OVERVIEW
Stocks Are in No Man's Land

The market is in a tricky spot right now—caught between a rock and a hard place, and that’s putting it mildly. We’re in the middle of a seasonally weak September, compounded by the added uncertainty of an election cycle, which historically ramps up volatility. On top of all that, the Fed is in a tough position. They’re stuck between two uncomfortable choices: either cutting rates significantly and signaling that something is seriously wrong, or doing what we think is more likely next week—offering a more moderate 25-basis-point rate cut.

If the Fed slashes rates by 50 basis points, it could set off alarm bells across the market, making it feel like an admission that things are worse than expected. But at the same time, keeping rates at these elevated, restrictive levels for too long isn’t without consequences. While I don’t think it will cause irreparable damage, the longer we maintain these high borrowing costs, the higher the odds of tipping into a recession.

The impact is clear—high rates make borrowing more expensive, which slows down economic growth. We’re walking a fine line, and each day the Fed holds rates steady at these levels, the risk increases. We’re watching closely to see how this plays out, especially with the added pressure of an unpredictable election year ahead.

Today, we’ve got the Consumer Price Index (CPI) coming out, followed by the Producer Price Index (PPI) tomorrow. For those unfamiliar, CPI measures the change in the prices of goods and services from a consumer’s perspective—essentially, it tells us how much prices are rising for everyday items like food, gas, and housing. PPI, on the other hand, measures price changes from the producer's point of view, looking at how much it costs businesses to produce goods and services. Both are key inflation indicators that the Fed watches closely.

That said, we don’t expect any major shocks from either of these reports. Inflation is always a concern, but at this point, the market seems to be a little less focused on these numbers compared to the jobs data. Why? Because it’s the employment numbers that are painting a clearer picture of where we stand in terms of a potential recession. The labor market is what the Fed is paying the most attention to right now, as

So, what does all of this mean for today’s session?

We’re seeing some promising setups forming, with stocks in defensive sectors like healthcare starting to push higher. These sectors are often seen as safer bets during times of market uncertainty, which is why they’re gaining attention now.

A strong CPI report today could lead to a positive response in the market, but keep in mind that the Fed’s rate cut decision next week is the crucial factor and CPI is likely not that pressing right now. The Fed rate cut is the big event that will have the most significant impact on market direction.

While we’ve had a couple of solid days of bounce back, it’s not enough to confirm a real bottom. The market is still in a precarious position, and we’re lacking the definitive signs of a bottoming out. Until we get more clarity, especially from the Fed, the outlook remains cautious.

Nasdaq

The Nasdaq continues to face challenges, although the index has shown some improvement over the past two sessions, rebounding from a significant demand zone that has helped push the QQQ higher.

However, volume remains relatively low. For this rebound to signal a potential bottom and allow a base to form, we would need to see a substantial increase in volume. Currently, we are oscillating between two low-volume zones, which is notable and suggests the potential for a flag pattern to develop—a scenario that would be ideal.

The best-case scenario for the QQQ at this stage is to witness a period of consolidation that actually allows buyers to start to feel settled that further downside isn’t likely and optimism can start to pick up as we head into October.

S&P Midcap 400

The midcaps are finding support at their Point of Control (POC) around $534, which is promising, especially considering the increased selling pressure since the initial sell-off began at $565.

There is a significant low-volume pocket on the daily chart between the current share price and $548. To feel confident that this pocket will be filled, we need to see the POC respected and some consolidation at this level. If the pocket does get filled, it is likely to happen relatively quickly and would serve as an initial sign that the bottom of this sell-off might be forming.

Russell 2000

The small caps are mirroring the behavior of the MDY, finding support at a dense demand level. However, the Visible Range Volume Profile (VRVP) reveals a low-volume pocket down to $202. This area coincides with the rising daily 200-EMA, which could pose potential challenges if the price moves toward this level.

It is quite difficult to predict the next direction for the IWM. A significant bullish development will be necessary to avoid a test of the 200-EMA, especially given the current market anxiety.

DAILY FOCUS
Profitable Trading = Good Risk Managing

In trading, situational awareness is crucial. It's easy to make money in a bull market—when everything is trending up and the market seems to be on autopilot. During these times, profits can feel almost effortless. But the real challenge arises when the market shifts.

When the market turns, even a small pullback can feel like a major setback. This is where effective risk management comes into play. You need to stay alert, adapt quickly, and be ready to adjust your strategy based on the market's new direction.

Think of it like driving in good weather versus driving in a storm. On sunny days, everything feels smooth, and it's tempting to relax. But when the storm hits, you need to be extra vigilant, adjusting your speed and keeping a firm grip on the wheel.

Even though we’re in a historically weak period, don’t just switch off or take the month off. The market is inherently unpredictable, and it’s essential to stay engaged. Risk management isn’t just about setting stop losses and position sizes. It’s about having a keen sense of the market's “mood” and recognizing when things are shifting.

For instance, the last two days saw low-volume bounces and some setups moving higher. What could this mean? Did you notice these changes in your focus list? If not, why? Being able to identify when something is moving is crucial. The market is organic—it breathes, and your role is to ride each upward breath and step aside during the downward ones.

Yesterday we opened a small tester position in a market-leading stock, PSNL, with a minimal size (0.25R) just to test the waters. We’ve observed that several breakouts, such as COMP, HROW & AQST, have shown follow-through. This is a crucial insight: leading stocks often lead indices out of downtrends, not the other way around. It's important to train your eye to spot these leading stocks and understand their role in market movements. And remember, you should absolutely minimize your exposure to financial media noise as much as possible to stay focused on the data that truly matters- price and volume tells the tale. You need nothing more.

Today, it’s important to watch how the CPI report might alter the current narrative of fear and uncertainty in the equities market. Do more stocks start breaking out? Are these moves supported by higher volume? If so, it might be time to reassess historical trends and focus on the present.

Ultimately, everything in trading is probabilistic. While you can’t predict every move, staying sharp and adaptable will help you navigate the market’s twists and turns more effectively.

Stock To Watch
The Best Looking Flag

KINS: Kingstone Companies, Inc.

• KINS continues to be the standout setup on our watchlist. The stock is forming a very tight range and is early in a Stage 2 uptrend. (If you're not familiar with Stage Analysis, you can learn more about it in the Swing Trading School and take an exam on the topic.)

• Recently, we observed an intraday undercut of the rising support level when KINS briefly broke below the daily 20-EMA. This caused a momentary scare, but massive buying pressure quickly emerged, demonstrating exceptional demand and pushing KINS back above the 20-EMA by the close.

• This stock is clearly signaling its intention to move higher, and it's crucial to recognize these signs. Additionally, KINS is in the financial sector, which has shown strong relative strength compared to the broader market weakness.

• Overall, KINS so far is looking like a A+ stock with an A+ setup forming.