OVERVIEW
Make Or Break Week For Stocks

The US equities market is at a pivotal point, and the air of uncertainty is becoming increasingly apparent. The Bureau of Labor Statistics reported on Friday that nonfarm payrolls increased by 272,000 in May, significantly surpassing the Wall Street consensus of 190,000 and well above April's modest gain of 165,000. Additionally, average hourly earnings rose by 4.1% over the past 12 months, exceeding expectations. This data highlights a robust labor market and suggests that the Fed does not need to rush into lowering interest rates.

As a result, Fed funds futures pricing indicates almost no chance of a rate cut at the Federal Open Market Committee’s meetings next week or on July 30-31. Looking further ahead, the pricing suggests about a 50-50 chance of a rate cut in September, with only a 46% probability of a second cut before the end of the year.

What does this mean?

The hotter job market data is generally quite encouraging as it shows a resilient economy. However, investors were indecisive about the jobs report, causing volatility in the stock market. While robust job gains indicate that the US economy is unlikely to enter a recession, they also suggest that the Federal Reserve is unlikely to cut interest rates in the near future. The Fed, in its effort to combat inflation, aims for a gradual cooling of the labor market as the economy slows down. However, Friday's data revealed the opposite trend, showing a strong labor market instead.

Fundamentally, as traders, the primary concern is how the market reacts to any piece of economic data, regardless of whether the data appears positive or negative. The key factor is the equities market's response, and so far, the reaction has been negative.

This week is to be pivotal in determining whether we'll witness a recovery in the equities markets. The economic calendar for this week includes:

Wednesday, June 12th, 2024:

- Core Inflation Rate (YoY & MoM)

- FED Interest Rate Decision

- FOMC Economic Projections

Thursday, June 13th, 2024:

- Producer Price Inflation (MoM)

Friday, June 14th, 2024:

- Michigan Consumer Sentiment (MoM)

It's crucial to remain vigilant throughout the week and be acutely aware that volatility will likely be very high. If you decide to enter any positions prior to any of the events listed above, be prepared for the possibility of experiencing painful drawdowns as the market oscillates.

Nasdaq

The recent surge in the Nasdaq is notably one-dimensional, driven primarily by a small handful of stocks that are propping up the index and creating the illusion of a robust equities market. However, the reality is quite different, as apart from GOOGL, MSFT, and NVDA, the majority of the market is not performing well.

In Friday’s session, the QQQ itself reached all-time highs, testing $465 before facing rejection as it attempted to push even higher. Nevertheless, the Nasdaq remains resilient, maintaining its strength as it holds firmly above its daily 10 and 20 EMAs, as well as its point of control (POC) at $453.

It's important to note that breakout volumes are currently low, and the effectiveness of these breakouts is questionable. This implies that the probability of a breakout leading to sustained follow-through is poor.

S&P Midcap 400

The midcaps are showing significant weakness, with current pre-market trading indicating MDY trading almost -2% below Friday’s close at $525 (at the time of writing). This places it well below its multi-month consolidation flag, which previously had rising support at $530. Additionally, the MDY has broken down from all key daily EMAs, except for its daily 200-EMA, which is yet another -3.5% below its current pre-market price.

There's a possibility that we may see the MDY reclaim the unfilled gap in today’s session and climb back up to $534, which would be a positive sign. However, the index remains firmly below its daily 10 and 20 EMAs, which are crucial proprietary indicators of a healthy equities market. This lack of upward momentum is concerning, and we're closely monitoring whether this week will prompt a recovery, ideally pushing the MDY back above its key daily EMAs and allowing the midcaps to start breaking out.

Russell 2000

The small caps are displaying noticeable weakness, a trend that has persisted since mid-May when the Russell 2000 peaked at $210. In Friday’s session, the daily 50-EMA faced rejection amidst significant selling pressure, resulting in a surge in volume.

Currently, the IWM is trading below its unfilled gap between $201-$200. It's crucial for demand to step in at these low-volume supply/demand zones to drive the gap fill and enable the index to close in the green for the day. Failure to do so would signal a potentially long road ahead for small-cap recovery.

DAILY FOCUS
Be Open Minded But Be Smart

Most of the breadth readings are showing weakness, despite the indexes trading at their highs. One potential scenario is that the market will struggle due to narrow participation, leading to limited upside as only a few stocks are already overextended. Conversely, the best rallies and trading opportunities typically arise when breadth recovers from oversold conditions. There's a possibility of market rotation, which could prolong the rally given the significant upside potential still present.

This week is crucial, and the reality is that the majority of indicators are clearly bearish, signalling an unhealthy period for swing trading. The week could either ignite a massive bull run or perpetuate a continued sell-off—predicting its direction is challenging. The smart approach is to step aside from the market, refrain from opening any new naked exposures, and instead wait out the volatility to see where the momentum guides the market.

WATCHLIST
The Very Few Set-Ups

TSLA: Tesla, Inc

• Tesla continues to hold it’s VCP and trade sideways alongside it’s daily 10, 20 & 50-EMA which is very encouraging.

• The stock is now been rangebound for over a month and if we can see a positive reaction this week to the upcoming data reports, Tesla may be the leading breakout.

• We won’t be entering any position until at least Wednesday or Thursday as this is when all of the highest impact reports are released.

AMD: Advanced Micro Devices Inc

• AMD has been trailing behind Nvidia, which has been garnering much attention. However, AMD continues to maintain its Volatility Contraction Pattern (VCP) above its key daily EMAs as it tightens up heading into this crucial week.

• To keep the VCP valid, we need to see AMD hold above $162. With a positive reaction expected to the data releases this week, AMD appears to be poised to initiate a robust uptrend. Additionally, being in the hottest industry group, demand for AMD should kick in, further supporting its potential uptick.

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