OVERVIEW
The Air Feels Different

It’s been an absolutely turbulent few sessions lately. Over the past week, we’ve seen the first interest rate cut in four years, followed by a broad market rally, with some of the highest breadth participation we’ve seen in a while. Now, the conversation has shifted to the odds of a recession vs. a soft landing, with the market currently pricing in a 50/50 chance of a U.S. recession by June 2025. To put that in perspective, those odds have more than doubled in just the past month, rising from only 10% in July.

This might be a surprise to some of you, especially considering that the Federal Reserve just cut interest rates, a move that’s generally seen as bullish for the stock market. You’d think we’d be talking about the great future of the U.S. economy, right? Unfortunately, it’s not that simple. There’s often a disconnect between positive news for stocks and positive news for the broader economy. While lower rates are indeed good for stock prices, as they make borrowing cheaper and can push asset prices higher, the underlying economic story is more complicated.

The real reason we’re seeing a rise in recession fears is not just about low rates, but why the Fed felt the need to make such a large rate cut—a 50 basis point reduction, which is double the usual 25 basis point move. This was an urgent response to deeper concerns, especially around a worsening labor market.

In the last few years, over 80% of the U.S. dollars in circulation were printed, with about $3.3 trillion printed in 2020 alone during the peak of the COVID pandemic. This influx of money has contributed to the inflation we’ve been battling ever since. While inflation is slowly coming under control, the fear of a recession is now rooted in how the economy is handling labor market weakness while also dealing with the effects of restrictive monetary policies aimed at controlling inflation. It’s a delicate balance, and the uncertainty is what’s driving those rising recession odds.

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

It’s really tricky to balance understanding the importance of macroeconomic indicators while also “ignoring the noise” and simply focusing on price action and volume—which is what we always emphasize. Having a market bias is rarely helpful because it clouds judgment.

Historically, the S&P 500 has rallied an average of 17% in the 12 months following an initial rate cut by the Fed, but that’s assuming there’s no recession in the meantime. It’s a great statistic, but as always, context is key.

If you caught our weekend report yesterday, you’d have seen that our analysis of the broad market remains bullish. Stock prices are still trending upward, and although we’re seeing signs that the market might be a bit extended, remember: things can stay extended for a while. What’s important is to stay focused on the charts, manage risk, and be aware of the larger trends without letting them dictate every move.

Until we see proof that breakouts have failed to work and the market looks like it wants to turn back down, we have absolutely no reason to sit on the side and be defensive.

Nasdaq

The Nasdaq is still in bullish territory, with Friday’s session holding onto the gains from Thursday’s gap up, even though we saw an intraday pullback to the rising daily 10-EMA and the Point of Control (POC) around the $474 supply/demand zone, which the Visible Range Volume Profile (VRVP) highlights as a key area of dense volume.

There’s been a bit of concern from traders worried that the QQQ might be vulnerable, especially due to the low volume on Friday. While it’s true that anything can happen in the market—no one has a crystal ball—we think that fear is misplaced. From a technical standpoint, the setup looks stronger than some are giving it credit for.

For those using Swingly Pro, you’ll know how helpful the VRVP is in showing you volume along the Y-axis—basically where key supply and demand levels sit that act as support or resistance. Looking at the QQQ, there’s very little volume overhead up to the all-time highs above $500. Right now, we’re knocking on $483, and if we break through, it could quickly send us up to $495, which is the next likely point of consolidation before a move to new highs.

Technically speaking, everything is pointing to the QQQ pushing higher, not lower, at this stage. Keep an eye on the volume and price action for confirmation, but as of now, the charts suggest more upside potential.

S&P Midcap 400

The midcaps are still looking quite healthy, even after a two-day pullback. If you look closely at Friday's session, you'll notice that we found support right around the $465 demand zone, which helped stabilize the MDY and allowed buyers to step in with some aggression.

Even though Friday saw high volume and a decent amount of selling pressure—evident by the red day we had—it’s important to focus on how the session ended. We closed with a hammer candle, which, while red, signals that buyers weren’t just sitting on the sidelines. They actively held their ground, pushing prices off the lows and showing that there's still strength in the market.

Midcaps remain in a short to medium-term uptrend, and although these stocks are known for being choppy, the charts combined with recent rate cuts paint a positive picture overall. We may see a test of the daily 10-EMA, which could bring a bit of pain in the short term, but unless that test happens and leads to further weakness, there’s no reason to get too defensive just yet.

For now, stay focused on the trend and manage your positions accordingly, but there's no need to panic. Midcaps still look promising.

Russell 2000

The small caps are in a similar situation as the midcaps, but with a bit more concern. On Friday, they actually broke below their Point of Control (POC)—a key level where the most volume has traded—which means they have a little more room to pull back if the 10-EMA is to be tested on the daily timeframe. That would be a pullback of about -1.6%.

Now, this doesn’t necessarily mean we’re headed for a pullback, but it’s important to keep this in mind, especially with the broadening wedge pattern forming on the daily chart. This isn’t the most bullish pattern, as it often indicates potential volatility and uncertainty in price direction.

We'll need to closely watch how the next few sessions play out. If a move does come, it's likely to be volatile, either up or down. Historically, the end of the year tends to be strong for small caps, so we're more optimistic than pessimistic, but we’re waiting for tangible evidence to confirm this.

For now, stay aware of the possible downside, but also be open to opportunities if the market shows strength. It’s a good time to maybe reduce open risk on new positions e.g. from 1R to 0.5R.

DAILY FOCUS
We Want To See Some Confirmation

Right now, we find ourselves in a mixed mindset—bullish due to the strength we’re seeing in charts and indicators, but also cautious because the market still seems uncertain about the possibility of a recession. It’s like we’re waiting for that extra confirmation before fully committing to the idea that we’re ready to push higher.

Breakouts have been working, but there’s been a noticeable uptick in breakout failures recently, which is often an early signal that conditions might not be as favorable as they seem. Realistically, the market still needs time to show where it wants to go, so patience is key right now.

For today’s session, we’re approaching with moderate risk. We’ll attempt new positions if they begin to break out, and if the opportunity presents itself on the 5-minute opening range high, we’ll take it. However, we’re using a half-sized exposure level, somewhere between 0.5R to 0.25R, as a precaution. The reason for this is the possibility of a retracement over the next few sessions. We’ve had a pretty strong rally in recent weeks, and a pause after such momentum is common.

We’ll be taking things as they come and keeping you updated in the Swingly Circle App where you can also find our complete daily watchlist.

Stay sharp and stay patient!

WATCHLIST
The Ones To Focus On Today

NVDA: NVIDIA Corporation

• NVIDIA (NVDA) has been setting up for quite some time now, forming a multi-month base and building a series of higher lows. Recently, it’s even created a mini daily bull flag over the last week or two of trading.

• We actually took a shot at trading NVIDIA on Thursday—maybe a bit early—and ended up getting stopped out on Friday. Still, the stock genuinely looks like it’s gearing up to push higher.

• The growth story behind NVIDIA is well-known, so there’s no need to dive deep into the impressive fundamentals. Simply put, when NVIDIA breaks that key overhead resistance at around $120, you definitely want to be in on it.

RDW: Redwire Corporation

• RDW, an aerospace manufacturer, has been forming a solid base similar to NVIDIA’s for the past few months. It has established a series of higher lows and even attempted to push higher on Friday, but ultimately faced rejection at the descending resistance level.

• Today, RDW is gapping up above this resistance level and looks ready to move higher. As always, we’ll be using the 5-minute opening range high (ORH) to look for our entry point. This will help us protect against a potential false breakout and any subsequent fade lower.

For the complete focus list, just hop on over and download the Swingly Circle App! It’s super easy and will keep you in the loop with all the exciting intraday updates. Happy trading! 🎉