S&P500: Reversal Signal Watch Intensifies as Record Rally Stretches

S&P 500 and Nasdaq Hit Record Highs as Oil Drops and AI Trade Rolls On

The S&P 500 and Nasdaq Composite pushed to fresh record highs Thursday and the setup was the same one that has been running this market for two straight sessions. Oil dropped, Treasury yields pulled back, earnings came in strong, and the AI trade kept attracting buyers. West Texas Intermediate crude fell below $93 a barrel. Spot Brent crude slipped under $98. Lower energy costs took inflation pressure off the table and traders bought everything in front of them.

Oil Did It Again

West Texas Intermediate crude fell below $90 a barrel Thursday and Spot Brent crude dropped under $98. Two straight sessions of hard selling in crude and the stock market has responded the same way both times. Lower oil pulls inflation risk out of the conversation and traders immediately start pricing in a Fed that has more room to move. Treasury yields declined Thursday as investors reassessed where inflation is actually headed if energy costs keep falling. That reassessment is showing up directly in growth stocks and technology shares.

Paul Tudor Jones Weighed In

Paul Tudor Jones said Thursday the AI rally may have another year or two to run and compared it to the late stages of the 1990s internet boom. He did not say it ends well. He said there is runway left. The market heard the first part and bought it. I’ve seen this dynamic before. When a trader of Jones’s stature gives the bull case more time, the sellers who were waiting for a reason to get out decide to wait a little longer. That is what keeps a momentum market going past the point where the fundamentals alone would justify it.

Apple and the AI Trade

Apple hit a fresh all-time intraday high Thursday and I noticed it immediately. The stock had been sitting below its December peak for months while the rest of the AI trade ran without it. Thursday it cleared that level. That is not a minor technical event. Apple making new highs on a day when crude is selling off and yields are dropping tells me the money moving into this market is not just chasing chipmakers. It is going into the biggest name on the board. That is a different kind of rally than what we had two weeks ago.

Stocks in the News

Fortinet is up more than 20% after raising its full-year billings guidance. I’ve been watching enterprise software spending for signs of cracks and Thursday’s number was not one of them. DoorDash moved higher on strong second-quarter order guidance. Consumers are still paying for convenience and the market is still rewarding companies that prove it with hard numbers.

Technical Outlook

The main trend is up according to the daily swing chart. The uptrend was reaffirmed early today when buyers took out yesterday’s high, on the way to the record high at 7,385.02. I’ve mentioned several times before that there is no resistance in this momentum driven rally. That being said, we’re focusing on the pattern, or more precisely, the change in the pattern.

Our best shift in momentum signal will be a closing price reversal top combined with follow-through selling. The second best signal will be failed pivots at 7,279.66, 7,246.44 and 7,215.79. The third sign of selling pressure will be the minor bottom destruction at 7,174.12, 7,107.86 and 7,046.55.

It’s hard to find two consecutive days of lower tops and lower bottoms either. That would be another sign of selling pressure.

It all starts with the reversal so start watching for it.

What to Watch

Nonfarm payrolls data and additional inflation readings are the next major inputs for Fed policy expectations. Iran developments stay on the radar because another sharp move in oil in either direction resets the entire sentiment picture fast. The pivot levels to watch on any pullback are 7,279.66, 7,246.44, and 7,215.79. Failed pivots are the second-best signal that momentum is shifting. A closing price reversal top with follow-through selling is the first. I haven’t seen either yet. Until I do the bulls stay in control and the record highs keep coming.

More Information in our Economic Calendar.