OVERVIEW
Growth Stock Firmly In The Lead

On Thursday, U.S. stocks finished mostly higher, with many indexes closing at or above all-time highs. This remarkable achievement showcases the market's resilience in the face of various economic challenges.

The upward momentum in equities was driven by unexpectedly strong retail sales data for September, highlighting the ongoing strength of consumer spending. This suggests that people are still willing to shop and support the economy. Additionally, a decline in jobless claims indicates a robust labor market. Together, these factors reinforce the idea of a soft landing for the U.S. economy, which could mean continued growth without the risk of a severe recession.

For many traders, this environment is encouraging. It signals that despite uncertainties, there are still opportunities to capitalize on this bullish trend, even after an extended market rally.

The main event of the day, however, was undoubtedly the earnings report from Taiwan Semiconductor Manufacturing Company (TSM). This report sent ripples across the entire AI and tech sectors, with Nvidia and several other semiconductor companies gapping up in premarket trading. TSM, which manufactures a significant number of Nvidia's parts, highlighted serious demand and strength in one of the hottest themes in the global market.

The day didn’t play out as optimistically as many had hoped. TSM began strong, rallying hard in the first hour and a half. This created what appeared to be a great entry point on the 5-minute opening range high break at $206.40, with a stop loss set at the day’s low of $201.96. However, as the day progressed, the situation changed dramatically. If you had entered at that point, you likely found yourself underwater as TSM displayed significant selling pressure towards the end of the session.

The story was similar for Nvidia, which also started the day strong but continued to decline, ultimately closing firmly in the red.

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

As we will shortly take a moment to evaluate the performance of the Nasdaq, it’s clear we experienced a weak session recently. While we’re still in a clear medium-term uptrend, this weakness is sending signals that we may be seeing a pause in the bull market we've been enjoying. The decline towards the end of the session, especially in what should have been a period of strength for AI stocks, is likely to dampen sentiment and affect the broader market.

Despite this, we continue to see setups with follow-through potential. However, we’re also noticing some pauses forming in stocks that have been recent leaders, such as MSTR, PLTR, and NVDA, which have all pulled back to their 10-EMAs and are showing signs of consolidation.

This could be a time to reassess your trading strategy. While we might expect continued expansion over time, it may be wise to reduce the number of new trades you take for now to prevent you form overtrading and taking unnecessary papercuts. Instead, focus on managing your existing positions and think about how to protect and maximize your open profits. By taking a more cautious approach during this period, you can better navigate any potential market shifts while still positioning yourself for future opportunities.

Nasdaq

The Nasdaq showed significant weakness yesterday, with a completely red candle and no wick. The QQQ opened near Tuesday's highs—an important rejection level around $497 that we've discussed several times—which led to a complete retracement down to its rising 10-EMA.

On the daily chart, it appears there's a flag forming, which is expected and healthy during an uptrend. However, as we mentioned before, this situation can make it challenging to initiate new long positions, as price action can become quite choppy during consolidation phases.

The key objective for the QQQ now is to see the 10-EMA hold and for the daily flag pattern to remain intact. While we’re not necessarily looking for a breakout above the overhead resistance at $500 today—given how fiercely sellers are defending that level—it’s critical to maintain support at the 10-EMA.

If we lose the 10-EMA intraday and don’t bounce back like we did on Wednesday, it will signal warning signs that a deeper markdown could be on the horizon. While we don’t consider this scenario highly probable, it’s essential to stay vigilant and monitor how the price behaves in relation to that crucial moving average.

S&P Midcap 400

Midcaps are showing incredible strength, significantly outperforming the QQQ, with five straight days of upward movement as the MDY continues to power ahead. The shooting star pattern we observed on Wednesday has been completely invalidated, which is a major indicator of strength. It's clear that higher-risk growth sectors are currently in favor.

One aspect worth discussing is the extension from the 50-EMA, which can signal potential reversals. Generally, when a stock or index gets more than 6-7 times its average true range (ATR) extended from the 50-EMA, reversals are more likely to occur. As it stands, the MDY is currently at 3.7 times its ATR from the 50-EMA, indicating that it’s not yet "extended."

However, it's important to take this information with a grain of salt, as these are not hard and fast rules. The most crucial aspect to monitor isn’t just the MDY itself but the underlying constituent stocks and how they're performing. The best way to gauge this is through in-depth scans you conduct every day in the market. By keeping a close eye on the individual stocks, you can better assess the overall health of the midcap sector.

Russell 2000

Small caps are also performing quite well, similar to midcaps. They’ve managed to break and hold above a significant resistance and supply zone at $225.50. Demand stepped in yesterday when the Russell 2000 tested this level intraday, indicating that it’s starting to act as support. It’s crucial for this support to hold in the future to sustain any uptrend.

When we look at both the IWM and MDY relative to the QQQ, it’s clear that the higher-risk areas of the market are leading the charge. This trend is a positive sign, indicating that speculative money is flowing back into the market. The big players are so bullish on the overall market that they are willing to take on more risk in the most rate-sensitive and volatile sectors. This level of confidence from institutional investors often suggests a strong underlying sentiment in the market, paving the way for potential continued growth.

DAILY FOCUS
Trust The Process: Disconnect From The Noise

The best traders don’t fall into the trap of overthinking every move because they’ve put in the work upfront. They’ve developed a system they trust, and when an opportunity presents itself, they act without hesitation. But that level of confidence and intuition doesn’t happen by chance—it starts with building a solid foundation. And that foundation comes from creating a system you believe in, then rigorously backtesting and forward-testing it to refine your edge.

Developing your system means going beyond copying strategies or ideas from others- that can only take you so far. You need to tailor it to your style, risk tolerance, and goals. Once that’s in place, backtesting is crucial—it lets you see how your system would have performed under different market conditions. This step exposes its strengths and weaknesses, giving you the insights needed to fine-tune your approach. But backtesting alone isn’t enough. You have to forward test it in live market conditions, where real-time dynamics, emotions, and volatility come into play.

Only by seeing your strategy work in both past data and live environments can you build the true confidence to trust it. This process—of development, testing, and refinement—sets you on the path of skill development. At first, you’re in unconscious incompetence—you don’t know what you don’t know. As you study and test, you move to conscious incompetence, where you begin to see the gaps in your system and execution.

With continued practice, you reach conscious competence, where you can follow your system, but it requires effort and focus. The ultimate goal, though, is unconscious competence, where trading becomes second nature, and you act with confidence, without second-guessing.

Here’s the catch: you can’t shortcut this process. Without thoroughly backtesting and forward-testing your system, you won’t build the trust needed to execute effortlessly. Many traders try to skip this step, hoping to fast-track success, but without that groundwork, you’ll struggle to stick to your plan and detach from the daily noise.

Once you truly trust your system, you can better handle the emotional ups and downs of the market. You know there’s often a lag between following your plan and seeing results, and patience becomes key. You start to think in terms of months and years, not just days or weeks, and this long-term mindset brings a sense of calm and improvement to both your trading and mental health.

But developing a system isn’t enough—the biggest challenge for most traders is sticking to it when emotions get involved. It’s one thing to have a plan, but it’s another to follow through when the market throws curveballs. For example, your system might signal it’s time to scale out of a stock into strength, but you hesitate, hoping the rally continues. You ignore the plan and hold on, only to watch the stock pull back, missing the perfect exit your system flagged.

Or, your system tells you to hold through a natural dip, letting the stock bounce off a key support level like the 10-day EMA, but as the price undercuts that level intraday, panic sets in. You sell out of fear, only to watch the stock rally by day’s end, closing above the very level your system had accounted for.

These are the emotional battles every trader faces. It’s not about knowing what to do—it’s about trusting your system when the market tests you. This is where trading psychology comes into play. You have to train yourself to execute without letting fear, hope, or hesitation get in the way.

Ultimately, success in trading isn’t just about having a great strategy; it’s about having the discipline to believe in it and execute when it counts. Mastering this balance is what separates consistent, profitable traders from those who struggle. When you fully trust your system, you can trade with clarity and confidence, making decisions that feel almost automatic.

WATCHLIST
Big Breakout Watch

GDS: GDS Holdings Limited

• GDS continues to trade sideways, holding along its daily 10- and 20-EMAs, showing considerable relative strength. While many China-related stocks have been hit hard recently, GDS has resisted the decline, which is a positive sign.

• Volume has also tapered off, with the last significant surge on October 14th, when GDS found strong demand at its rising 20-EMA, preventing any potential flush lower. This kind of action signals that GDS could be gearing up for a breakout. In fact, we're even seeing the stock gapping up in the pre-market above its declining resistance.

• However, when dealing with gap-ups like this, it’s essential to use the 5-minute opening range high (ORH) as a confirmation for entry. Gap-ups can often fade, so waiting for the ORH can help you avoid getting caught in a false breakout. Be patient, and make sure you don’t jump in too early before confirming that the move has strength behind it.

GCT: GigaCloud Technology Inc

• GCT is the main set-up we’re closely watching for a potential move higher. The stock is consolidating along its rising 10-, 20-, and 50-day EMAs, but what’s especially noteworthy is that it’s now overtaking the 200-EMA. This level, which had acted as a key resistance during GCT’s selloff, is now being breached—marking a significant change in character and a shift towards positive momentum.

• This action suggests we could be in the early stages of a Stage 2 uptrend for GCT, which is a huge development. When stocks break out like this and see follow-through, it often signals the start of a momentum run that can last for weeks, if not months.