07/15 - Inflation Woes: Markets at Major Crossroad

Overbought and Overconfident: A Pullback May Be Healthy

S&P 500 Level: 6,271.75 | Near-Term Trend: Overbought and vulnerable

Key Levels to Watch: Resistance at 6,300, 6,355 | Support at 6,200, 6,120, 6,020

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Markets remain near all-time highs, but the technicals are sending warning signals. The S&P 500 struggled to hold gains Tuesday despite a strong showing from Nvidia, and breadth continues to narrow. Meanwhile, inflation is quietly reaccelerating and the Fed isn’t blinking.

Yes, tariff headlines have dominated, but I believe the real story is what’s happening underneath the surface.

Technicals Losing Altitude

Last week, the S&P 500 posted a modest decline, but momentum indicators tell a more concerning story:

• RSI has rolled over, stalling below overbought levels

• MACD has crossed bearish, with trend strength fading

• Bollinger Bands are widening, suggesting increased volatility ahead

The index is hovering in a tight range just below 6,300. But without a clean breakout above 6,355, a pullback looks increasingly likely. I’m watching 6,200 as a first test, followed by 6,120. If that breaks, 6,020 comes into play.

We’re overbought and a pull-back wouldn’t surprise me here.

Tariff Noise vs. Real Inflation Risks

While Trump’s newly announced 30–35% tariffs on the EU and Mexico sparked headlines, I think the tariff risk is overstated. He’s delayed before, and I wouldn’t be surprised if he walks this back before the August 1 deadline.

The real problem? Inflation.

June CPI came in hot:

• Headline CPI rose 2.7% YoY, up from 2.4% in May

• Core inflation clocked in at 2.9%, matching the high from February

• Housing +3.8% YoY, still the stickiest component

• Grocery prices climbing, with meats and eggs up 5.6%

Worse, the 10-year Treasury yield surged to 4.49%, pricing in fewer Fed cuts and more inflation risk. Markets are now pricing just a 2.6% chance of a July cut, with even September looking increasingly uncertain.

Why I’m Still Constructive Long-Term

Despite short-term headwinds, I’m not turning bearish overall. In fact, I think the bigger story is deflationary tailwinds:

• AI is driving massive productivity gains

• Oil prices are rolling over, with WTI fading again from $69 toward a $62 target

• The consumer is still spending, albeit more selectively

I believe these forces will ultimately cap inflation later this year, especially if tariff threats fade.

Positioning & Sentiment Flash Caution

Bank of America’s fund manager survey shows cash levels at just 3.9%, triggering a technical “sell” signal under their model. That’s the lowest since before the pandemic.

Everyone’s leaning long. That’s when markets are most fragile.

Nvidia’s strength is holding up the Nasdaq, but one stock can’t carry the entire market. And with AI stocks stretched, even good earnings could trigger “sell-the-news” reactions.

So What Do We Do?

Despite short-term noise, my long-term conviction remains strong:

• I’m still very bullish on tech, AI, and the stocks of the future. This includes quantum computing, autonomous driving, semiconductors, and next-gen data center plays. These sectors are driving structural growth and productivity gains that I believe will anchor the next leg of this bull cycle - even if we get a pullback first.

• Crypto pulled back after key digital asset legislation failed in Congress, but I see this as a buy-the-dip opportunity. Regulatory roadblocks were expected — the long-term thesis hasn’t changed. If anything, this opens up better entry points. I’m watching Bitcoin closely as a potential alternative to fiat in a high-deficit, low-trust environment.

• I’m also continuing to use Signals to surface short-term trading opportunities. We’re still seeing strong C-Score momentum in select names across autos, healthcare, and consumer flow.

Top 20 Bullish (Buy) Signals This Week: