OVERVIEW
A Heavy Few Days Ahead

Yesterday was a pretty calm day in the markets, with stocks mostly holding their ground after Friday’s big surge. Investors seem to be taking a moment to catch their breath as they look ahead to some major upcoming events, especially NVIDIA’s earnings report, which is just around the corner. This week is shaping up to be important, with several key reports that could really stir the market.

All eyes are on NVIDIA’s earnings, set to be released after the market closes tomorrow. The outcome of this report could really influence market sentiment. If NVIDIA doesn’t live up to the high expectations, it might cool down the excitement around AI stocks, which have been a big driver of recent gains. This could also put the market’s recent rebound to the test, especially since NVIDIA alone accounts for 6% of the S&P 500 (SPY) and has the biggest impact on Nasdaq (QQQ) movements compared to any other stock.

This very well is one of the main reasons we’ve seen the QQQ contract as it has and tech lag behind other sectors in the recent few sessions (something we discussed in the Swingly Circle community today).

Just take a look at how closely the charts for both Nasdaq and NVIDIA align. It’s pretty clear that if NVIDIA gets a negative reaction tomorrow, the Nasdaq (QQQ) is likely to take a significant hit as well, and this could drag down the broader market too. The correlation between them is strong, so any disappointment with NVIDIA could ripple through the market.

Another factor contributing to the pause in QQQ is the upcoming Friday release of the PCE index, which stands for Personal Consumption Expenditures index. This is the inflation gauge that Fed policymakers watch closely because it reflects the changes in the prices of goods and services consumed by individuals.

Since the Fed has largely signaled that interest rates are likely to come down and the market has already priced this in, the upcoming PCE index might not have a huge impact—unless the data is particularly negative. The focus has shifted more towards labor market reports, which was highlighted by Fed Chair Powell's comments on Friday. This suggests that unless the PCE index delivers an unexpected shock, the market’s attention will be more on jobs data as a key indicator of where the economy is headed.

Nasdaq

The Nasdaq has been trading sideways over the past week, finding support at the daily 10-EMA and the lower end of the $475 demand zone.

The point of control (POC) and the overhead supply up to $483 have been creating some resistance in the last week. While it would be great to see the QQQ break through this level, we previously mentioned that a short-term rejection and consolidation here was likely—and even healthy—since it allows the share price to stabilize, with both buyers and sellers getting comfortable at this level.

As we look ahead to today, a breakout above the POC isn’t expected. NVIDIA’s earnings report, due tomorrow afternoon, will likely be the key factor that determines whether the daily 10-EMA support holds or breaks, leading to a deeper pullback. Alternatively, if NVIDIA's results are strong, we could see the market rally towards all-time highs, targeting the lighter overhead supply around $500.

S&P Midcap 400

Midcap stocks have been outperforming their larger counterparts, which is typical when interest rates are expected to be cut. They’ve been holding firmly above their point of control (POC) at $554. However, yesterday, we saw a low-volume rejection as the MDY tested the $570 level and edged closer to its two-year highs.

The rejection came on low volume, and despite a full red candle, it’s clear that sellers aren't being overly aggressive. This likely indicates some profit-taking, but most investors seem to be holding onto their shares rather than selling them off.

It’s more than likely we see some sideways action today which would be normal especially to allow the daily 10-EMA to catch up before hopefully pushing to all time highs next week.

Russell 2000

Small caps also experienced a rejection yesterday when they tested their point of control (POC) at $223, a significant overhead supply zone that was anticipated to cause some turbulence.

Despite this, the IWM still appears healthy. Even with the rejection at this level, it’s beneficial for small caps to trend sideways and consolidate beneath the POC. This would allow for the formation of a secondary volatility contraction pattern (VCP) before potentially breaking above the highs seen in July..

DAILY FOCUS
Less Is Always More

We're currently seeing consolidation among large tech stocks, while both small and midcaps are facing significant overhead supply. This resistance is likely to cause any breakouts to falter until these levels are decisively broken through.

Tomorrow, the biggest company in the market, operating within one of the most compelling macro themes, will release its earnings. This event will likely determine the market’s direction, at least in the short term.

We’ll be maintaining a moderate risk stance, leaning more towards being risk-off. For now, we prefer not to initiate any new positions. By now, if you’ve been keeping up with the market, you should have a solid portfolio that's already been generating profits. Therefore, there’s no need to rush into new trades. Instead, wait for a real catalyst, like NVIDIA’s earnings, to provide a genuine trading opportunity.

To the Pro readers, I have posted my entire daily report card with a break down of all the relative strength leading industry themes within Swingly Circle. Let me know your thoughts and I look forward to discussing it in our live session today.

Stock To Watch
A High RS Leader

WGS: GeneDx Holdings Corp.

• WGS, a health intelligence company, has been steadily making higher lows and riding its daily 10-EMA, with its price range narrowing.

• GeneDx has impressive financials, but what stands out most is the strong momentum over the past few months, driven by a surprising earnings report in May that shocked the market.

• The stock has tried to break through resistance several times, and yesterday’s strong hammer candle suggests it’s gearing up to push WGS past the $36 level.

• With its high ADR%, WGS has the potential for significant upside moves in a short period. However, given the likely continued consolidation in major indices, it’s wise not to rush into a position just yet. WGS is a key stock to watch today, but patience might be prudent.