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  • Still Very Select Rally

Still Very Select Rally

Exposure Status: Risk Off

OVERVIEW
Things Are Moving Slow

Yesterday’s session felt pretty slow. We did see some movement with Super Micro Computer (SMCI), which we talked about as being poised for a breakout. However, the market overall continues to behave much like it did before the Fed meeting on Wednesday. Most stocks are still trending downward or struggling to push past their bases. Only a small handful of large-cap tech stocks are managing to hold their ground.

In some positive news, US producer prices saw an unexpected decline in May, marking the biggest drop in seven months. This is a good sign that will boost the Federal Reserve's confidence in controlling inflation. The producer price index for final demand fell by 0.2% from the previous month, which was lower than any estimates from economists. Compared to a year ago, the PPI increased by 2.2%, according to the Bureau of Labor Statistics.

This report follows May's consumer price data, which also showed a general cooling of prices. Since July, Fed officials have kept their benchmark interest rate at its highest level in over two decades.

So, what does this mean for us?

This is actually a very big deal as it shows inflation is really easing. This puts a lot of pressure on the Fed to consider cutting rates and start easing their restrictions. The equities market responded well to this news, but it’s going to take some time before everything gets fully priced in.

Nasdaq

QQQ VRVP Daily Chart

All things related to big technology companies look promising, and the QQQ just relentlessly keeps climbing higher and higher. Yesterday, we saw a big influx of selling pressure at $478, which you can clearly see by the yellow bar on the visible range volume profile (VRVP). This could lead to the QQQ chopping sideways today and heading into next week’s trading.

The Nasdaq is quite extended in the short term above its daily 10-EMA, so some sideways action is to be expected and even encouraged. This could help consolidate gains and set up a stronger foundation for the next move higher.

S&P Midcap 400

MDY VRVP Daily Chart

Midcaps continue to struggle, and the theme of underperformance is once again prevailing.

In yesterday’s morning report, we emphasized the importance of $538 holding, as it was both the point of control (POC) at the time and the level of the daily 10, 20, and 50 EMAs. Unfortunately, this level did not hold.

It should be quite evident that anything not represented by the Nasdaq—essentially, anything outside big tech—is having a tough time making progress. You don't need to see the MDY's downtrend to understand this; your own market research should clearly indicate the challenges these sectors are facing.

Russell 2000

IWM VRVP Daily Chart

The Russell 2000 continues to show just how weak it really is. As of now, the IWM is gapping down below $199, with little to no buying pressure to keep small caps afloat.

It's not too surprising that smaller companies, which struggle in high interest rate environments due to more expensive borrowing, aren't doing well. However, we were hoping that this week's positive inflation data would spark some positive sentiment in speculative equities—but not yet.

For the IWM to show any signs of improvement, it needs to break above the descending level of resistance it has formed in its downward channel, which currently aligns with its POC at $203.

Until things improve, the vast majority of small or mid-cap stocks shouldn't even be on your radar. Stay focused on the larger trends and keep an eye on these developments.

DAILY FOCUS
Go Where The Money Flows

The market continues to be incredibly selective in its progress. As a swing trader, the best strategy right now is to be adaptive and follow the cash flow. Stocks like SMCI, NVDA, AAPL, and MSFT, along with other big technology names, are leading and performing exceptionally well. Unless you see a dramatic change in market breadth, the only way to earn your pay check is by focusing on where the money is flowing and at the moment there is very little opportunity for new long exposure.

We're maintaining a risk-off stance for the day due to the lack of viable setups we currently see. While we did benefit from SMCI's significant breakout yesterday, our exposure remains cautious. It's important to note that most of the market leaders have already broken out, and those that haven't appear to be showing signs of weakness. As such, we're holding off on new positions until clearer opportunities present themselves.

Stay disciplined and patient Swingly Team, better day will come.

WATCHLIST
Not Much To Report

AMD: Advanced Micro Devices Inc.

AMD Daily Chart

  • AMD has held its flag pattern for a couple of weeks now during this consolidation period and stands out as one of the few names on our watchlist with a potential setup.

  • It's important to note that AMD has recently lost its daily EMAs, which is typically not a good sign for short-term trading opportunities. Therefore, while it may not be a tradable name for today, it's definitely one to keep on our radar for potential future opportunities.

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This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.

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