OVERVIEW
This Market Keeps Breaking Records

The market is on a roll, showing impressive expansion with another strong day yesterday. Stocks of all sizes, from small caps to mega caps, are not just holding their gains—they’re thriving! It’s a great time to see that growing confidence in the economy and interest rates is pushing traders to rotate their investments into a wider array of stocks and sectors, all making solid moves.

There’s so much good energy in the markets right now! AI stocks are surging, and Bitcoin has shot up to over $65,000, which is pretty exciting. We’re witnessing breakouts across the board, from mega caps all the way down to micro caps. This broad participation is always a fantastic indicator of a strong market. Plus, the volatility index is trending lower after peaking above 23 earlier this month, finally dipping below the rising 10-EMA. This decline is a positive sign, suggesting that fear and uncertainty are easing up a bit.

Here’s the tricky part: while the market is buzzing with excitement and optimism, it’s often during these peak moments of euphoria that things can shift unexpectedly beneath the surface. We’re not predicting a market top right now, but we’re definitely keeping a watchful eye as the indices push higher. The more extended they get above their daily moving averages, the more cautious we want to be about opening new positions.

A reliable way to gauge potential shifts in the market is to track the behavior of leading stocks that have been top performers in the recent rally.

Ask yourself:

• Are the leading stocks continuing to break out and maintain their upward trends, or are they facing increased selling pressure and starting to pull back?

• Are these leaders still above their daily 10-EMAs? If not, could this signal a potential pullback?

• How are the new breakouts that have recently surged higher performing? Is there strong follow-through, or are we noticing a rising failure rate?

Nasdaq

The Nasdaq continues its upward march, with a big volume day yesterday that pushed the QQQ above a significant resistance level around $494. This breakout signals major strength in the market. The crucial question now is whether this new level can hold. For confirmation, we need to see the QQQ continue to climb and ideally break through the $500 mark this week. Even if there’s a pullback to retest yesterday’s levels, we’ll need to see strong demand during that pullback to maintain confidence.

If we don’t see this demand, it could be a red flag, especially as we approach the presidential election in just about three weeks, which is likely to create ripples in the market. From a technical standpoint, the QQQ remains strong. We recently broke out of a sideways consolidation period, so turning bearish isn't the most logical move right now especially not until there is evidence on how the market will behave with the gap up yesterday.

S&P Midcap 400

The midcaps had a strong continuation day yesterday, climbing to all-time highs after Friday's significant breakout, though it came on notably low volume. A low-volume day featuring a solid bullish hammer is still a positive sign, indicating minimal selling pressure since the MidCap 400 (MDY) managed to rise during an intraday test of Friday’s highs.

We're eager to see if the MDY can maintain its position in the high $570s and ideally push above $580 to really confirm the strength in the midcaps. Given the momentum of the past few days, it wouldn’t be surprising to experience some sideways action soon. However, there’s no reason for concern just yet. Until we observe clear signs of weakness—such as a high failure rate in new breakouts—the outlook remains strong, particularly in the growth sectors of the market.

Russell 2000

The small caps are mirroring the midcaps, showing impressive strength with a solid follow-through day yesterday. The IWM is continuing to gain momentum after Friday’s breakout, pushing through a dense volume cluster highlighted by the Visible Range Volume Profile (VRVP). This is a particularly strong indication, especially since the volume remains elevated alongside a robust bullish candle.

DAILY FOCUS
Play The Smart, Long Term game

The market has strung together five consecutive green days. While this kind of momentum brings opportunity, it's crucial to become even more deliberate with new positions. The indices look very strong however often times they can be misleading so make sure you pay much closer attention to how individual stocks are acting- this is the only indicator you need to determine how the market really is acting.

At this stage, being selective with adding exposure is key. Unless setups present strong relative volume and offer a clear, it’s wise to scale back on the frequency of new trades. Reducing the number of intraday positions is essential when the market has been in an extended uptrend, as the potential for continued movement higher is often more limited compared to the start of the rally.

One of the biggest pitfalls after a prolonged rally is complacency in managing losses. Even with a controlled risk of 1% per trade, taking four or five consecutive losses can quickly eat into the profit cushion built during the recent run. A smart approach here would be to reduce position sizes or tighten your risk to limit the downside—such as capping your loss per trade to 0.25% of your NAV. This strategy allows you to continue participating in setups while protecting gains.

Taking profits into strength is another critical component of preserving those gains. Trimming around 30% of your current positions as they extend beyond key levels, like the daily 10-EMA, can help lock in profits. Adjusting stops to breakeven on positions that are over three days old also keeps your capital secure while maintaining upside potential. You can let the rest of the position run with a trailing stop, giving it room to move higher while still controlling drawdowns.

The goal isn’t to catch the exact market top but to make decisions that provide stability. By reducing daily P&L swings and focusing on a smoother equity curve, we’re playing for the long term, where the real gains are made. This is how you secure steady growth while navigating the ebbs and flows of the market.

Note:

It’s important to clarify that we’re not expressing worry or rushing to significantly increase our cash holdings due to fears of an impending market crash. Instead, this is a pattern we’ve observed over time: after a long stretch of consecutive green days, it’s quite common to experience some sideways action or a healthy, constructive pullback. While this is perfectly fine when you have a substantial profit cushion, it can lead to losses for brand-new positions if they’re not managed carefully.

WATCHLIST
The Moves To Watch Today

NEON: Neonode Inc.

• NEON, a semiconductor stock, has been establishing a series of higher lows while experiencing three sessions of contraction between the rising daily 10 and 20-EMAs, and a descending resistance level around $9 that's been holding it down.

• The semiconductor sector, led by Nvidia, is currently one of the strongest areas in the market, making NEON an intriguing setup. However, it's important to note that high relative volume will be crucial for considering any entry points, especially since NEON isn't a leader in this space. Its somewhat irregular volume profile suggests it may require significant momentum to break out.

• This stock should definitely be on your watchlist today, but approach it with caution. Pay attention to the 5-minute opening range and look for high relative volume during a breakout, as this will provide valuable insights and help you avoid getting caught if NEON starts to fade.

SOTK: Sono-Tek Corporation

• Sono-Tek reported its financial results for the second quarter and the first half of fiscal year 2025. While Q2 revenue was $5.2 million, down 8% compared to last year, it did see a 3% increase from the previous quarter.

• For the first half of the year, the company achieved record revenue of $10.2 million, up 10% year-over-year. Net income also grew by 13%, reaching $672,000, or $0.04 per share. Additionally, Sono-Tek has a record $11.7 million in backlogged orders, a significant increase both year-over-year and quarter-over-quarter.

• Sales in the clean energy and electronics sectors have remained strong, contributing to Sono-Tek’s solid financial standing, with $11.6 million in cash and no debt. As a result, the stock is gapping up significantly in pre-market trading, moving above its 200-day EMA after a prolonged period of sideways movement.

• For those familiar with earnings-based setups, this is a prime example of a small-cap stock that has surprised the market and is showing signs of a significant turning point—definitely a compelling setup. However, given its small market cap, expect some volatility, and liquidity could be an issue for larger accounts.