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Constructive Sideways Action

Exposure Status: Moderate Risk

A Pivot Point

As the final trading week of the quarter and the conclusion of the first half of 2024 approach, traders are focusing on a crucial inflation report that will influence the ongoing struggle against persistent inflation and high interest rates.

On Friday morning, the May Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation measure, will be released. It is expected to show a 0.1% rise in core prices, which exclude food and energy, representing the slowest monthly increase since last November.

On an annual basis, core PCE inflation is projected to increase by 2.6%, the lowest rate since March 2021.

Earlier this month, the Consumer Price Index (CPI) indicated a continued decline in inflation, boosting investor optimism that the Federal Reserve might cut interest rates later this year. Fed projections released on June 12 suggest that at least one rate cut is expected in 2024.

What does this mean?

The market is likely to experience a lot of sideways movement leading up to Friday. While some stocks, such as Tesla and Root, are showing strong gains, it's important to exercise caution as Friday approaches to avoid being caught off guard if the market reacts negatively.


QQQ VRVP Daily Chart

The Nasdaq maintained its daily 10-EMA on low volume yesterday and is nearing a breakthrough in a low-volume demand zone between $481-$484. This scenario is becoming more probable due to the performance of megacap tech stocks, such as Microsoft, which recently reached a $2 trillion market cap, driving the QQQ higher.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps are tightening with each session in their multi-month pennant, as volume decreases and price continues to hold its ascending support level since mid-April. The $531 zone provides significant support, which is why the MDY saw buyers step in.

Despite this support, midcaps are still trading below their point of control (POC), and a retest of $535 is necessary before any breakout can be confirmed in this capitalization weighting.

Russell 2000

IWM VRVP Daily Chart

The small caps are actually looking promising—relatively speaking, given their usual tendency to disappoint. The point of control (POC) was retested yesterday, and although the IWM didn't break through that zone, it closed precisely at the POC level.

We anticipate more sideways movement as we approach the end of the pennant formation, as indicated on the chart above. We increased our exposure to ROOT yesterday, one of our favorite small caps, at half size to gauge the potential in the small cap space.

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Staying Patient & Waiting For Friday

The market is preparing for Friday’s PCE release, and the potential market reactions remain highly uncertain. Even in the event of positive PCE news, it's difficult to predict how the market will respond—it's often not straightforward.

This week, we've maintained a highly selective approach to trading, focusing only on opportunities that are deemed "too good to miss." We advise exercising caution and allocating significant capital only to trades that represent top-tier setups.

Specifically for today’s session, our strategy involves considering new positions only if there are unexpected developments in the broader market, such as an unforeseen rally, or if a specific stock like SPIR breaks out on high volume. Otherwise, we intend to remain on the sidelines and await the outcome of Friday’s events.

Only Thing We Like

SPIR: Spire Global, Inc

SPIR Daily Chart

  • SPIR is a small growth stock showing strong fundamental growth and impressive technical indicators.

  • Spire Global, Inc. specializes in collecting space-based data through its proprietary constellation of low-earth multi-use receiver nanosatellites.

  • Late in yesterday’s session, SPIR tested its multi-month descending resistance level for the third time, with high volume heading into the close.

This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.

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