Iran Deal Hopes and AMD Blow-Out Drive a Big Gap Up

Futures are sharply higher on Wednesday morning on news that the Iran situation may finally be moving toward resolution. S&P 500 futures are up about 1% and Nasdaq 100 futures are up 1.6%, while oil is down sharply, with a drop of around 12%, as I write. Bonds are catching a bid, the dollar is firmer, and gold is softer.

Concerns about the macro situation have lingered, but now that there is progress, the possibility of a blow-off move in equities is on the table. This is the news that the market has been anticipating for a month, but conditions are also ripe for some sell-the-news action. Keep an eye out for an intraday reversal after a big early move.

Iran Moves Toward a Deal

President Trump announced Tuesday evening that he is pausing Project Freedom, citing "Great Progress" toward a complete and final agreement with Iran. Axios is reporting that the U.S. and Iran are working on a 14-point memo to end the war.

The framework involves Iran committing to a moratorium on uranium enrichment in exchange for the U.S. lifting sanctions and releasing billions in frozen Iranian funds, with both sides agreeing to lift restrictions in the Strait of Hormuz. The Iranian foreign ministry has told media that Tehran is "evaluating" the U.S. proposal.

This is not a done deal but the uranium enrichment issue is big leap forward. The U.S. naval blockade of Iranian ports is still in place.

Vice President Vance reiterated Tuesday that the truce remains fragile. But the trajectory has shifted from confrontation to negotiation in less than 48 hours, and that is what is driving the price action Wednesday morning.

Oil is the cleanest tell. The market is pricing a meaningful reduction in geopolitical risk, and the entire stagflation conversation that has hung over the market since late April is being repriced.

AMD Validates the AI Trade

The other piece of good news Wednesday morning is Advanced Micro Devices (AMD) , which reported first-quarter results after the close Tuesday that materially raised the bar for the semiconductor group.

Revenue came in at $10.25 billion versus the $9.85 billion estimate, up 38% year over year. EPS was $1.37 versus the $1.27 estimate. Data center revenue grew 57% to $5.8 billion, and the company guided Q2 revenue to $11.2 billion versus the $10.50 billion consensus.

AMD shares were up roughly 16% in extended trading.

This report is more than just a beat and raise. AMD CEO Lisa Su disclosed that Meta Platforms (META) plans to deploy up to 6 gigawatts of AMD Instinct GPUs, with the first 1-gigawatt deployment using the MI450.

Combined with the strength we have seen in memory the past two days, the message from this earnings cycle is that AI infrastructure demand is broadening, not narrowing. The chip sector going into Wednesday's open is now the very clear leader of the market but the headlines about parabolic moves are becoming too obvious.

The Setup for a Gap Up Into an Extended Market

The challenge for traders is that the indexes are already extended. The S&P 500 is more than 6% above its 50-day line, the Nasdaq is nearly 10% above its 50-day, and we have just had eight up weeks out of nine.

A sharp gap up on macro relief into an already overbought market often produces churning intraday action rather than a clean trend day. The bulls who were chasing get filled at elevated levels, and the bears who were short get squeezed and then look for a place to reload. The result is volatility, which is fine for stock pickers but not for index momentum chasers.

If you are trying to time a top in the indexes, the best approach is to look for an intraday reversal and a weak close. Most of the bears keep trying to call tops into strength rather than waiting for even minor signs of weakness. There needs to be some sign that the character of the action is shifting.

Overbought is not a sufficient reason to short a strong market. As the old saying goes, overbought can become more overbought. If you want to time the market, wait for some weakness.

If you are a trader, what matters is what the names that gap up actually do. The leaders who hold their gains and add to them through the session are the names worth paying attention to because that is where the momentum is. The ones that fade are giving you information about supply.

This is the kind of session where the action under the surface tells you more than the index level.

Wednesday's Calendar

Earnings today include Disney (DIS) , Uber (UBER) , DoorDash (DASH) , and Marriott International (MAR) , among others. These are mostly non-technology reports and will provide useful information for whether the dollar weakness and tariff issue is showing up in real numbers.

Wednesday is also when the small-cap earnings calendar becomes much heavier, and that is where the asymmetric moves are.

My Game Plan

The plan into a sharp gap up is to let it settle for a while before making any moves. I may take some partial profits into the open but won't be chasing buys.

The Iran news is constructive, AMD is constructive, and the macro overhang is being resolved. None of that changes the fact that this market needs a rest and that the indexes are still extended. The right move is to watch how individual names act, look for the ones holding gains and showing relative strength on the rotation, and avoid the ones that gap and fade.

I am not buying into the open. Stocks that offer clean technical follow-through after a gap up usually give you a second chance to add. The names that are going to lead the next leg are not necessarily the same names that ran the most into earnings. Patience here is paid.

The bigger question for the longer term, longer than a few days, is still whether forward earnings estimates start to roll over. They have not, and there is no sign of it. That is the hope and dream of the bears, but the reality right now is that earnings growth is strong and the technical action is running over the skeptics. As long as that holds, dips are buyable and gap ups are playable.

At the time of publication, Rev Shark had no positions in any securities mentioned.