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Introduction

We have been suggesting the market was entering a more difficult spot—and that view is beginning to play out. A confluence of DeMark signals, indexes pressing into Fibonacci extension zones, a spike in bullish sentiment, and now a reinvigorated oil market all point to a tougher near-term backdrop. This is the type of environment where positioning doesn’t reset cleanly—it leaks.

The recent ramp has been violent enough to force the underinvested back into the market, but not all is well beneath the surface. Breadth continues to deteriorate, even as large caps—particularly semis—do the heavy lifting. Since the start of 2Q, the top 10 stocks have accounted for roughly 70% of the index gains.

Despite what most see as an index at all-time highs, weakness is quietly building beneath the surface. 52-week highs across the S&P 500 have decelerated meaningfully, while 52-week lows are now beginning to expand.

This is not what you want to see with the index sitting at all-time highs.

So, what gives? We think the answer is fairly straightforward. A prolonged Iran conflict—with no clear end in sight—continues to push oil prices higher, and that pressure is beginning to bleed into forward outlooks. That helps explain why so few stocks are actually carrying the index higher. Leadership has narrowed to a handful of large-cap names that are relatively insulated—and in many cases, the same players driving capex cycles that continue to support semis.

We suggested in our last report to remain highly selective with positioning, and that remains the case. While the indexes themselves have yet to correct, many stocks beneath the surface already have.

We illustrated this dynamic in our 4/26 report—4-week highs have been retreating meaningfully, while 4-week lows are now beginning to expand. It’s not extreme, but it is a trend worth paying attention to.

This can also be seen in the percentage of stocks trading above their 10-day moving average, which has now sunk back toward 40%. When the majority of stocks fail to hold short-term momentum levels, it’s indicative of increasing distribution and fading buyer support.

Here is a stat from Sentiment Trader that encapsulates the underlying weakness:

“On Monday, the S&P 500 closed at a record high. The next day, at least 1% more stocks hit a 52-week low than a 52-week high. In 70+ years of history, that’s happened twice. Yesterday was one. January 3, 2000 was the other.”

Let that sink in.

An index at all-time highs, yet internally behaving like a market under pressure. That type of divergence is rare—and historically, not something you want to ignore.

As much as it appears bulls have taken control, it’s simply not the case. Could this reverse quickly if the U.S. strikes a deal with Iran? We think so—but until oil reverts, the environment remains highly selective.

Oil continues to be the most important macro input we track. Despite what initially looked like the nail in the coffin for higher prices, the extended blockade in the Strait of Hormuz has pushed oil back above $100. We warned in our 4/26 report that a break of $100 was likely, but the continued ascent is now becoming problematic for the forward economic outlook.

At some point, we think Trump’s patience will be tested if oil continues to ramp—but at what level do they cry uncle? That’s the unknown.

Today’s FOMC meeting didn’t deliver much on the surface, but the underlying message was clear. With oil back above $100, inflationary pressures are re-emerging, and it should come as no surprise that the Fed remains hawkish.

That said, there was some notable drama beneath the surface. The decision to hold rates steady came with a significant two-sided dissent—something we haven’t seen in decades. Only eight members voted to hold, while four dissented: three pushed back against an easing bias, and one favored a cut.

This marks the first time since 1992 that we’ve seen four dissents in a single meeting—a reflection of just how uncertain the backdrop has become. Between a murky growth outlook, the stagflationary implications of the Middle East conflict, and the fact that this was Jerome Powell’s final meeting, the lack of consensus is notable.

Unfortunately, the aftermath of the FOMC meeting pushed the rates market higher—right in line with our call for a move higher in short-term rates following the recent DeMark signal. The 2-year Treasury yield (our proxy for front-end rates) is now up ~30bps since the 9 signal marked the lows on 4/17. Ignore the signal at your own peril.

That said, this move may be approaching exhaustion. The current pattern break is running into DTL resistance, with a new DeMark 9 sell setup slated to print shortly.

After the bell, a barrage of large-cap earnings hit the tape. Results have been mixed so far, but one theme continues to stand out—eye-popping capex.

That should keep the AI infrastructure trade alive and well, but how long stocks can continue to absorb that level of spend—especially against a more challenging macro backdrop—remains to be seen.

Time to check the charts.