10/26/26 Weekly Market Prep & Analysis

Quick update on me before we get into the market. I am still recovering from surgery, rehab is underway, and I am not back to full capacity yet. I also have a job to do, so I am here. I will continue working around the limitations and checking in throughout the week whenever I can.

This week gives us plenty to work with. The Fed begins its two-day meeting Tuesday and announces its decision Wednesday afternoon, followed by Warsh's press conference. Thursday gives us the advance estimate for Q3 GDP along with September PCE, Personal Income and Spending, and Weekly Jobless Claims. Friday follows with the Employment Cost Index. We also have roughly one-third of the S&P 500 $SPX reporting earnings, including Alphabet $GOOGL and Microsoft $MSFT on Wednesday and Amazon $AMZN on Thursday. There is very little reason for me to manufacture urgency on Monday with that much information coming later in the week.

Tuesday's Consumer Confidence report gives us something to look at before the Fed. The September index fell to 81.9 from 88.6 in August, while consumers became more pessimistic about business conditions, employment and income expectations. With affordability still sitting near the center of the political conversation heading into the midterms, another deterioration would give us more information about how households are experiencing the economy underneath the headline growth numbers. The October release comes Tuesday at 10:00 AM ET.

The Fed is widely expected to leave rates unchanged Wednesday after raising them in September, but the pause itself is not particularly interesting to me. The market has already moved on to December, where another increase remains firmly in the conversation. Inflation remains above target, the economy has held up reasonably well, and traders will be listening for anything Warsh says that changes expectations around the next meeting.

I have said before that the market hates when Warsh speaks, and Wednesday gives him another opportunity to test that relationship. If he keeps emphasizing inflation and leaves December wide open, yields can get more aggressive and create another headwind for equities. That is a scenario I am prepared for, but I am not entering Wednesday married to the idea that his press conference has to send the market lower.

We are one week away from the midterms. I will avoid political commentary.

Many of you were here with me during the last midterm cycle when we watched $SPY ( ▲ 0.3% ) move roughly 20 points in premarket. The conditions were very different, and I am not suggesting that we are going to repeat the same move or direction. I am reminding everyone how quickly price can reprice when inflation, Fed expectations, positioning and political uncertainty begin colliding with each other.

That is what I mean when I talk about midterm volatility. Volatility is not another word for bearishness. It can mean wider ranges, larger overnight moves, faster reversals and a market that punishes anyone who becomes too comfortable with one directional expectation. We can get temporary continuation lower and then reverse. We can squeeze aggressively higher and give part of it back. We can remain inside the same larger range while the intraday movement expands substantially.

The November 3 midterms add another layer because energy, inflation, affordability and rates all carry more political weight this close to Election Day. Oil also remains important after Brent recently reached its highest weekly close in years before easing as Middle East diplomatic efforts picked up again. I am not trying to handicap the political outcome. I want to know what those developments do to crude, what crude does to inflation expectations, what inflation expectations do to Treasuries, and eventually what Treasuries do to equities.

Thursday can complicate the Fed conversation almost immediately because Q3 GDP and September PCE arrive together at 8:30 AM. Current estimates put Q3 growth around 3.2%, which would suggest that the economy remains fairly resilient despite tighter financial conditions. PCE then tells us whether inflation is cooperating enough to give the Fed more room to wait.

Strong growth with stubborn inflation gives the Fed more room to remain aggressive. Strong growth with cooler inflation gives equities a better combination. Weaker growth without enough improvement in inflation creates a different problem because the Fed gets less freedom to tighten without adding pressure to the economy. I will be watching what yields do with the combination and whether $SPY and $QQQ agree with the initial reaction.

This carries forward the Treasury-volatility discussion from the last few letters. Higher volatility in bonds does not mean yields have to continue higher, and the MOVE Index should not be compared directly with $VIX as though the two measurements use the same methodology. The important takeaway is that the market has been pricing a less predictable path for long-duration bonds and yields.

Implied volatility in equities is a little lower to begin this week, but it increases into Friday. Those are expectations for movement, not direction. With the Fed on Wednesday, GDP and PCE Thursday, major earnings throughout the week and the midterms immediately behind all of it, there are plenty of reasons for the options market to expect the range to expand later in the week.

The short side did a little work recently. We have seen sellers become more aggressive, technology has taken more pressure than the broader market, and some of the overnight moves have been much larger than what we had gotten used to during the summer. None of that makes me more interested in assuming that lower prices have to continue simply because sellers finally made some progress.

If anything, once everyone starts flipping aggressively bearish at the same time, I start paying more attention to the alternatives.

That does not mean automatically fading the crowd. If sellers continue getting more aggressive, the macro headwinds line up and price continues lower, I can trade lower. What I do not want to do is become the last person chasing puts after everyone has already decided that the market has to collapse. Temporary continuation can happen without turning the entire market into a sustained downtrend.

As you may recall, $QQQ ( ▲ 0.62% ) has been known to lead $SPY recently, which makes sense when you consider how much overlap exists between the largest technology companies in both indexes. Technology represents an enormous portion of the S&P 500 $SPX, and the recent weakness in the Nasdaq has been much more pronounced than what we have seen in several other parts of the market. Reuters noted Friday that the S&P 500 $SPX lost about 0.5% for the week and the Dow $DJI actually gained about 0.4%, even while technology remained under pressure. That is not uniform liquidation.

Market breadth gives us another way to look at the same thing. Recent breadth readings have remained weak overall, but the weakness has not been distributed evenly. The Nasdaq 100 has lost participation while other parts of the market have shown periods of improvement, which leaves open the possibility that some money has rotated rather than simply left equities.

That distinction is important for $SPY. If $QQQ continues selling aggressively and the rest of the market begins losing whatever relative strength it has maintained, I will be considerably more interested in downside continuation. If $QQQ remains weak while other sectors continue holding up, $SPY can remain much more resilient than traders expect when they only look at technology.

The Daily $QQQ chart also gives $SPY traders something very specific to keep in mind before forcing the market lower. $QQQ has its own version of the recurring support we have discussed on $SPY, with the broader 700 area showing several reactions over the last few months. Price has traded through and around that area enough times that I want to know what sellers actually do if they get another opportunity there.

I am not assuming 700 has to hold because it held before. If $SPY is trading toward the bottom of its own range while $QQQ is sitting around 700 and sellers cannot continue lower, I am going to be careful about trading to the downside. If $QQQ gets through the area with increasingly aggressive selling while breadth deteriorates and $SPY is simultaneously losing its own lower structure, then I have considerably more evidence supporting continued market weakness.

The recent Nasdaq weakness also makes this week's earnings particularly useful. Alphabet $GOOGL ( ▲ 0.37% ) , Microsoft $MSFT ( ▲ 2.74% ) and Amazon $AMZN ( ▲ 2.06% ) are all directly involved in the AI-spending conversation that has been pressuring technology. Investors have become much more demanding about the amount of money these companies are pouring into data centers and infrastructure, and they want to see enough revenue, margins and cash flow to justify it. Roughly one-third of the S&P 500 $SPX reports this week, so a few large post-earnings moves can change the breadth picture quickly.

If $GOOGL, $MSFT and $AMZN defend the spending and $QQQ starts recovering from its recurring support, that can become a tailwind for $SPY as well. If the reports reinforce concerns around spending and returns while $QQQ breaks its lower structure, the technology headwind becomes more difficult for $SPY to ignore.

The Daily $SPY chart still shows the larger range we have been discussing for weeks. The short side has moved price around inside it, but sellers have not taken $SPY somewhere completely new. On the upside, the weekly structure gives us the 766.41 Live Rail, 768.39 Pressure Rail and 770.50 Anchor Rail. The lower structure begins around the 757.42 Anchor Rail, followed by the 753.39 Live Rail and 751.41 Pressure Rail.

The volume profile also shows how much price has traded throughout the 760-770 area. That keeps me from treating every aggressive red candle as evidence that the larger range has disappeared. Sellers have shown more aggression recently, but there is still a lot of work between where price currently trades and a sustained move outside the structure we have been watching.

The 4-hour $SPY chart makes the lower part of the range easier to see. I circled several trips into roughly the same area where price eventually reversed. The fact that price has reversed there before does not guarantee that it will again, but it does affect where I want to initiate risk. Waiting until $SPY has already fallen several points and reached the same part of the range where reversals have repeatedly started is exactly how traders end up shorting into The Hole.

If sellers get through the lower Rangefinder structure and volume begins developing underneath it, I can adjust. Until that happens, I am going to remain cautious of initiating shorts after most of the movement has already occurred. I would rather find weakness higher in the range or wait for sellers to show me something materially different underneath the lower Rails.

The 15m $SPY chart gives us the intraday version of the same framework. Friday's high sits at 763.47, while the previous day's low is 758.68. Along with whatever premarket high and low we establish Monday morning, those are some of the first references I will use.

For longs, I heavily weigh whether $SPY has broken the premarket high and previous day's high before I start looking for continuation. I do not need to buy the breakout candle. I would rather let buyers get more aggressive first, clear the obvious areas, and then wait for the retest. If price pulls back and buyers remain aggressive enough to hold what they just gained, I have a much better location for calls than I did underneath resistance.

The inverse applies to shorts. If sellers clear the premarket low and previous day's low, I can wait for a retest and see whether price fails to reclaim the breakdown. I will continue weighing where that happens relative to The Hole because a breakdown near the top of the range gives me a very different trade than a breakdown after $SPY has already fallen several points into recurring support.

That makes the 758.68 previous day's low and 757.42 Anchor Rail particularly useful together. If sellers clear the previous day's low and immediately run into the Anchor Rail, I want to see whether they can continue doing work beneath it. If the breakdown gets reclaimed, I become increasingly skeptical of bearish continuation. If sellers remain aggressive, push through the Rail and actual volume starts developing underneath it, the 753.39 Live Rail and 751.41 Pressure Rail become much more relevant.

The upside works the same way. If buyers clear 763.47, take out the premarket high and continue through the 766.41 Live Rail, I have the 768.39 Pressure Rail and 770.50 Anchor Rail above it. I do not need to predict the entire move beforehand or catch the first tick of it. If buyers keep doing the work, the next area becomes relevant.

The 4-hour volume profile also shows heavier trading through the mid-760s and into the low 770s. If $SPY starts recovering through the range, buyers still have to work through where price has already traded. I would rather see those areas broken and potentially retested than start buying underneath them because I decided beforehand that the market had become too bearish.

$QQQ gives me another reference inside those intraday scenarios. If $SPY is testing resistance while $QQQ cannot recover from its recent weakness, technology adds another headwind. If $SPY is testing the lower Rangefinder structure while $QQQ holds the 700 area and begins recovering aggressively, particularly with yields falling, I will be much more interested in the possibility of a reversal. If both indexes begin losing their lower structures together while breadth weakens, I can become considerably more interested in the short side without having to anticipate the breakdown beforehand.

Warsh can obviously change that environment Wednesday. If the Fed pauses and his press conference keeps December firmly on the table, yields can become more aggressive and technology can come under additional pressure. If his comments reduce some of the urgency around another hike and yields move lower while $QQQ begins recovering, that gives buyers a different set of conditions to work with.

I am not going into the meeting assuming the market has to hate what he says simply because it usually does. We are approaching the midterms, implied volatility increases into the end of the week, $QQQ is approaching recurring support and several of the largest technology companies in the world report earnings around the same time. There are too many moving pieces for me to become committed to one reaction before the information even arrives.

Thursday's GDP and PCE numbers then arrive less than 24 hours later and can reinforce Wednesday's move or reverse it entirely. If the market initially sells the Fed, then PCE comes in cooler and yields reverse, I am not going to keep forcing Wednesday's short because it worked the day before. If Wednesday produces a rally and Thursday gives us hotter inflation with aggressive yields and weaker breadth, I am not going to protect a bullish expectation either.

In summation, I know the short side has done a little work, but I am not giving it more credit simply because price moved lower. I know $QQQ has been known to lead $SPY recently and has its own recurring support around 700, which $SPY traders should be watching before forcing the market down from the bottom of its range. I know breadth has weakened, particularly in technology, without every part of the market moving in the same direction. I know $SPY remains inside the larger structure we have been mapping, and I know implied volatility is a little lower early in the week before increasing into Friday as we work through the Fed, GDP, PCE, earnings and the midterms.

Before I close this out, let’s revisit the intraday strategy I have been using for years now: If buyers clear the premarket high and previous day's high, I will wait for the retest and look for them to remain aggressive before getting interested in calls. If sellers clear the premarket low and previous day's low, I will use the inverse approach for puts while remaining cautious of The Hole. If $QQQ holds around 700 while $SPY sellers struggle around the lower Rangefinder structure, I will become increasingly skeptical of bearish continuation. If $QQQ loses that area while breadth deteriorates, yields become more aggressive and $SPY starts building actual volume beneath its lower Rails, I will have considerably more reason to look for market weakness.

Everyone becoming bearish at the same time does not mean the market has to reverse immediately. We can absolutely see continuation first. It does mean I want to know what would invalidate that consensus before I become emotionally attached to it. We are heading into a Fed meeting, major inflation and growth data, some of the largest earnings reports of the quarter and the same part of the election cycle where many of us watched $SPY move roughly 20 points before the cash session even opened.

As always, trade smart. - SP