Heightened Risks Collide: Technical Breakdowns, Fundamental Shifts, and Extreme Valuations

Key Themes for this week.

Hello everyone,

Markets were choppy this week as tech and AI stocks faced pressure from cautious Fed commentary and growing skepticism over AI spending. Michael Burry’s post questioning data-center valuations, reigniting AI bubble fears. We also can’t forget the REPO crisis we were mentioning in our last posts multiple time.

The market has broken below the 50-day moving average (50DMA) twice in the past two weeks—a bearish signal. We closed just above it, but another breakdown would likely drive the S&P 500 lower toward the 100DMA near 6,500.

The SPX is also forming a potential double-top with a lower second peak. Key support sits at 6,646—Friday’s intraday low and the November 7 pullback low. A decisive break below this level would trigger classic sell signals and likely spark systematic deleveraging from momentum and trend-following strategies.

Near-Term Catalysts for Volatility

With government operations resuming, delayed economic data (including backfilled BLS reports) will flood the market. This shift from a data vacuum to a data-rich environment typically spikes volatility and reintroduces downside risks that were on pause. VIX reached 23 this past week.

Fundamentals are a bit worrisome too; the S&P 500 now trades at 30.43x trailing earnings—nearly double the long-term average of 16.14x. While price action drives near-term moves, this valuation premium leaves little room for error. Any slowdown in earnings growth, margin pressure, or multiple contraction could spark sharp declines. That said, those dips would create compelling buy-the-dip opportunities.

Upside Hopes: Fed Liquidity and NVDA Earnings

However, potential liquidity injections from the Fed—such as the recent $29.4 billion repo operation to ease banking strains—and Nvidia’s (NVDA) earnings report this Wednesday, November 19, could spark a bounce. These catalysts might fuel the expected Santa Rally toward year-end. We’ll deliver our comprehensive NVDA report on Tuesday.

Key Themes: Energy Risks vs. Retail Resilience

As markets navigate rising energy costs and shifting consumer trends, two themes stand out this week.