OVERVIEW
All Eyes On Jerome Powell

Global equity markets are tense as they await a crucial policy speech from Fed Chair Jerome Powell, hoping for clues about future interest rate cuts.

Powell is expected to signal the Fed’s first rate cut in over four years. Given the recent signs of easing inflation and slowing economic growth, many analysts believe the Fed has sufficient justification to lower its target rate.

Currently, markets are anticipating a quarter-point rate cut at the September meeting, with the CME Group’s FedWatch tool indicating a roughly 25% chance of a half-point reduction. Minutes from the Fed’s July meeting revealed that a "vast majority" of members support a September rate cut.

Powell’s speech at the Jackson Hole Symposium is set to begin about 30 minutes after the market opens, and the anticipation has already led to some choppy market action. This was expected, as today’s speech is arguably the most anticipated market event in recent weeks. If Powell's remarks turn out to be unexpectedly hawkish, it could easily trigger a significant selloff, despite the recent upward trend in the markets.

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

The best approach today is to wait for Powell's speech to conclude or at least for the market to settle on a direction and digest the Fed’s comments. While it’s likely we’ll see a positive reaction since it seems almost certain that interest rates will be cut in September, it's still risky to increase exposure before such a major event.

Nasdaq

The Nasdaq is pulling back toward its daily 10-EMA and has dipped below its point of control (POC) at $483, which isn’t too surprising.

This pullback to the 10-EMA is normal and healthy, so it shouldn't be a cause for concern. Pullbacks to key daily moving averages offer an excellent opportunity to assess the quality of the stocks on your watchlist.

Depending on how the market reacts to the Fed's speech, we could see either a bounce off the 10-EMA, pushing the Nasdaq higher and back within yesterday's range, or a more volatile move that could send the QQQ above $483, targeting the next resistance level at $495. On the downside, if the reaction is negative, a test of $466 or the daily 20-EMA could be on the horizon.

While we don’t expect the QQQ to lose its 10-EMA on the daily chart, and the likely reaction is expected to be strong, it's crucial to keep both upside and downside levels in mind.

S&P Midcap 400

Midcaps are currently trading sideways around their point of control (POC) at $554, while forming a series of higher lows and consolidating above their daily 10-EMA, which is at $551.

Volume during yesterday’s pause was low, suggesting that most investors are waiting on the sidelines for today’s Fed speech before deciding on their next move.

The overall trend remains positive and in fact a lot stronger relative to the QQQ which hard a much sharper pullback, indicating that the momentum in the growth areas will continue push the MDY to new relative highs. However, this largely depends on how the market reacts after the Fed's comments are released.

Russell 2000

Small caps are currently consolidating around their 10-EMA, waiting for a breakout that we anticipate will occur once the Fed’s speech is over.

We expect a move higher rather than lower today, and we’ll break down our analysis for the IWM.

In recent weeks, volume has been decreasing as the IWM has been forming a trading range between two major supply and demand zones ($216-$212, as seen on the VRVP). This decrease in volume and the sideways trend suggest that volatility is contracting, which often signals an impending breakout, either up or down.

The Fed’s speech is a key factor in this contraction. Given the overall positive trend and the favorable macro environment for equities, especially growth stocks that benefit from low borrowing costs, we expect the IWM to break out today if the market reacts positively to the Fed's comments.

DAILY FOCUS
Don’t Be Clever: Wait For The Talk to End

While we remain optimistic and expect the Fed’s speech might lead to a breakout in the indices either today or tomorrow, it's crucial to remember that we can’t predict the future. Our strategy is to react to breakouts when they actually happen, not to anticipate them.

We won’t be entering any new positions until the speech is over. If we see stocks moving higher in the first 30 minutes, we’ll hold off on trading and instead observe how the market behaves overall.

One major mistake traders often make is overtrading, which can erode profits. We’re focusing on trading less and only taking action when conditions are ideal, which for today means waiting until the market has settled on a clear direction.

Our current holdings have performed well and are pulling back to their daily 10-EMA, which might present an opportunity to add to these positions if we see a positive response.

If the reaction is negative, we’ll shift to a risk-off approach, manage our existing trades according to our sell rules, and refrain from making new trades.

WATCHLIST
Focus On This On A Strong Reaction

EVGO: EVgo Inc

• EVGO continues to tighten around its daily 10- and 20-EMA, trending sideways with contracting volatility and a narrowing range. It's approaching a climactic point, with the Fed's speech likely to trigger increased volatility.

• We're impressed by the textbook base forming on EVGO, which shows strong relative and absolute momentum, along with solid revenue growth.

• Our entry strategy today is to look for a 5-minute opening range breakout above $3.87, supported by high relative volume on the breakout candle. However, we will only take this trade if the overall market responds positively to the Fed's speech.