Weekly Trader's Outlook

If you read last week's blog, you might recall that I had a "Bullish" forecast for this week, citing broader participation in the rally, as evidenced by last Friday's breakout in the S&P 500 Equal-Weight (SPXEW) and bullish price action in the software space. At the time of this writing, the S&P 500 index is up roughly 1.75% and most of the major indices (SPXEW, SPX, DJI, $COMP) are notching fresh all-time highs today. This week's bullish performance was assisted by a near 10% drop in oil prices and an 11-basis-point drop in 10-year Treasury yields, driven by expectations for a peace deal between the U.S. and Iran. Yesterday, a report from Axios stated that the U.S. and Iran negotiators had reached an agreement on a 60-day memorandum of understanding to extend the ceasefire and launch negotiations on Iran's nuclear program. However, the report noted that U.S. President Donald Trump needs to approve the agreement, and that remains the case at the time of this writing. Earlier today, Trump posted several demands for an agreement and said the naval blockade of the Strait of Hormuz will be lifted. Still, London-based defense analyst and writer Alex Alfirraz Scheers said that Trump's declaration on a possible deal must be taken with a "degree of healthy skepticism," noting that Iran has demands of their own that have not been fulfilled.

Stocks also received a boost this week from a couple of key earnings reports. Software and artificial intelligence (AI) data analytics platform Snowflake (SNOW) posted a healthy "beat and raise" on Wednesday, which has breathed life into the software space. In fact, the iShares Expanded Tech-Software ETF (IGV) is breaking out above its 200-day SMA for the first time this year today (more on this in the "Technical Take" section below). For reference, today Oracle (ORCL + $17.94 to $221.64) is trading at a six-month high, ServiceNow (NOW + $14.70 to $123.43) is trading at a 11-week high, and Microsoft (MSFT + $15.69 to $442.68) is trading at a three-month high.

Then, Dell Technologies delivered a blowout earnings report last night after the bell. The AI server and computer maker posted Q1 adjusted earnings of $4.86 per share ($1.90 beat) on Q1 revenue of $43.8B (well above the $35.7B expected). Dell also issued stellar guidance, with Q2 EPS expected to be ~$4.80 on Q2 revenue of $44-45B versus the respective $2.99 & $35.1B consensus estimates. These AI-supported earnings reports provide a read-through on the continued insatiable demand for AI compute, which continues to fuel the rally in chip (and now some software) stocks.

At the time of this writing (2:11 p.m. ET) all the majors, sans the RUT, are higher across the board, though off the highs of the session (DJI + 291, SPX + 10, $COMP + 15, RUT - 18). This continues to be an AI-backed stock market rally that is fueled by bullish sentiment and momentum, and this week was no exception. Next week we'll be entering June, which historically is not a bullish month for stocks (historical returns are essentially flat), but the bullish momentum/animal spirits in stocks has been so strong over the past several week that seasonality may not matter this time around. Are we near-term overbought? Yes, both the S&P 500 and Nasdaq Composite have RSI readings over 70 currently (both are at 73). However, a high RSI is not a timing tool, and a 70+ reading hasn't thwarted the bull run much over the past two months. If the expected agreement between the U.S. and Iran breaks down, and oil prices and yields move back higher next week, perhaps that will provide enough of an excuse for stocks to pullback 1-2%. Next week we're going to get the monthly jobs report, though I don't expect that report to impact markets significantly, unless of course there is a big beat or miss on the headline or unemployment rate (expectations are for +95-105K payroll gains and a 4.3% unemployment rate). On the earnings front there are several high-profile tech companies that I believe have much more potential to move stocks either higher or lower—Broadcom (AVGO), Ciena (CIEN), Credo Technology Group (CRDO), CrowdStrike (CRWD), and PaloAlto Networks (PANW) are all on deck. Also worth noting, Nvidia CEO Jensen Huang is delivering the keynote address at the NVDIA GTC Taipei at Computex at 11:00 a.m. Taipei time, which has the potential to generate news. As for my outlook, I recognize that we are near-term overbought, and therefore the potential for a profit-taking pullback is present, but there's nothing else concerning on the charts (no bearish reversal patterns yet), so I'll respect the uptrend and bullish momentum. Therefore, I'll provide a "Moderately Bullish" forecast for next week. What could challenge my outlook? A fallout in Iran peace talks, higher oil prices and higher Treasury yields could all produce a down week for stocks.

Monday (June 1): Nvidia CEO Jensen Huang is delivering the keynote address at the NVIDIA GTC Taipei at Computex at 11:00 a.m. Taipei time.

• Monday (June 1): Construction Spending, ISM Manufacturing Index
• Tuesday (June 2): no reports
• Wednesday (June 3): ADP Employment Change, Business Inventories, EIA Crude Oil Inventories, Factory Orders, ISM Non-Manufacturing Index, MBA Mortgage Applications Index
• Thursday (June 4): Continuing Claims, EIA Natural Gas Inventories, Initial Claims, Productivity-Revised, Unit Labor Costs - Revised
• Friday (June 5): Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings, Average Workweek, Consumer Credit

• Monday (June 1): Credo Technology Group Holding Ltd. (CRDO), Hewlett Packard Enterprise Co. (HPE), Science Applications International Corp. (SAIC), Trip.com Group Ltd. (TCOM)
• Tuesday (June 2): Dollar General Corp. (DG), Donaldson Company Inc. (DCI), Gitlab Inc. (GTLB), Oddity Tech Ltd. (ODD), Palo Alto Networks Inc. (PANW), Signet Jewelers Ltd. (SIG), Ulta Beauty Inc. (ULTA), Victoria's Secret & Co. (VSCO)
• Wednesday (June 3): Broadcom Inc. (AVGO), CrowdStrike Holdings Inc. (CRWD), Descartes Systems Group Inc. (DSGX), Five Below Inc. (FIVE), Macy's Inc. (M), Medtronic PLC (MDT), Ollie's Bargain Outlet Holdings Inc. (OLLI), PVH Corp. (PVH), Thor Industries Inc. (THO), Veeva Systems Inc. (VEEV)
• Thursday (June 4): Argan Inc. (AGX), Brown-Forman Corp. (BF/B), Caleres Inc. (CAL), Ciena Corp. (CIEN), Cooper Companies Inc. (COO), DocuSign Inc. (DOCU), Lululemon Athletica Inc. (LULU), Planet Labs PBC (PL), Rubrik Inc. (RBRK), Samsara Inc. (IOT), ServiceTitan Inc. (TTAN), Toro Co. (TTC)
• Friday (June 5): ABM Industries Inc. (ABM), G-III Apparel Group Ltd. (GIII), Vrico Manufacturing Corp. (VIRC)

There was a moderate dose of economic data for markets to digest this week, which provided some reads for both the bulls and the bears. On the bullish side, the monthly Personal Consumption Expenditures (PCE) Prices index came in below estimates, Durable Orders were strong and today's Chicago Purcahsing Managers' Index (PMI) reading was the highest in more than four years. On the bearish side, while the monthly PCE readings were slightly cooler than expected, the annual gains are at multi-year highs. Additionally, the second estimate for Q1 GDP was light, the Atlanta Fed lowered their Nowcast for Q2 GDP and personal income was flat. Here's a breakdown of the reports:

• PCE Prices: Headline month-over-month (MoM) prices increased 0.4% in April, down from +0.7% in March, and below the 0.5% expected. This translates into a year-over-year (YoY) gain of 3.8%, which was in line with estimates, but the highest reading since May of 2023.
• PCE Prices – Core: Core prices increased 0.2% MoM, which was below the 0.3% economists had expected. This puts the YoY basis at 3.3%, in line with estimates but the highest reading since November of 2023.
• Q1 GDP – Second Estimate: U.S. gross domestic product rose at a seasonally and inflation-adjusted rate of 1.6%, below the 2.0% expected, the Q4 reading of just 0.5% and the Dow Jones consensus estimate of 2.0%. The reduction was primarily driven by reduced consumer spending and investment.
• Personal Income: 0.0% vs. 0.4% est.
• Personal Spending: 0.5% vs. 0.3% est.
• Chicago PMI: The Chicago Purchasing Managers' Index surged 13.5 points in May from the prior month to 62.7, which was well above the 50.2 economists had expected (any reading above 50 represents economic expansion). The May print represents the highest reading in 4 ½ years.
• New Home Sales: 622K, below the 660K expected and down from 663K in the prior month.
• Durable Orders: 7.9% vs. 1.2% est.
• Durable Orders ex-transportation: 1.1% vs. 0.4% est.
• EIA Crude Oil Inventories: -3.327M barrels.
• EIA Natural Gas Inventories: +92 bcf.
• Initial Jobless Claims: Initial applications for U.S. jobless benefits increased 5K from last week's (upwardly revised) 210K to 215K, which was above the 211K economists had expected. Continuing Claims increased 15K from the prior week to a seasonally adjusted 1.79M.
• The Atlanta Fed's GDPNow "nowcast" for Q2 GDP was revised down to 3.8% yesterday from 4.3% last week due to downward revisions to consumer spending and investment.

U.S. Treasury yields followed oil prices lower this week, and the yield curve saw some modest steepening. Compared to last Friday, two-year Treasury yields are down ~12 basis points (4.00% vs. 4.123%), 10-year yields also declined ~12 basis points (4.439% vs. 4.558%), while 30-year yields decreased ~8 basis points (4.981% vs. 5.064%).

Market expectations around the Federal Reserve's monetary policy once again saw a significant reduction in rate hike expectations, mostly driven by lower oil prices and optimism around a deal to end the Iran war and open the Strait of Hormuz. Per the Bloomberg rate probabilities, markets appear to be targeting either the March 2027 (84%) or April 2027 (91%) Federal Open Market Committee (FOMC) meeting for a potential rate hike. Last week, markets were potentially expecting a rate hike at the December (95%) or January 2027 (theoretical 100%) FOMC meeting.

An encouraging sign for the bulls this week was the broader participation from non-tech sectors. Last Friday I highlighted the breakout in the S&P Equal Weight Index (SPXEW). This week the SPXEW continued its ascent into record territory which is bullish technical follow-through price action. Could the index pullback and test prior resistance at 8,300 (known in technical analysis as a "throwback")? Of course, that's a common occurrence in technical land. But it's not required to maintain a bullish outlook.

Near-term technical translation: bullish

Two Fridays ago, I spotlighted the iShares Software ETF (IGV) as the fund appeared to be breaking above the neckline of a head-and-shoulders bottom pattern. The IGV has subsequently ridden its 20-day SMA higher and today the ETF is firmly breaking out above the 200-day Simple Moving Average (SMA) for the first time this year. Certainly, sentiment in software has received a lift from strong earnings reports from the likes of SNOW, DDOG, and TEAM over the past couple weeks. The price action is intermediate-term bullish, but on near-term basis the RSI has pushed up to 75 (above the technically overbought level of 70), so the potential for a "throwback" to the 200-day SMA is a possibility. For reference, here are IGV's top 10 holdings: ORCL (9.70%), MSFT (8.18%), PANW (7.20%), PLTR (7.13%), CRM (5.87%), CRWD (5.54%), APP (4.92%), SNPS (3.69%), ADBE (3.68%), INTU (3.68%).

Intermediate-term technical translation: bullish

The Bitwise 10 Large Crypto Index is down 4% week over week, with bitcoin down 4% and ether down 4% at the time of writing this on Friday. The recent rally has faltered since bitcoin reached the low $80,000's. Given the lack of fundamental catalysts to carry bitcoin through resistance levels, price action appears to be dominated by technicals in the short term. While fundamental levels such as the active investor cost basis ($78,000) and ETP cost basis ($83,000) suggest rallies will continue to be sold in that range, bitcoin has also met resistance at its 200-day simple moving average and now appears to be finding support at the 100-day simple moving average. Short-term technicals may appear more supportive, though on a weekly basis the downtrend appears to still be intact. Regardless, there is strong fundamental support near $60,000, which is the cost of production for efficient miners, in addition to a key technical level, the 200-week simple moving average.

Heading into summer, investors should be aware of bitcoin's historical seasonality. Since 2011, June's average monthly return has been 7.4% followed by 8.9% in July. August has historically been a negative month for bitcoin, followed by September, which is seasonally the weakest month of the year. Investors that have followed historical seasonality metrics may find this as another reason to sell rallies before starting to position for what has historically been a year-end rally from October through December. Crypto investors are momentum-driven so while there are other areas in the market to chase momentum, without a fundamental catalyst, cryptocurrencies could remain rangebound in the short-term.

Bitcoin's fair value may be a minor premium to inefficient miner's production price of $95,000, which suggests adding positions near levels of technical support ($73,000 and $60,000) could be profitable if historical seasonality patterns persist throughout the year—though past performance is no guarantee of future results.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP), and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, stocks rallied to fresh highs this week and market breadth expanded across the board as a result. Compared to last Friday, the SPX (white line) breadth moved up to 60.08% from 57.60%, while the CCMP (blue line) is flat at 47.04% vs. 43.76%, as was the RUT (red line), which is currently 62.76% from 58.39% (all week-over-week).

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (101 today): Apple Inc. (AAPL + $0.28 to $312.79), Borgwarner Inc. (BWA + $0.71 to $72.02), Delta Air Lines Inc. (DAL - $0.05 to $82.44), Ford Motor Company (F + $0.63 to $17.28), Marriot International Inc. (MAR - $4.00 to $381.76), Roku Inc. (ROKU - $0.53 to $130.55)

This Week's Notable 52-week Lows (25 today): AutoZone Inc. (AZO - $29.24 to $2,977.22), Boston Scientific Corp. (BSX + $0.01 to $49.12), Intuit Inc. (INTU + $11.64 to $324.64), Intuitive Surgical Inc. (ISRG - $0.24 to $423.38), PDD Holdings Inc. (PDD + $1.79 to $84.82), Veralto Corp. (VLTO + $0.77 to $84.25)