PRIOR DAY ANALYSIS
Why Theory Matters

NASDAQ

Yesterday, we witnessed a "low-volume bounce," indicating a minor upward movement in price accompanied by relatively low trading volume. In technical analysis, volume serves as a measure of market participation and conviction. A low-volume bounce suggests that the market's enthusiasm for the upward movement was tepid, potentially signalling a lack of strong buying interest.

This bounce attempted to re-test the declining daily 10 EMA at $427 but was unsuccessful. Failing to breach this level successfully indicates resistance and implies that the prevailing downtrend may persist.

Our concern stems from the possibility of a "bull trap." A bull trap occurs when a temporary rally in a declining market lures unsuspecting traders into buying, only for the price to reverse course and continue falling. It's akin to a false signal of a market reversal. In this scenario, the strong open and close of the QQQ may deceive more emotional traders into believing that the market sentiment has shifted positively, leading them to enter long positions prematurely.

Russell 2000

While the QQQ encountered resistance at its declining daily 10-EMA, the IWM exhibited notable strength by effortlessly surpassing this level.

The fact that the small-cap sector, known for its heightened volatility, managed to break through this level with ease is significant. It suggests that small-cap stocks may be exhibiting greater relative strength compared to larger-cap counterparts.

However, the observed low-volume bounce in the small-cap sector does add an solemn dimension to the analysis. Low volume during a bounce implies subdued market participation, indicating a lack of strong conviction among traders. While a bounce can initially appear positive, the low volume raises concerns about the sustainability of the upward movement.

The Cycle of Price Action in Wyckoff's theory describes the stages of accumulation, mark-up, distribution, and mark-down in the market. The comparison of the current market behavior to the "low volume rally before a deeper mark-down effect" suggests a cautious outlook. It implies that the current bounce may be temporary before a more significant downward movement occurs.

We still remain hesitant and have positioned ourselves defensively. We will not be participating in any long entries until we receive greater confirmation.

LOOKING AHEAD
Elevator on way down, stairs on way up?

Today's market activity holds significant potential for shaping the near-term direction of major indices. There are two contrasting possibilities:

1. Formation of a Bear Flag for a Second Leg Lower: A bear flag is a technical pattern that typically occurs after a sharp downward move (the flagpole), followed by a period of consolidation (the flag). If today's trading session confirms this pattern, it could signal further downside momentum in the market. This scenario suggests that the initial decline may not have fully played out, and we could see another leg down in the near future. This scenerio is more likely and supported by Wyckoff’s Logic Theory.

2. Beginnings of a Sharp Recovery: Conversely, today's trading session could mark the start of a vigorous recovery in the major indices. This scenario would involve buyers stepping in aggressively to push prices higher, potentially reversing the recent downtrend. A sharp recovery would likely be accompanied by strong buying volume and positive price action across multiple sectors. This is more unlikely but still possible.

We will be waiting to see how things play out as we are in no rush to jump in without confirmation. We understand the value of patience and protecting your capital.

FOCUS LIST
Strength in the face of weakness

DAVE: Dave Inc

• Very strong performance yesterday on DAVE with it breaking above it’s range on incredibly high volume- a picture perfect breakout.

• We didn’t take the trade as we strictly adhere to our rules however this was promising to see. Looking to see how DAVE behaves tomorrow if it can hold it’s new level.

APEI: American Public Education, Inc

• APEI managing to hold it’s daily 10-EMA with a recent rejection against the descending level of resistance, however, given the overall climate this is expected.

• With it’s very strong revenue growth and strong momentum, this is a stock we will adding to our watchlist.

SMR: NuScale Power Corporation

• SMR is delivers safe, scalable, and reliable carbon-free energy through innovative small modular reactor (SMR) nuclear technology, aiding the global energy transition.

• Recently the stock had a 300% run after it’s breakout in early Feb and is currently building higher lows and forming a very tight range.

• SMR does have strong revenue growth however the company has only been traded publicly for around 2 years so there is less evidence of it’s longer term growth.