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Go Where The Money Flows

Exposure Status: Moderate Risk

Treasury Yields Have Spiked

US 10 Year Treasury Yield (purple) vs S&P 500 (blue)

Hey everyone, welcome back!

The market was closed yesterday, so we hope you all enjoyed a well-deserved break from the action.

To start today's report, take a look at the chart above. It compares the US 10-Year Treasury (US10Y) with the broad equities market S&P 500 ETF (SPY). Let’s get on the same page about why the recent spike in treasury yields over the last several days isn't exactly a welcome sight.

The US10Y and the SPY usually have a negative correlation. This means that when the SPY is going up, the 10Y treasury yield tends to go down, and vice versa. If you look at the past week or so, you’ll notice the US10Y seems to have hit a double bottom, slowing its decline and then spiking upwards. While this isn't a huge concern just yet, it could quickly become a problem, especially considering how narrow the market’s participation has been. Only a few AI-related semiconductor stocks have been driving most of the gains in the US stock market.

So, let’s keep a close eye on these trends. They might not be worrying now, but they have the potential to shake things up especially with the poor breadth.

If we see the US10Y keep rising over the next few sessions, expect a further deterioration in the equities market


QQQ VRVP Daily Chart

The Nasdaq is unsurprisingly still rising, with Nvidia and other technology giants pushing higher. We don't suspect we'll see any pain in the QQQ. At most, there may be a period of sideways consolidation to allow the daily 10-EMA to catch up, but other than that, things should keep rising.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps saw a big surge of buying pressure at the point of control (POC) level of $530, pushing the MDY to hold near its daily 10-EMA on Tuesday. This is actually very good news since, for the last month, the MDY has consistently been rejected each time it has traded around the $536 major supply zone.

We aren't out of the woods yet, and it is crucial for the MDY to break and hold above $538. This would take it beyond all of its daily EMAs, which need to start acting as demand zones. Otherwise, this two-session bullish bounce will be nothing short of wishful thinking.

Russell 2000

IWM VRVP Daily Chart

The small caps rejected the daily 10-EMA on Tuesday, and until $201.50 is broken and this zone starts acting as an area of demand, there is very little positive news about the Russell 2000.

The small caps have been by far the weakest, which isn’t surprising. It’s very difficult for investor money to trickle down to the most unstable and speculative names in the equities market during a time of high interest rates.

However, the cooling of inflation, as seen in the most recent data set, should start to improve sentiment for equities in general, and especially for small capitalization stocks. This sentiment could turn more bullish, particularly if the Federal Reserve begins to speak more optimistically about cutting interest rates.

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How We Have Been Making Money

It's been a tough month, and chances are, if you've been going long, especially as a newer trader, it's been a bit choppy.

Let's break down what it really means to be a retail swing trader. You and I can't move the market. We don't have the kind of capital that would make a stock jump just because we start buying. It's the big hedge funds and institutions with their hundreds of millions or billions that make the waves. They buy or sell massive positions, creating those big breakout candles on the daily charts. It's like a big ship in the sea leaving a wake that surfers or smaller boats can ride. As traders, our job is to spot where that money is flowing and catch that wave.

This approach is exactly how our trading desk has been able to outperform during this month, increasing our net asset value to peak equity. In the last month, while 75% of stocks have been trending down, the QQQ has been on the rise, driven by the AI & Semiconductors industry group. Despite the overall market trend, there have been opportunities in stocks like Nvidia, Microsoft, Apple, and others within that sector.

Take this as a lesson to learn to identify which stocks, even if it's just one industry group, are moving and be there to capitalize on those moves.

Our job today is continue to do more of the same. We aren’t looking to jump at any new positions but we are honed in to the handful of AI related names which are pushing higher and we know we will be there to execute if these stocks start moving.

Today’s Focus List

META: Meta Platforms, Inc

META Daily Chart

  • Meta broke out of its stage 1 base in early June and is currently forming a volatility contraction pattern (VCP), finding support on its daily 10-EMA.

    We're closely watching for a break above $507, which would signal a long position for us in a 3x leveraged Meta ETF.

    Our confidence in Meta is stronger compared to other stocks setting up because it's a major player in the AI space within the technology sector.

MARA: Marathon Digital Holdings, Inc

MARA Daily Chart

  • The next cryptocurrency mining stock that looks poised to explode is MARA, with its tightening 6-month base.

  • We're a bit cautious considering BTC and ETH experienced small breakdowns in the last week or so. However, given the recent +100% runs in stocks like IREN and WULF in this sector who also had the exact same base, MARA needs to be closely watched.

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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