OVERVIEW
Something Is Brewing: Price Contracting

The stock market finds itself in a bit of a holding pattern, particularly as the buzz from the Fed's rate cuts begins to cool off. Yesterday’s session delivered modest gains, but there was nothing particularly exciting or definitive about it. For now, the market appears to be moving sideways, taking a pause to digest the rollercoaster of emotions and activity we’ve seen over the past week. It’s as if we're all waiting for a clearer signal on where the market wants to head next—whether it’s gearing up for another leg higher or if we’ll see some pullback to consolidate gains.

What stands out is the evolving market dynamic. Sectors that are typically sensitive to interest rates, like utilities and financials, had been leading the charge recently, largely in anticipation of the Fed’s cuts. However, we’re beginning to see a pivot. Yesterday, for example, semiconductor and tech stocks like POET and AMSC showed strength, rallying throughout the session. This is an early signal that investors may be rotating back into tech, a sector that tends to outperform when the market senses stability or potential growth. If this shift continues, we could be looking at strong upside potential in these areas.

Another area poised for substantial growth is the small and mid-cap space. Small caps, in particular, appear ready for significant gains in the coming months. The reason we're so bullish on both mid-caps and small caps is that this is where the most promising earnings growth is forecasted and where we can see triple-digit quarterly growth. These smaller companies tend to be more agile and can capitalize on new opportunities faster than their larger counterparts, which often translates to outsized gains when market conditions are right.

Beyond sector and capitalization group rotations, economic data also gives us a clearer picture of where things stand. Despite fears of an economic slowdown, the U.S. economy is holding up surprisingly well. Business activity continues to expand, albeit at a slightly slower pace, as early September data shows. This isn't alarming but does point to a cooling off in some areas. What's worth watching is the inflation gauge, which recently hit a six-month high—this could complicate the Fed's path forward if price pressures continue to build.

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

The fundamentals haven't shifted dramatically enough to warrant significant concern. On a macro level, the market is steady, and we see no reason not to put some exposure back into the mix. A low-rate environment is traditionally bullish for equities, no matter how you slice it. While there’s always the risk of short-term volatility, the broader trend is still favorable. With tech and semiconductor stocks beginning to show some strength, it’s hard to ignore the wealth of opportunities presenting themselves.

The exciting part is that many setups in the market haven't fully rallied yet—they’re still in the early stages of potential breakouts. These stocks are sitting on the verge of entering strong stage 2 uptrends, where we typically see the most substantial gains. It’s a good time to test the waters and build positions as we wait for further confirmation from the broader market. The rally in tech, coupled with the steady business activity in the economy, suggests that this could be a ripe moment to get in ahead of the next move higher.

Nasdaq

The Nasdaq continues to trend sideways, consolidating on very low volume, just 4% shy of its all-time highs. What’s notable here is that a major move seems to be brewing in the large technology stocks the Nasdaq tracks. Given how narrow the trading range has been over the last three sessions, paired with breakouts already happening in semiconductor and tech stocks, and huge setups in key names like NVIDIA, it’s clear that swing traders should be focusing heavily on this sector right now.

On the technical side, the QQQ remains above all of its key exponential moving averages (EMAs) and is holding above its point of control at $475. Friday’s test of this zone saw strong buyer activity, pushing demand higher and keeping the QQQ stable within its range. This kind of action indicates strength, not weakness, as bulls continue to defend key levels.

From a technical standpoint, the upside potential looks substantial. But when you factor in the improving fundamentals—like positive earnings growth in tech and the bullish sentiment surrounding rate cuts—it paints an even more promising picture. All signs suggest that large-cap tech stocks could be gearing up for a significant move to the upside.

S&P Midcap 400

The midcaps also showed strength yesterday, with a significant influx of demand fighting to keep the MDY above its point of control at $568, successfully preventing sellers from pushing prices lower. While this is a positive sign, it’s worth noting that we’re seeing a broadening wedge pattern forming. Typically, this pattern signals increasing volatility and isn’t the most bullish indicator. However, we’re staying flexible and taking things as they come.

At this moment, from a purely technical perspective, the large technology stocks look far more attractive than the midcaps. This doesn’t mean we’re expecting downside for midcaps, but rather that the strongest opportunities seem to be concentrated in tech. Midcaps may still hold up well, but it’s clear that the current momentum lies with the large-cap technology sector, and that’s where our focus remains.

Russell 2000

The small caps have pulled back over the last three sessions, now finding support at their point of control (POC) level of $219, which aligns with the rising daily 10-EMA. A bounce from this $220 level seems likely, especially given the dense level of demand visible on the Volume Profile (VRVP) and the generally bullish conditions for small caps.

However, much like the midcaps, the small caps don’t appear as immediately promising in the short term compared to the large-cap tech stocks. The QQQ, from a technical standpoint, looks primed for a breakout, and large tech stocks are showing much stronger potential for an imminent move higher. While small and midcaps might see growth, the focus for swing traders should likely remain on tech for now.

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DAILY FOCUS
Trading Is A Probabilities Based Game

In trading, success comes down to playing the odds, not chasing certainty. Historically, September has been the weakest month for the stock market, often marked by corrections and volatility. But, as we move into the final quarter of the year, the market tends to rally into the New Year. This seasonal pattern is supported by years of data, and with the Fed’s recent rate cut, we may be setting up for a strong year-end run.

The key is to lean into these probabilities. When you add in the fact that there are a high number of strong technical setups across the board, many of which are already showing follow-through, this is the time to hedge your bets in favor of the market continuing to follow this seasonal trend.

While nothing is ever guaranteed, aligning your strategy with the historical seasonality—combined with the current market dynamics—can put you on the right side of probabilities. Remember that your risk is what will always protect you so you will never find yourself in position where you will experience major losses so there is no need to trade with fear.

WATCHLIST
The Highest Probability Setups

NVDA: NVIDIA Corporation

• Surprise, surprise…It’s number one on our focus list for today. The semiconductor tech giant has been forming a multi-month setup that we’ve been tracking closely, and absolutely nothing has changed—except that the stock looks increasingly poised for a big breakout.

• Over the last couple of weeks, we’ve seen both price and volume contracting, creating a clear Volatility Contraction Pattern (VCP) as NVDA tightens along its daily 10 and 20 EMAs. This tightening indicates that the stock is preparing for a significant move, and with each passing day, the anticipation builds.

• This type of setup, characterized by a major base, signals that once it breaks and enters its Stage 2 uptrend, it could sustain momentum for many months. Such a breakout offers multiple opportunities for traders to add to their positions, maximizing potential gains as the stock rallies.

• Given the strength of NVDA and the broader tech sector, keeping an eye on the volume and price movement in the first 5-10 mins will be crucial in determining the right entry point when the breakout finally occurs. You want to get in early and with size on a breakout.

NIO: NIO Daily Chart

• This Chinese electric vehicle company is making waves in pre-market trading, driven by the macro news of China’s stimulus aimed at boosting its economy. As a result, NIO is experiencing a significant rally, pushing the stock above its falling 200 EMA and setting the stage for further upward movement.

• Currently, NIO is in an early Stage 2 uptrend, which is a bullish indicator, suggesting ample room for substantial gains. The overall market sentiment is favorable not just for Chinese stocks but also for technology sectors, enhancing the potential for NIO to capitalize on this momentum.

• For our trading strategy, we’ll be using the 5-minute opening range highs as our entry point, as usual. This approach will help us confirm the bullish sentiment and ensure we’re entering at the right moment as the stock continues to gain traction.