OVERVIEW
Buy The Rumour, Sell The News

On Thursday, two economic reports shook up the market and left investors on edge. First, the Institute for Supply Management (ISM), which keeps an eye on the manufacturing sector, revealed that manufacturing activity dropped to its lowest level in eight months in July. This suggests that factories are slowing down.

Second, the number of Americans filing for unemployment benefits hit an 11-month high last week. This means more people are either losing their jobs or having a hard time finding new ones.

These reports have raised some serious concerns about the economy. On one hand, inflation is easing and the Federal Reserve is hopeful about potential rate cuts in September. On the other hand, there’s growing worry that these cuts might be coming too late. Some think the overly tight monetary policy could be pushing us closer to a recession, and that changes should have been made earlier in the year.

So, what does this mean for you and the market?

To be very straightforward, it’s not looking great for the short term. All sectors and market groups have taken a big hit, with the Nasdaq, Russell 2000, and S&P MidCap 400 each down nearly 5% as of now.

This sell-off caught everyone by surprise, which is why it’s been so intense. The market really doesn’t like unexpected news. We’ve all been riding high on optimism, and this report was a real jolt.

This is exactly why we have risk management strategies in place. We hope you were able to use them to protect your investments yesterday. We personally were able to not take a beating as we quite quickly saw the sell-off happening but we 100% did not expect it.

We’ll break down more details in the pre-market game plan below.

Nasdaq

The Nasdaq had a huge drop yesterday, plummeting 2.4% right after it hit its daily 20-day exponential moving average (EMA). We noted earlier that the $476 level could act as resistance, thanks to the dense supply zone visible on the volume profile (VRVP), but the scale of this sell-off was unexpected.

What’s more, the trading volume is increasing sharply on down days, signaling that this isn’t just a temporary dip. It looks like we’re dealing with a serious, high-pressure sell-off that might continue for a little while.

With the QQQ now gapping below its weekly 20-day exponential moving average (EMA), the next key support level to watch is between $440 and $435. This range aligns with both the daily 200-day EMA and the weekly point of control (POC).

If the QQQ can bounce back and reclaim the $460 level, it would be quite impressive. However, we think the chances of that happening are very slim right now.

S&P Midcap 400

The midcaps sliced through their daily 10-day exponential moving average (EMA) yesterday, which we anticipated would be tested but also respected.

The MDY's red volume surged to a month-long high, with the last four sessions showing significantly increased market participation. This includes several exhaustion and indecision candles, the most notable being yesterday's.

For today, it's likely that the MDY will continue to trend lower towards its daily 50-day EMA at $545. This level also lines up with the weekly 10-day EMA, and we expect that demand should start to pick up around these points.

Russell 2000

The small caps experienced their highest daily volume since the initial breakout in early July that sparked this rally. The point of control (POC) at $223 saw little demand, leading the IWM to drop 3% through the rising daily 10-day exponential moving average (EMA) and just barely cling to the 20-day EMA.

Currently, the 20-day EMA at $217 is being gapped below in pre-market trading, and the next likely stop for the small caps appears to be the daily 50-day EMA at $210.

Take a look at the low-density volume pockets on the volume profile (VRVP). If $210 doesn’t hold, we could face a tough month ahead, as there’s minimal support until $203. A drop to $203 would completely wipe out the recent gains and excitement from the past few weeks.

DAILY FOCUS
Stay Out Of The Way

The market received shock news yesterday, investors and traders are panicking and reducing the exposure they had been building up both in the growth stocks, and also in their large cap positions.

We discussed yesterday how we were actually rather bullish over the next few weeks- that tune has stopped. How quickly things can change.

We are risk off today for obvious reasons and our primary objective is to just wait. There is little information you can get today even by watching the general list of stocks and scanning for relative strength since yesterday’s sell off is very much not over and is going to take a few days to complete.

If you have open positions with a profit, we suggest sticking with them and not panicking. Treat each open position as its own trade and if it is above the daily 10 or 20-EMAs, don’t be too quick to just close it because the market is red.

This is why we always enter positons with a maximum of 1% of our account in any single stock and we always use the 5 min opening range high whenever we go to consider entering a position. In the first few moments yesterday, quite a few stock were catching our eye but thanks to this 5 min ORH rule, we were able to avoid getting paper cuts.

Note: We’ll sending out some emails on our strategy, risk management, and how we scan the market so you can see how we handle these situations.

Keep an eye out for these in the coming days! ✊

WATCHLIST
Nothing To Declare

There are no positions or potential entries that we are looking for today.

We suggest you spend 30 mins going through all of the stocks that held up the best from yesterday’s sell off (maintained their 10 & 20-EMAs) and just watch to see which ones stay afloat.

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