thing, too, is the US dollar yen. All right, the dollar yen. This is important, guys. The last time we were up at this level, and by the way, we are at a perfect double top on the dollar yen right here. Okay, we had a massive sell-off in the market. Okay, this was a big sell-off in 2024, July into August of 2024. If we go back to the S&P and we flip over here, let's go back to 2024. And this was where it occurred right here. Look at this breakdown in the markets. Now, in hindsight, it doesn't look that big, but percentage- wise, this was a very quick drop of about 10% in three weeks. Three weeks, 10% downside. And it coexisted with the dollar yen. Okay, the dollar yen here. And let me just go back here on the charts. This is the 10-year yield, but let me go back here. That was with this here, right off of this high pivot. So keep your eyes on this. If the dollar if the yen dollar yen breaks out here, that tells us that the yen is weakening. The carry trade comes into play here, which is again where essentially people are borrowing in in Japanese yen or borrowing from Japan and investing here in the US because the interest rates work um for our favor in that trade. That's the the carry trade, right? But the point being again is that this is a warning sign. watch to see in the coming week does the dollar yen break out to the upside. This would be very big for the markets. Something that needs to be on your radar. The other side and I mentioned interest rates. Here's the you know we had this big move. Notice how the stock market's kind of gotten its its stuff together because the yen the 10-year bond in Japan. This is the 10-year yield in Japan has pulled back. If this starts to push up, right? So here, if this starts to break out, and by the way, what kind of pattern is that? To me, this is a bullish pattern with consolidation. It looks to me like a bullish flag pattern. The 10-year yield in Japan breaking out, maybe going to 3% again causes more issues. So, there's some real big issues that I'm watching going into next week that could be very important to the overall market. All right, couple other things here on the radar, guys. Um, I continue to like the software plays. I loved this candle on Thursday where we dipped on the IGV which is the expanded tech software sector ETF and it rallied and closed up here. This shows institutional buying right at major technical support and again I would expect this to get a bounce and then vice versa you would say okay well where's the money rotating? the the most likely culprit would be out of things like maybe a little SpaceX weakness continues or maybe the AI stocks which just continue to be I mean listen not all AI stocks some of them like Nvidia has just been staying weak but some of the other ones DRAM the the you know the the memory plays they've continued to stay unbelievably strong overall so watch that I am a bull here this is generally such good support I would be somewhat surprised if that comes in and likewise Guys, I love this level hit on Friday on Microsoft. I was even liking Microsoft over here at this gap, Phil. It's come even a little bit lower, which makes me like it even more. Look for this to have a bounce. Great selloff on that. And even names like Adobe. Adobe put in a little bottoming tail on Friday at multi multi- uh year lows on this after they raised guidance recently as well. And one of my personal favorites, TTD. I love this. I mean this is again software advertising platform low end of a wedge. I want to see this thing break out over 21 about 20% short on this name and that could be a squeeze candidate if they ever get a deal and their their CEO and founder bought 140 million in stock in March. I mean that's pretty darn impressive. So just a couple ideas there that I like overall. We looked at gold already. Gold coming down. Support on gold will be around 4,000. breakout would be if we got above this 4,400 level. Silver also down but still holding 66 to 64. If this breaks guys, watch out below 54 is your next technical level. Uh oil today, oil continued to get a little bit of a bounce today, right? So again, you can see again the the the small technical move here. Um, I did pick up a little bit of long oil below 75 just because again strategic reserves need to be filled. But upside, I'm not looking for a ton of upside. Back to about $80 a barrel. Maybe if we're lucky, $84 a barrel. But again, just in that case, I like oil here. Natural gas. Let's look at NAC gas real quick. See where that's playing out. NAC gas still potential cup and handle pattern. The pattern is starting to look a little bit better here for a bullish breakout. Uh, I'm not in it yet, but I am keeping a close eye on it. And Bitcoin today. Not much action on Bitcoin. Bitcoin again, it did break below this key level, which is not great for Bitcoin. So, just keep that on the radar that you would have preferred for it to hold that 63,300 to 500 area, and it did get below. Maybe by the end of the weekend it can reestablish, but right now, this continues to show relative strength or relative weakness in Bitcoin. All right, guys. That's all I have for you. But coming up fast is Monday. Watch these factors here. I'm watching the S&P. Do we make that lower high? We already have the lower low. Or do we push up to new highs in the coming week? How do the AI stocks continue to perform? Um, do we see a down day next week followed by massive announcements from the president to prop the market up the next day? I mean, how does this all play out? It is fascinating to watch. As always, I will do my best to guide you guys. Have a great rest of your day and thank you for tuning in. Take care.