Felipe Guirao
Founder of Liberty Signal, Systematic End-of-Day Swing Trading
A breadth thrust and fresh buying point to at least a multi-week rise in US indices, most probably a big rally for a few months after the midterms. LS Breadth is flipping bullish as the bear count falls; more stocks are starting uptrends and first consolidations. The Nasdaq 100 is bouncing with strong breadth, and the S&P 500 looks ready to leave a massive base. The Nasdaq 100 could sell off at declining averages but should rise if broad selling does not return. x.com
Rapidly improving LS Breadth suggests the Nasdaq 100 may be nearing a bull-phase bottom. Since 1995, every crossover from heavy bearish breadth to rising bullish breadth during a bull phase marked a market bottom and brought at least a few weeks of gains, usually a multi-month run. The bull line is rising fast but has not crossed yet; a post-midterm bull run feels likely. This pattern does not apply to established bear markets, and the observation alone is not a trade signal. x.com
Improving breadth and GPUs massively outrunning depreciation costs put US-equity risk/reward heavily in bulls' favour. Some 59% of S&P 500 stocks are above their 50-day average; the Nasdaq 100 is positive over five trading days, and small caps bounced off their 200-day average. Buy gradually, as the selloff may not be completely over. x.com
Rising S&P earnings revisions and a Nasdaq valuation far below the 2000 bubble level argue against a bull trap in US large caps. Nasdaq trades at 18x forward earnings versus over 80x in 2000. Positive breadth divergences, record short ETF exposure and put volume, and semiconductors waking up add to the case. In all 19 post-midterm instances cited, markets were very green over the following 12 months. x.com x.com
Forward risks matter more than good earnings for the Nasdaq now. The index looks to be topping and has a good shot at 28,000 before a rally after the midterms; tomorrow's PCE and GDP releases are unlikely to help, and this week's lows could break. x.com x.com
Hyperscaler credit stress and weak financials-versus-staples leadership warn of downside risk in the S&P 500 consolidation. Spreads have broken July wides, though an upside breakout is probable if financials stabilize. So far, tech weakness has lowered yields as Fed hikes are priced out, letting defensives rally and the S&P chop. If the Fed signals Nasdaq weakness won't stop tightening without better data, the tech-yield link could break in an uncomfortable, 2018-like direction. x.com x.com … Show more
Crowded fund shorts despite market participation give the S&P 500 a strong upside bias, reinforced by midterm seasonality. Net leverage this low usually appears deep in a bear market or near the end of capitulation. A rally is highly probable, but another 1.5 to 3 weeks of pain is possible: the market could be lower in two weeks, higher in a month and much higher in six months. The S&P 500 has historically gained over 14% after midterms, though there are no guarantees. x.com x.com x.com x.com
The Nasdaq 100 faces short-term downside because a failed push to a new high leaves crowded bullish sentiment vulnerable to a break below. Despite record institutional accumulation and a long-term bullish position, five months of chop, a failed ATH and an attempted loss of the bullish trend favor hedging rather than adding leverage. x.com x.com
Post-midterm seasonality and hedge funds' flip from long to short make this reset the next great opportunity to build for a bull market driven by the Innovation Revolution. Since 1950, the S&P 500 has gained 29.9% on average over the next 15 months in all 19 comparable years. This selloff looks pre-war driven; military action looks nearly certain and may be the most anticipated and discounted ever. A 90-day, 32% Nasdaq bear market preceded the dot-com era's final 18-month melt-up. x.com x.com
US equity indexes can keep climbing the wall of worry as long as the Magnificent Seven and semiconductors stay healthy, which makes weak breadth a sideshow. Those groups make up roughly a third of the S&P 500 and two-thirds of the Nasdaq 100. @PeterSchiff argues breadth this weak, with 430 S&P stocks averaging 21.7% below their highs, was seen only in 1973 and 1999/2000 before near-50% crashes. x.com x.com
Disappointing Amazon earnings make a Nasdaq 100 decline to the bottom of its range near 700 look likely tomorrow. It may be forming a range like the one that preceded the decline into the March low, but a sideways phase lasting as long as that one looks unlikely. x.com x.com
Anthropic's S-1 and @UncleAlpha007's claim that Microsoft is growing despite a 27% headcount cut have turned the near-term tech-equity view bullish. At least a tradable rally is expected; further upside depends on Iran developments and PCE. Stay nimble. x.com x.com
