Triple Threat: Analyzing the Latest Market Pullback
Rates, Geopolitics, and Semiconductors under pressure - Key Indicators to track
This week’s economic indicators paint a picture of steady growth and a resilient labor market, though slight cracks are appearing in consumer activity. Labor market stability remains a highlight, as initial jobless claims fell by 8,000 to a seasonally adjusted 208,000, outperforming the consensus estimate of 217,000. Meanwhile, consumer spending showed steady headline demand, with June retail sales ticking up 0.2% as vehicle sales and online retail offset a steep drop in fuel prices. Anyway, core retail sales (excluding autos) unexpectedly dipped 0.2%. On the production side, the Philadelphia Fed Business Index surged to a blowout reading of 41.4 in July, crushing forecasts of 12.7 and signaling robust growth in northeastern manufacturing.
Why the Market Pullback? Three Macro Factors to Consider
Tech dragged down the SPX as this heat map presents for the week, below are the reasons:
First, the Federal Reserve, under newly appointed Chair Kevin Warsh, held its benchmark interest rate steady at 3.6%. In his first congressional testimony this week, Warsh maintained a strict hawkish tone, reiterating that the Fed has no tolerance for sticky inflation and purposely avoiding any market-friendly forward guidance. The Federal Reserve’s recent Summary of Economic Projections (SEP) lifted core PCE inflation forecasts to 3.3% for 2026, with 9 out of 18 officials projecting at least one rate hike before the year concludes. Driven by rising energy prices and strong labor data, interest-rate futures markets have adjusted aggressively; traders now assign a 15% probability to a rate hike at the upcoming late-July meeting, while expectations for a hike in September have surged to roughly 65%.
Second, the U.S.– Iran ceasefire has officially collapsed as hostilities intensify, with U.S. airstrikes targeting Iranian infrastructure following a series of retaliatory strikes by Iran across the region. Tensions have further escalated in the Strait of Hormuz, where the U.S. has reimposed a naval blockade and Iran has begun targeting commercial shipping, leading to a 14% surge in oil futures CL=F this week to $81.7.
Finally, we must account for the intensifying pressure on semiconductors, driven by both structural and competitive shifts. TSMC recently raised its 2026 capital expenditure forecast to a range of $60 billion to $64 billion, significantly exceeding its previous $56 billion ceiling. For high-multiplier tech stocks, such a massive spike in capex implies heavier near-term depreciation loads and constrained free cash flow, leading investors to scrutinize whether the expected returns on this AI infrastructure truly justify such extreme spending. This skepticism is compounded by the rapid maturation of Chinese AI models, specifically Moonshot AI’s newly launched Kimi K3. By offering world-class performance through an open-weight, low-cost model, Chinese developers are effectively challenging the proprietary "walled gardens" of U.S. firms. As highly capable alternatives emerge globally, the market is beginning to question the sustainability of the current U.S. AI capital arms race and the eventual return on investment for the sector's darlings (AMD, MU, NVDA, AVGO, etc).
News are Catalysts for Technical Conditions
Everything is connected, and the recent events are consistent with two elements I have been documenting in this publication: The high odds of a bullish reversal in oil, and more specifically in XOM as a high probability setup posted last week considering a bullish reversal validated by a recovery of 139.6 with targets at 143 and extension to 147 (provided in S/R Levels), the stock jumped 6.1% this week closing at 147.4 🎯.
For semiconductors, the bearish conditions have been documented, last Saturday this publication highlighted the gap for SMH at 595 and the loss of key moving averages; for AMD I highlighted the gap a 522 and the shooting star in place. those elements are examples of technical conditions studied. As example of using levels as triggers we analyzed the implications (bearish destinations) for SMH and AMD if 598 and 541 were lost (547 🎯 and 468.8 🎯 were extended targets respectively, both securities reversed there on Friday).
=> Technical conditions + Levels are a strong formula to navigate the market.
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High Probability Setups
Neutrality: I remain bullish when technical conditions support it and bearish when a reversal is likely. This is an important distinction for new subscribers who may be accustomed to the inherent bias found in many other publications. For instance, there are metal-focused outlets that have maintained a bullish stance since March in Gold and Silver despite of the clear overextension that needed a major correction, crypto publications insisting in a bounce when technicals did not support that, and others that remain dogmatically bullish on semiconductors regardless of the charts.
Will they reach all-time highs again? Certainly. However, identifying exactly when and how much pain is required to get there is where neutral, professional technical analysis provides the most value.
I was bullish at the market bottom in late March providing clear references, targeting 7,638 for the SPX and announcing on the day that 7,620 was reached, that the milestone could be considered met. More recently, over the past two weeks, we have monitored the internal divergence in tech, including the bearish call in late June for semiconductors, while simultaneously providing specific bullish targets for a bounce in select Magnificent Seven names. That is neutrality, and that is how you outperform the market.
When indices are choppy, individual names are key: Three weeks ago, I highlighted the probabilities for a bullish reversal in Bitcoin, providing specific targets along with risk management and invalidation levels. Bitcoin and Ethereum, tracked via their respective ETFs, IBIT and ETHA, have since jumped 6% and 15% reaching this week our targets of 37 🎯 and over 14 🎯, respectively. MSFT surpassed this week our bullish target of 396 by nearing the documented extension at 406 for a 5.6% move 🎯, while WMT hit its bullish target extension at 117.3 for a 3% gain 🎯, and as mentioned above, XOM surpassed 147.6 with comfort 🎯.
Unlock this transparent and objective approach every week by upgrading to the paid plan, the setups for next week are here with price targets and risk management levels. Subscribers also get daily market updates with levels for the SPX, and access to educational content and Market Intelligence analyses.
Everything is available at smartreversals.com. Zero gut feeling, everything is specific.
Today’s Agenda
Market Context: Charts+levels for SPX, Indices, ETFs, VIX, Breadth, and Crypto.
Deep Dive: Individual charts and targets for all Magnificent 7 and megacaps.
Momentum Map: Analyzing the stage of every security in a single view.
Setups Blueprint: Entry levels for short and long setups with price targets and invalidation levels for all the securities in the watchlist prioritizing stronger setups.
Today I included SpaceX in the charts, the stock has been tracked using levels from day 1, now there is a good set of data and technical signals that are worth watching.
Let’s begin.
SPX: Tech Lost the Critical level - Implications for SP500
We have been tracking this topping process, highlighting its various stages in this chart. From the early warnings that precede each pullback highlighted in each yellow box to the major confirmation sign forming today as the new convention highlights here for the S&P 500: