OVERVIEW
Tesla's Follow-Through Speaks Volumes

For those who followed our analysis in yesterday’s report, you’ll remember the emphasis we placed on Tesla’s earnings setup—a major event with the potential to be an episodic pivot (EP). If you missed it, Tesla posted its strongest day since May 2013, rallying over 22% after beating analysts’ expectations. This triggered a surge in buying pressure, creating a sharp turnaround in what had been a heavily beaten-down stock.

Before we go further, let’s unpack why Tesla’s earnings report was so significant and what an episodic pivot actually means. An EP is when key news or data (like Tesla’s earnings beat) is so impactful that it reshapes the market’s perception of a stock, often driving sustained momentum in the direction of the move. A true EP often happens when there’s a major shift in a company’s narrative, surprising the market. This shock, unanticipated by most, can result in aggressive buying or selling, usually on high volume.

In Tesla's case, it was particularly significant. The market had been in an extended uptrend, and heading closer to the U.S. election, it appeared we might see a broader pullback. Tesla’s gap-up EP gave us insight into large funds and institutional investors' actions—these players ultimately drive the market. We were watching to see if they'd step in with confidence despite the election's potential volatility, showing support for a tech stock with strong fundamentals, or if they'd hold off on accumulating shares, waiting for the election uncertainties to pass.

The level of buying aggression we saw yesterday is extremely bullish, especially since this was just the first in a lineup of major tech earnings reports due between now and November 4. Upcoming reports from giants like Microsoft, Google, Apple, and Amazon—among many others—carry significant weight, with those four alone holding a combined market cap of over $5 trillion. That’s more than enough market influence to set the overall direction.

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

Today's focus is all about follow-through. We need to see continued strength in the market, with Tesla holding up its episodic pivot and ideally moving higher. More broadly, it’s crucial for the majority of the market to hold steady. So far, over one-third of S&P 500 companies have reported earnings, and 74% of them have exceeded profit expectations, driving prices higher. This strong performance has eased some of the negative sentiment we saw earlier in the week, underscoring a shift toward a more bullish outlook.

Recently, we saw market breadth break down—a signal we cover daily in our community app—which kept us in defensive mode. However, we’re now shifting to a full risk-on approach, particularly with big tech names. Our focus is on stocks within this theme that either break out on high relative volume or deliver strong earnings-driven episodic pivots.

Nasdaq

The Nasdaq saw a sharp recovery yesterday, exactly what we’d hoped to see after briefly losing its 10- and 20-EMAs. The QQQ bounced precisely where it needed to—in the $484 demand zone. Strength in Tesla helped push the QQQ up, closing the day above the 10-EMA even after briefly retracing to test the 20-EMA once more.

Yesterday's session looks promising for the bullish case. The fact that the QQQ held strong through two tests of the 20-EMA, with buyers firmly supporting the bull flag, is an encouraging sign. As we head into next week with major tech earnings reports ahead, which will impact the capital-weighted Nasdaq that tracks large and mega-cap tech names, we could see the QQQ breaking out to all-time highs, regardless of the upcoming election.

S&P Midcap 400

The midcaps have found support at the point of control (POC) level of $571 for two consecutive sessions after losing their 10- and 20-EMAs during the recent pullback. The demand at the POC has been strong, encouraging us to be more aggressive with high-quality setups. However, it's important to note that the strength is overwhelmingly represented by the QQQ, which is likely where the biggest opportunities will lie.

Currently, the MDY is forming the beginnings of a narrow range as it gets squeezed between the POC and the declining 20-EMA. This setup is likely to lead to a significant move in either direction. Given the general strength in large caps, there's a good chance that this momentum will trickle down to the midcaps, which are finding support where they should be, setting the stage for a potential quick recovery.

Russell 2000

Surprise, surprise—the small caps are behaving similarly to their midcap counterparts, finding support on the rising 50-EMA after a sharp breakdown when the market started to pull back. Although the POC level of $222 was lost, the significant supply and demand present in the current trading range of $217 to $225 suggests that the IWM is likely to chop sideways for some time before establishing any clear direction.

The key level we want to see the Russell 2000 respect is the 50-EMA, which has provided support. If the IWM breaks below this level, it could drop significantly, potentially targeting early September lows around $210.

Small caps are the most sensitive capitalization group, and they tend to respond much more aggressively to any shifts in sentiment, making them crucial to watch as market conditions evolve.

DAILY FOCUS
Putting On Risk Should Never Scare You

Let’s take a moment to reflect on our Tesla position, where we opted for a half-sized risk of 0.5% of our account size. This strategy is a crucial part of how we manage our downside. By controlling our risk, we’re able to stay in the game without exposing ourselves to excessive losses. Now, as we see the stock gaining momentum, we can look to scale up into full positions of 1% or more.

In our community app, we received several comments from traders who missed out on yesterday’s Tesla earnings EP due to fear that the trade would go against them. While this fear is completely understandable, it's ultimately unacceptable in the world of trading. Trading inherently requires taking risks to generate rewards. You must remember that risk is not something to shy away from; it’s a fundamental part of the process.

If you ever find yourself feeling afraid in a position, it’s a clear sign that you might be risking too much. It’s important to reevaluate your position sizing and the maximum loss (R) you’ve set for your trades. As traders, we have very little control over the outcomes—we can’t dictate how often we win, how much we win when we’re right, or how frequently we lose. However, the one thing we absolutely can control is how much we lose when we are wrong.

The Tesla trade was particularly tricky due to shifting market sentiment. This should serve as a valuable lesson for all of us: never let your opinions dictate your actions. We, as traders, don’t operate based on opinions; we trade what’s directly in front of us. We focus on price action to determine direction and volume as our confirmation tool. That’s the core of our approach.

Let this experience remind us that staying disciplined and adhering to our strategies is key to success. Embrace the risks, trust the process, and always be ready to adapt. The market rewards those who are prepared and willing to learn from every trade.

WATCHLIST
Friday’s Big Moves To Watch

DECK: Deckers Outdoor Corporation

• DECK is currently experiencing a surge in premarket volume as it gaps up above a multi-month sideways base, following a strong earnings report. The company reported impressive Q2 FY2025 results, with net sales increasing by 20.1% to $1.311 billion, and a diluted EPS rise of 39% to $1.59.

• This earnings report sets the stage for an episodic pivot (EP) that’s shaping up well. The best EPs often emerge from periods of sideways consolidation or downtrends, indicating a significant turning point in the stock’s momentum. DECK is clearly displaying these characteristics.

• Our entry tactic will remain consistent: we’ll use the 5-minute opening range high to determine our entry point, placing our stop at the low of the day. This disciplined approach will help us manage risk while taking advantage of this promising setup.

• We will be using half-sized risk (0.5% NAV) as there are much better EPs coming next week in the large tech names and DECK is not in a leading sector (Consumer Non-Durables).

VST: Vistra Corp.

• VST is shaping up to be one of the most promising breakouts we're currently tracking. It’s formed a multi-week contraction above the rising 10 and 20-EMA, with volume consistently drying up—an encouraging sign of potential momentum building.

• While we do have earnings for VST coming up in early November, we can’t overlook the contraction and the potential for a breakout. If VST can break above the declining 10-EMA and push past the key level of $129, we’ll be ready to establish a full-sized position.

• Moreover, VST is part of a leading theme—utilities—which adds to our confidence in pursuing this trade. The combination of technical setup and sector strength makes this an attractive opportunity we’re eager to capitalize on.