/ July 21 / Weekly Preview
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Monday:
N/A
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Tuesday:
Fed Chair Powell Speech
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Wednesday:
Existing Home Sales (4M exp.)
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Thursday:
S&P Global Services PMI Flash (53 exp.)
New Home Sales (0.65M exp.)
Initial Jobless Claims (234K exp.)
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Friday:
Durable Goods Orders MoM (-10.5% exp.) -
Monday:
Verizon Communications Inc.
NXP Semiconductors N.V.
Ryanair Holdings plc
Domino's Pizza Inc
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Tuesday:SAP SE
Coca-Cola Company (The)
Philip Morris International Inc
RTX Corporation
Texas Instruments Incorporated
Intuitive Surgical, Inc.
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Wednesday:
Alphabet Inc.
Tesla, Inc.
International Business Machines Corporation
T-Mobile US, Inc.
ServiceNow, Inc.
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Thursday:
Honeywell International Inc.
Blackstone Inc.
Intel Corporation
Nasdaq, Inc.
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Friday:
Charter Communications, Inc.
Phillips 66
First Citizens BancShares, Inc.
Summer Melt Up
Admin Note: all of our regular articles will be paused for summer break: July 24 - August 03.
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H2 2025 is off to a good start this year, with markets setting fresh all-time-highs last week and notching percentage gains that are almost on par with the best runs of the past 10 years. While there is some noticeable turbulence coming up in August from a seasonal perspective, virtually all years where H2 started off this good have ended the year with additional gains.
Earnings season is ramping up and we’re getting the first glimpses into corporate profitability. Early reports from sectors like consumer staples, airlines, and semiconductors have reinforced the bullish narrative, so far. The near term outlook remains cautiously optimistic, though chances of a sideways trading or even a -2% / -4% correction in the next month are rather high.
While the strong start in H2 is certainly encouraging, several technical indicators are stretched and momentum is reaching exhaustion levels, particularly in mega-cap growth stocks. We would not be surprised to see a rotation from these areas of the market to under-owned sectors, such as financials, industrials, and select cyclicals.
SPY Performance June - December 2025 vs last 10 years - via Market Study instrument, coming soon
With these catalysts in play, we have already trimmed profits in winning positions. Raising cash at this juncture (to the tune of 5-10%) would not be ill advised either.
The technical backdrop that we’re seeing suggests bulls are firmly in control of the narrative. The S&P 500 has a 50-DMA Sigma Score of 0.6, while trading above all other moving averages as well. Tech leaders like Nvidia hold strong uptrends. Crypto (a proxy for speculative risk-taking) is also booming.
However, there are signs that broad market participation is lagging. The chart below compares the SPY ETF to the number of stocks above 20, 50 and 200 DMAs (top 1000 by volume). The numbers themselves are not bad, with 68% of issues trading above their 200-DMAs and 70% trading above their 50 DMAs. Since the start of July, a negative divergence is starting to occur. It happens when SPY keeps advancing while the total number of stocks above averages starts to decline.
The divergence is also apparent in the difference between SPY’s total Sigma Score (1.35) and the broad market’s average Sigma Score (0.37). While this is not an imminent threat, historically, these negative divergences tend to precede short-term corrections or consolidation periods.
As we head into the final part of July, there are a couple of important events to watch this week:
Major consumer, tech, and industrial names are set to report (Coca-Cola, Verizon, Alphabet, Tesla, Intel, and General Motors); their guidance and tone on the calls will provide insight into corporate profitability; bulls hope that strong results and guidance will improve market-wide participation; misses (especially in mega-cap tech) might trigger a sector rotation and slight pullback;
Fed policy will come into focus yet again; Governor Waller’s recent comments supported a rate cut, but there is still a lot of lingering uncertainty; Chair Powell will make public remarks, with the July FOMC meeting fast approaching;
US LEI index will be updated this week; it will help us assess if the soft-landing narrative remains intact or if growth concerns are building;
While the technical underpinnings of the market remain strong, any earnings miss, deterioration in economic indicators or hawkish stance from the Fed might trigger a defensive rotation and a 20-DMA retracement for SPY.
Longtime readers of our blog know that an instrument’s trading channel slope cannot extend infinitely into the future without significant fundamental underpinnings. In our case, SPY’s 21% technical CAGR can only be sustainable if the EPS of constituent companies also grows at this (very high) rate.
Over the last few months, according to data from S&P Global, the Q2-2025 earnings estimates have declined from $234/share in the original March 2024 estimate to $220/share as of June 15th. That $14 drop in estimates is partially due to the impact of tariff concerns on corporate outlooks.
Factset notes:
“Heading into the end of the quarter, analysts have reduced earnings estimates for S&P 500 companies for the second quarter more than average. However, the percentage of S&P 500 companies issuing negative earnings guidance for the second quarter is less than average. As a result, estimated earnings for the S&P 500 for the second quarter are lower today compared to expectations at the start of the quarter. In addition, the index is expected to report its lowest year-over-year earnings growth rate since Q4 2023 (4.0%).
In terms of estimate revisions for companies in the S&P 500, analysts have lowered earnings estimates for Q2 2025 by a larger margin than average. On a per-share basis, estimated earnings for the second quarter have decreased by 4.1% to date. This decline is larger than the 5-year average (-3.0%) and the 10-year average (-3.1%) for a quarter.”
A 4% EPS Growth rate is completely insufficient for maintaining a 21% technical CAGR slope. The justification for the market’s bullish trajectory lies entirely in 2026 growth which is expected to hit double digits (13% - 16%).
We are watching the way company executives respond to tariff policies and how they relate to margins, sales, and investment spending. Goldman expects consumers to absorb the brunt of the tariff costs (70%). If that doesn’t turn out to be the case, corporate margins could have a more severe impact. Apple’s earnings call is going to be especially insightful on this front.
Goldman also makes an interesting point:
“Of course, with inflation not budging, the implication is that consumers haven’t borne the brunt of the tariff cost burden, as in any of it, and since corporations aren’t issuing profit warnings, the conclusion is simple: foreigners are paying the tariffs, just as Trump said they would.”
While “tariffs” have not proven to be the disaster that spooked investors in April, there are still a number of key “trade deals” which have not yet been finalized. Any of this deals could have an outsized impact on EPS growth projections.
Nevertheless, one key support remains: corporate buybacks. Over the last two months, announced and actual company buybacks have surged. Notably, company buybacks are at a new record and expected to exceed $1 trillion by the end of 2025 (as reported by ISABELNET.com).
While corporate buybacks will provide a floor for markets, the sustainability of the earnings rebound will depend on a healthy economic backdrop. The latter part is the one that remains challenging, given a multitude of variables ranging from Fed policy to trade policy.
In yet another bullish development, the market seems to think the best days are ahead. A “Golden Cross” where the 50-day moving average moves above the 200-day, has triggered again for the Nasdaq (QQQ). This is only the 4’th time since 2018 that we’re recording this signal, with previous instances being in 2019, 2020 and 2023.
All cases have preceded strong rallies, especially on a longer term (6-Month +) horizon.
QQQ and Golden Cross via the new Market Study - Signal Trace instrument, coming soon
Our Trading Strategy
We have already taken all necessary portfolio actions last week. Technicals look a bit too enthusiastic given the current fundamental backdrop but other than short term conditions being overbought… there’s little to complain about. Positive GEX, subdued volatility and favorable liquidity conditions are here to foster a bullish environment.
The more likely scenario at the moment is a correction or consolidation phase in the month of August that leads to a charge higher in the last part of the year. If required, we’ll raise cash by selling treasuries and gold in order to buy a dip in the equity space.
Signal Sigma PRO members will be notified by Trade Alert of any live portfolio changes (if subscribed). If you’re not on this plan yet, you can get a free trial when you join our Society Forum. If you need any help with your trading strategy (or would like to implement one on your account), feel free to reach out!
Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this blog post. I currently do not own or plan to own any position, long or short, in the securities mentioned.
I am not a financial advisor licensed in the United States. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject to change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this blog post.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this blog post myself, and it expresses my own opinions. I do not have a business relationship with any company whose stock is mentioned in this blog post. The information in this blog post is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.