QQQ weekly: 15-19 Jul
Price action
QQQ continued to pull back after its failed break of 500 on 10 July. The rising bullish channel in play since April has broken and QQQ is now -5.5% from the high. There is a confluence of support around 470 (50dma, 10wma, and gap fill from 11Jun). There is another confluence of support around 450 (100dma, March high, and 61.8 Fib of the Apr-Jul move).
On a longer term time frame, the primary trend remains bullish.
The Fed
On Monday, JPowell spoke at the Economic Club of Washington. This was an opportunity to push back against increasing expectations of a first cut in September. Significantly, he didn’t take it:
JPowell (Mon): second quarter inflation data adds to confidence inflation is falling, now inflation has come down will look at both mandates, waiting for 2% is too late, more good data will add to confidence and Fed has been getting that lately.
JPowell’s FOMC colleagues echoed his optimism, insinuating they’re ready to go soon:
Daly (Mon): confidence is growing we’re getting nearer to a sustainable path to 2%
Goolsbee (Mon): holding rates steady would make policy unduly restrictive, we set this rate with inflation at 4% now it’s 2.5%
Kugler (Tue): cautiously optimistic inflation is returning to 2%
Waller (Wed): time to cut is getting close, more upside risk to employment than we’ve seen in a long time
Accordingly, the market-implied probability of a first cut in September now exceeds 90%:
What did we learn about markets?
The odds of a Trump election win have risen dramatically since the failed assassination attempt on Saturday 13 July.
This factor is starting to move markets. This new dynamic may present trade opportunities long and short, especially if/when further twists in the story materialise.
Bitcoin: Trump is a supporter and JD Vance is a HODL-er.
KRE: benefits from deregulation, an easier merger environment, and a steepening yield curve.
KWEB: hurt by US protectionism and tariffs.
Breadth
Breadth was strong at the start of the week as the rotation from megacaps to smallcaps continued Monday-Tuesday. Some commentators have suggested the recent surge in IWM may signal the start of a larger move (source: allstarcharts.com).
MSI: rising
Sentiment
The surveys are still running hot, uncomfortably so in the case of AAII.
AAII: Bulls above 50%
NAAIM: still elevated
However, in the last days of the week, the VIX began to lift as the indices fell away. This is suggestive of cooling sentiment.
Seasonality
As we have noted recently, VIX seasonality on average picks up from mid-July.
The phenomenon is pronounced in election years.
Summary
Price action: QQQ continued to pull back after its failed breakout of 500. Support zones are at 470 and 450. The primary trend remains bullish.
The Fed: JPowell and FOMC speakers are steering market expectations towards a first cut in September.
Markets: sensitivity to news relating to the US Presidential election has picked up substantially.
Breadth: strong at the start of the week, but eased Thu-Fri. Some commentators suggest the recent surge in IWM may be the start of a larger move.
Sentiment: surveys continue to show uncomfortably strong bullish sentiment. However, VIX picked up Thu-Fri.
Seasonality: we are entering a period of strong seasonality for VIX.
Key events next week: US Presidential election headlines, earnings (TSLA, GOOGL, VISA), Core PCE.
PS, an explainer for the weekly slide can be found here:
https://chartnotes.substack.com/about
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