S&P Breakout Gains Strength as AI Earnings and Falling Yields Lead the Market

The S&P 500 Index (SPX) is pushing slightly higher after yesterday’s strong session, when the S&P gained more than 1.5%, and the Nasdaq Composite Index (IXIC) rose more than 2%. The important development is the breakout above the descending trend line connecting the recent highs. Price has now moved through that resistance, and we are seeing follow-through this morning.

The next test is the all-time high. I want to see whether the S&P closes above that double top and confirms the breakout, or moves above it briefly and falls back below. A confirmed close and continued hold would support a move toward the longer-term ascending trend line, which currently points to a potential target just above 7,800 in the coming weeks. That line is rising, so the target will gradually move higher over time.

Earnings are driving much of the strength, especially across large technology and artificial intelligence companies. Falling Treasury yields are also helping. The US 10 Year Treasury Yield (US10Y) continues to pull back as oil prices decline, taking some pressure off inflation expectations and giving equity valuations more room to rise.

The US Dollar Index (DXY) is flat after falling sharply into technical support and bouncing yesterday. It is now sitting inside a tightening wedge, so we are waiting to see which direction breaks first.

The US Dollar to Japanese Yen Exchange Rate (USDJPY) is also worth watching. It dropped sharply over several sessions before attracting a small bid. That decline followed joint intervention by the US government and the Japanese central bank as the yen weakened too quickly.

This matters because the pressure is not limited to Japan. Japanese debt stands at 240% of gross domestic product, while US debt is above 130% of gross domestic product. Major economies continue adding debt and weakening their currencies to manage financial problems. That may work temporarily, but it becomes less sustainable over time and increases the possibility of more coordinated currency intervention.

The next economic release is the Job Openings and Labor Turnover Survey at 10:00 AM. The ADP private sector employment report follows tomorrow, and the nonfarm payrolls report arrives Friday morning. Together, these reports will influence expectations for whether the Federal Reserve raises interest rates at its September meeting.

Crude Oil Futures (CL) are down almost 3% as the market continues reacting to the absence of new attacks and the possibility of negotiations between the US and Iran. If oil keeps falling, the next technical support is near $70 per barrel.

Gold Futures (GC) are pressing against the top of a very tight wedge. Price is beginning to move above the pattern, but I need more than one close before treating it as a confirmed breakout. Gold still depends heavily on interest rates and the dollar. Continued weakness in the 10 year yield would help, while renewed dollar strength could pressure the move.

Silver Futures (SI) are bouncing, but the chart remains weak below $64 per ounce. A rally back toward $64 is possible, but the larger question is whether silver can break and hold above that level.

Natural Gas Futures (NG) are pulling back slightly. The 256 to 257 area remains the main level to watch because it lines up with a longer-term trend line.

Palantir Technologies Inc. (PLTR) is trading more than 15% higher after strong earnings. The key level is $150, where a major descending trend line comes into play. That may create a day trade rejection, but I would not chase the stock higher or short it as a swing trade. A clean break above $150 would turn this into a breakout setup.

Microsoft Corporation (MSFT) continues to support confidence in large artificial intelligence companies. Meta Platforms Inc. (META) did not report especially strong earnings, but the stock still produced a major rally. Alphabet Inc. (GOOGL) fell after earnings, although the concern was capital spending rather than the earnings themselves. The results across the major data center, hyperscaler, and semiconductor companies remain strong. The issue is whether investors continue accepting the heavy spending while waiting for future returns.

Applied Optoelectronics Inc. (AAOI), Coherent Corp. (COHR), Lumentum Holdings Inc. (LITE), and Ciena Corporation (CIEN) are rising sharply on reports that the US may restrict imports of certain optical equipment from China. Applied Optoelectronics has a day trade level between $149 and $150. Coherent is approaching $350. Lumentum has an aggressive level near $900, but a clean move through $900 could allow it to continue significantly higher.

Caterpillar Inc. (CAT) is surging after strong earnings and testing resistance near $930. That level has a history of rejection, but a breakout could carry the stock toward $960, which aligns with the 0.618 Fibonacci retracement.

Spotify Technology S.A. (SPOT) is falling after earnings, with the next day trade level near $440, approximately $15 below the current price. Wayfair Inc. (W) is moving sharply higher after better than expected earnings, with major resistance near the previous double top around $120.

Bitcoin (BTC) remains a possible secondary hedge against long-term currency weakness. It should not replace physical assets such as gold or silver, but a small allocation offers exposure in case Bitcoin eventually develops into the monetary asset many investors expect.

The market has momentum, but the S&P still needs to confirm the breakout above its all-time high. Oil, yields, economic data, and earnings are all supporting the move for now, but the individual stocks are approaching important resistance levels. Stay patient, respect the levels, and let price confirm the next move before committing.