Monday’s price action showed us a few things. First, it suggested we were not in a massive liquidation-style market that would bring Black Monday vibes, with a huge gap down followed by another wave of selling. I wasn’t totally ruling out that possibility, especially after Friday’s close, but it was not my base case. Second, it showed that the choppy market we’ve been dealing with for months is still very much in play. Third, Monday was essentially a retest of Friday’s sell-off and didn’t give us much of a decision either way. Many names formed inside candles, leaving the next directional move uncertain.
SPY Daily Chart
Right now, QQQ has pulled back 7% from its all-time high to Friday’s low. SPY is down just under 3% from its all-time high, while SOXX, the semiconductor index and a key index to watch during the AI boom, is down nearly 20%. Unlike QQQ and SPY, SOXX never made a new all-time high this summer.
As of right now, the evidence does not point to Friday’s sell-off marking a durable low in the market. Friday’s low broke several key support levels, and unless we gap back above Friday’s candle this week and hold, further downside remains the more likely outcome.
QQQ Daily Chart
The Catalysts Ahead
That brings us to the catalysts over the next few weeks. First, we’re in the middle of earnings season. META, TSLA, and SPCX are the key names reporting this week. META is likely to be the biggest market mover of that group because it’s one of the key hyper-spenders driving AI capex. The market will be looking for clues about the health of the AI trade and whether the massive investments in AI infrastructure are starting to pay off. META could even report negative free cash flow, so the market’s reaction will be particularly important.
Next week, we have the FOMC meeting. Rates are extremely likely (82%) to remain unchanged, barring a major development over the next 10 days. That means attention will turn to the Fed’s projections, the dot plot, and any predictive comments from Warsh.
2018 Analog
I can’t ignore the similarities between the 2018 rate-hiking cycle and today’s market. Both markets were topping out around October, and both periods involved a new Fed chair. In both cases, rates were held steady in October/November, while a December hike was/is expected. In 2018, the Fed ultimately hiked in December before Powell pivoted toward a more dovish stance on January 4, 2019, which helped the market finally bottom out after a 20% decline
There are other similarities worth keeping in mind. Both periods fall during Trump’s midterm years, and both featured rising oil prices, yields, and inflation. Mega-cap stocks were carrying the market, although that particular similarity applies to 90% of the time.
None of this guarantees we’ll repeat the 2018 playbook, but it’s an interesting historical analog, especially if QQQ cannot reclaim its 100-day SMA over the next week or so.
QQQ 2018 Analog
More Volatility Ahead
Regardless of what happens next, I expect a good bit of volatility over the coming weeks. I’ve started layering into some shares at depressed prices, but I also have buy orders sitting lower in case the market continues to fall. I want to take advantage of weakness without getting too aggressive before the market confirms a low.
If key names like NVDA, AAPL, GOOGL, and MSFT start breaking down, the likelihood of the broader market heading toward its 200-day SMA increases significantly.
Relative Strength of MU
One name I’m watching closely here is MU. It showed a lot of relative strength on Friday and Monday. I’d prefer to buy shares at lower prices, but the setup looks interesting in the short term as long as it holds the AVWAP from the low at $847.
The first upside target is the 100-day SMA and gap fill near $977. That gives us a clear level to watch while keeping risk defined around the AVWAP support.
MU Daily Chart
For now, patience is key. We’ve seen a bit of a bounce, but we haven’t seen enough follow through from the bulls to declare the low is in. I’m willing to start building small positions at attractive prices, but I’m keeping cash available and hedging XLK and QQQ until the market gives me a signal that its not heading lower.