OVERVIEW
A Recession Looks Imminent

Let’s be honest—things are pretty rough in the markets right now. We’re going through a significant meltdown, and it’s all tied to growing concerns that the U.S. could be heading into a recession. Macquarie Bank is even saying there’s a 50% chance of this happening, mainly because the Federal Reserve might have gone too far by keeping interest rates high for too long.

As a result, we’re seeing a massive pullback across almost all higher-risk assets. Cryptocurrencies and stocks have taken a serious hit, with billions wiped off their market caps. Bitcoin, for example, has dropped 29%, and Japan’s Nikkei 225 is down 12.4%. Investors are shifting their money into safer, defensive assets, trying to ride out the storm.

And if that wasn’t enough, the pressure on global markets is only increasing. The AI-related stocks that had been holding up the equities markets for so many months are now being seen as overvalued, leading to even more selling pressure.

To top it off, Warren Buffett’s Berkshire Hathaway has dumped almost 60% of its stake in major tech companies like Apple, raising its cash pile to nearly $300 billion. This incredibly defensive move is only adding to the fear that the major equities markets could see even more downside ahead.

The Light at the End of the Tunnel

Here’s the good news: we’re confident that the market is going to hit oversold levels very quickly, and this “crash”—or correction—is likely to come to an end soon.

There’s a timeless principle in the stock market that’s worth remembering, and it’s the reason we rarely short-sell stocks: the stock market goes up more than it goes down. It has a long bias.

This means that over time, as businesses continue to create value for customers and shareholders, their worth tends to increase rather than decrease. That’s why, when you look at most market corrections or crashes, you’ll notice they’re often intense, but they don’t last very long.

So, while things might look bleak right now, history tells us that this downturn will eventually pass, and the market will start climbing again.

Your job as a trader isn’t to time this perfectly, your job is to go with the general trend and right now it is too late to short and definitely too early to go long as a swing trader.

Nasdaq

The Nasdaq is in serious trouble right now, with pre-market trading pushing the QQQ below its daily 200-EMA and currently testing its weekly 50-EMA. We’re talking about a -15% drop in just two weeks in an index that usually doesn’t move more than 1.5% in a day.

What’s really concerning is the volume pattern. The selling pressure has only been ramping up week after week, and the QQQ couldn’t even hold its weekly point of control (POC) at $440 in pre-market trading today.

As for what we’re watching today, we’re really hoping that this $425 level at the weekly 50-EMA sees some demand come in, and that the panic selling starts to slow down. However, it might take a few days for us to see this play out, as the selling volume needs to decrease and the price needs to stabilize.

If $425 doesn’t hold, unfortunately, the next likely target is down at $410. This is pretty much the last line of defense before the Nasdaq could break down into the high $300s, which would be a major setback. We’re keeping a close eye on this level, hoping it holds, but preparing for the possibility that we might see more downside ahead.

S&P Midcap 400

The midcaps saw a bit of buying demand yesterday, with the MDY bouncing back after dropping below its POC at $535 during Friday’s session. However, we’re not overly confident that this bounce will hold.

Volatility is extremely high right now, which means we could see sharp swings in either direction. But given the current climate—global markets are panicking over the possibility of a recession and a weakening labor market—the MDY is likely facing intense selling pressure ahead.

It’s true that the MDY has shown some relative outperformance, especially with the QQQ taking the brunt of the sell-off. This could be because some investors are holding onto the hope that lower interest rates might eventually benefit growth sectors. But realistically, this isn’t something to cling to in the current environment.

We’re becoming more comfortable with the likelihood that the MDY will continue its freefall, especially as it’s currently testing the daily 200-EMA at $517 in pre-market trading. This zone is likely to act as resistance in the short term as the market’s panic selling continues.

Russell 2000

TThe small caps are also under pressure, currently testing their 200-EMA on the daily chart, which happens to be perfectly aligned with their POC. The situation here is quite similar to what we’re seeing with the MDY.

Small caps are getting hit hard by the panic selling, and while they’ve seen some support at these technical levels, the broader market sentiment makes it difficult to feel confident that this support will hold and all though low rates are good for the small caps- this tiny glimmer of hope is obsolete right now.

DAILY FOCUS
Stay Calm. Stay In Cash.

Seriously, cash is your best friend right now. With the Nasdaq, MDY, and small caps all looking shaky and potentially heading for more drops, it’s better to sit this one out.

Keeping your money in cash will help you avoid getting caught in the market’s wild swings and protect your capital. It’s like waiting for the storm to pass before venturing outside. Once things start to calm down, you’ll have a better idea of when it’s safe to dive back in.

Don’t get caught trying to be smart and play random bounces or try to be clever and “buy the bottom”- this is a losers game.

WATCHLIST
Silly To Assume There’s Set-Ups…

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