Earnings season opens with one question hanging over the tape: can the banks put a floor under this market, or does the tech leak turn into something heavier? Inflation data lands Wednesday, so the market gets to answer twice. Until then, everything is a hypothesis, including mine.
The working read: rising yields and earnings uncertainty are squeezing the expensive end of the market, while bank results get to play litmus test. The tape mostly agrees. QQQ is down about 1.4% over the past week while SPY is flat, and the VIX near 15 says nobody is paying up for insurance. Calm, or complacency – the difference only becomes obvious afterward.
QQQ closed near 746, about 2% below its three-month high. The trend is still intact on my structure read, but the weekly expected move is a very narrow 739 to 763, a 1.6% range. That is a compressed market sitting near the top of its range with event risk directly ahead of that narrow tunnel.
MU is where the canary actually lives. The stock dropped almost 4% this week and about 8% over two, closing near 989, right on the lower rail of its weekly expected move. It is still up 7% over the past month, which tells you how violent the run-up was before the repricing started.
The story doing the rounds right now is Chinese competition in memory. The AI demand story has not heated up along with prices, and those two are intrinsically linked. However, declaring the memory cycle dead off a two-week slide is the kind of narrative shortcut that keeps costing the bears money.
The line in the sand is the recent swing low near 917. Above it, this is a pullback inside an older uptrend. Below it, the “temporary” story gets harder to defend.
Which brings us to the banks, today’s designated stabilizers. The Dow holding up while the Nasdaq leaks is rotation, not risk-on. Money is moving, not arriving. For the broad market to hold these levels, the banks need to do more than catch the capital tech is dropping. They need to attract new money. That is a different job, and the chart of the biggest name in the group is not looking well.
GS is the weak link and it couldn’t have happened to a nicer outfit. Down almost 10% over the past month, sitting in the bottom 10% of its three-month range, about 3% above the low near 868. That downtrend is 53 bars long. If the banks are supposed to be the cavalry, the lead horse looks heavy in the legs.
WFC looks better, but not healthy – plus volatility galore. It gave back a little of last week’s 4% pop, closed near 83 in the lower half of its range, and the structure read is repair rather than trend. Its weekly expected move runs roughly 80 to 87, so a post-earnings gap through either rail is a real possibility, not a tail event.
Which is why the put-selling idea warrants caution. Selling puts on banks into earnings sounds like the obvious play until you factor in that expected move is already pricing a 4 to 5% weekly range – the EM range on the graph tells the story. The gap risk is that your premium ends up at the woodshed. If you do it anyway, confirm the report date first – “the chart looks bearish” is not a trade idea.
What confirms the stabilizing read: GS holds 868 and starts closing back toward the top of its weekly range near 937, and MU holds 917. What kills it: GS loses the three-month low and MU takes out its swing low in the same week. Then the narrow expected moves stop looking like calm and start looking like a coil.
If you’d rather have this read – trend state, structure, expected move – turned into live signals instead of homework, SPY Alpha covers equities and index options. You can check it out here.
Cheers,
Michael
