Please note: We are currently out of the country on vacation, so this report will be abbreviated. If market conditions remain largely unchanged relative to the analysis below, we may also forgo a mid-week update.

Introduction

The weakness we have been writing about for months is now beginning to assert itself. Distribution days have been accumulating, breadth has experienced an abrupt reversal, key index supports have been lost, and our macro monitor has increasingly been signaling caution.

Are we surprised that the market is starting to come unglued? No. And if you are, it likely means you have been fighting the signals embedded in the tape.

Our work is designed to provide investors with the tools needed to make better capital allocation decisions. For months we have emphasized a “do less” tactical bias, focused on trading range extremes rather than chasing momentum. In this type of environment, chasing strength has largely been a losing strategy unless you were concentrated in the few sectors where leadership has actually persisted. We have repeatedly outlined those sectors and where we have focused our efforts to generate alpha.

If you believe the current weakness is simply a reaction to the Iran conflict, we would strongly disagree. Searching for the “why” after the fact is one of the most common mistakes investors make. By the time the narrative is widely understood, the market has usually already moved.

Markets discount future events months in advance. In fact, momentum across the major indexes has been deteriorating since the October highs — precisely when we began highlighting the negative divergences our framework consistently identifies.

So yes, we were prepared. And no, we are not surprised.

The more relevant question now is whether the market is approaching a point where it can revert higher. We will address that shortly.

In the near term, oil remains the market’s primary swing factor, and we suspect that dynamic will persist until the rhetoric surrounding the Iran conflict begins to cool. For now, markets remain in a price-discovery phase, where even minor headlines about potential infrastructure disruptions can send oil sharply higher and equity indexes sharply lower.

In short, the market remains largely hostage to developments surrounding Iran.

While Sunday’s highs in oil have held for now, Friday produced the highest closing level of this cycle — a dynamic that does little to support the equity market’s case in the immediate term.

The rates market has also been upended by the conflict. Rising inflationary pressures tied to higher energy prices are pushing the rate-cut trajectory further into the future, with Fed Funds futures now pricing just one rate cut for 2026, down from two cuts projected only a month ago.

The FOMC meets this week, but we see little relief coming from the policy front. Given the fluid nature of the Iran conflict and its direct impact on oil prices, the Fed is unlikely to lean dovish in its communication.

Officials will likely prefer to maintain a cautious tone until there is greater clarity on how sustained energy price pressures could feed through to inflation.

Nvidia will also host its highly anticipated GTC conference this week, an event that historically has the ability to generate momentum across technology stocks—particularly within semiconductors. While the macro backdrop gives us little reason to expect sustained upside follow-through, the market’s elevated expectations create meaningful downside risk should the four-day conference fail to deliver.

The Semiconductor sector (SMH) has largely held the struggling technology complex together. Despite weakening momentum, the ETF continues to find buyers near the October breakout pivot, which remains a critical technical level. A decisive loss of this support would likely introduce an additional layer of volatility into the broader market.

While the semiconductor group may appear disconnected from the fallout surrounding Iran, emerging supply risks are beginning to surface. In particular, potential disruptions to helium and LNG supply chains tied to regional instability are becoming an increasing concern for parts of the semiconductor manufacturing ecosystem.

A potentially pivotal week indeed, but one where headlines and market movements will likely continue to be dominated by developments surrounding Iran, overshadowing the usual market-moving events.

With that said, let’s turn to the charts.