OVERVIEW
We’re Getting Mixed Signals

Thursday brought a mix of signals to the market. We had a series of economic reports come out in the morning, and they mostly met or slightly exceeded expectations, reinforcing the idea that the U.S. economy is on solid ground.

For the week ending September 21, initial jobless claims came in at 218,000, down by 4,000 from the previous week and better than the 223,000 that analysts were predicting. Continuing claims, which lag a week behind, ticked up to 1.834 million, just shy of the FactSet forecast. These jobless claims are a crucial indicator of how the labor market is doing. Falling initial claims show that fewer people are losing their jobs, which usually points to a more stable economy. When folks feel secure in their jobs, they’re more likely to spend, which helps businesses thrive and can give a nice boost to stock prices.

As for durable goods orders—like those for aircraft, appliances, and computers—they were pretty steady for August, showing no major change and beating the expected 3% decline. This stability suggests that businesses are still investing in their operations, which is a great sign for future growth.

Lastly, the GDP growth for the second quarter rose at an annualized rate of 3%, right in line with what the market was expecting according to the latest Commerce Department report. This solid growth indicates that the economy is expanding, which can lead to more job creation and support for the stock market.

Overall, this data serves as a bit of a wake-up call for those holding onto bearish views. Many were anticipating the labor market to be in much worse shape due to fears of a recession and concerns that the Fed's policies might be too restrictive for too long. The recent cut of 50 basis points by the Fed had drawn some criticism, as they seemed to be trying to play catch-up and battle the “inevitable falling knife.” However, the rise in GDP and the reduction in jobless claims show that the economy is not in the precarious position that fearmongers thought it was in. This latest data really challenges those gloomy predictions.

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

The upcoming release of the Personal Consumption Expenditure (PCE) Price Index report is pretty important because it gives us a look into how prices are changing for the everyday items we all buy. The Federal Reserve really pays attention to this report since it helps them understand inflation trends, which are crucial for their decisions on interest rates and whether they need to tighten or loosen monetary policy.

Right now, it seems like inflation is heading in a positive direction, meaning prices aren’t climbing as quickly as they used to. If this PCE report shows only a small increase (like the expected 0.1% for the overall index and 0.2% for the core measure), it could give the Fed the green light to continue lowering interest rates. When interest rates drop, borrowing money gets cheaper, which can encourage people to spend and invest more, ultimately giving a nice boost to the economy.

We’re also expecting to see a 2.7% increase in the PCE Price Index compared to last year. This indicates that while prices are going up, they aren’t skyrocketing, which is great news for everyone. Plus, the core PCE measure—which removes the more unpredictable food and energy prices—shows that inflation is still under control. This kind of stability is encouraging and could create better conditions for both consumers and businesses.

Honestly, the focus since the first Fed interest rate cut has shifted away from inflation itself, as it’s become clear that inflation is manageable. Our main priority now is the labor market and pushing for as much economic growth as possible by stimulating the markets instead of worrying about restricting spending any longer. That’s why the GDP and jobless claims numbers from yesterday were significantly more important.

How the market will react today is anyone’s guess, but unless we see something surprising, like a sudden surge in PCE, it probably won’t have a huge impact.

Nasdaq

The Nasdaq had a pretty notable gap up at the open, starting at $493. We weren’t too surprised to see some intraday fading, and honestly, it doesn’t worry us too much. It actually makes sense since there was a previous gap at this exact level that the QQQ left unfilled during the sell-off back on July 16th. So, yesterday's session just filled that gap.

Once that level was filled, we saw an immediate resurgence intraday, allowing the QQQ to bounce back by +0.76% from its lows and close the day above the key demand level at $485, which keeps its short-term uptrend intact. Now, it might not look like it at first glance, and the chart may not be the cleanest, but what we saw yesterday was actually a breakout. It wasn’t the smoothest breakout, but a breakout nonetheless.

Looking ahead, the big focus for us is whether we’ll see any movement lower. It’s absolutely critical that, at worst, we have an inside day today that doesn’t dip below the prior session’s lows. Even better, we’d love to see some signs of a continuation higher toward that $493 level from which we sold off—a dense supply level that’s pretty evident in the visible range volume profile (VRVP).

S&P Midcap 400

The midcaps are maintaining their momentum along the rising daily 10-EMA and the point of control (POC) level, which they successfully reclaimed in yesterday’s session. We even saw the POC serve as demand throughout the day, helping the MDY close in a pretty bullish spot.

What’s particularly interesting is that we’re still seeing volume taper off and the trading range contract. This is a classic sign that a security might be getting ready for some range expansion. We’ve noticed a lot of chatter about the consolidation happening in the MDY and almost every major index, but we’re not quite sure why people are worried. It’s actually pretty normal to see consolidation after a rally, and that’s exactly what we’re experiencing. This kind of pause is healthy and shows that both buyers and sellers feel comfortable trading at this price level.

We should start to get concerned if we notice the daily 10-EMA changing its character. So far, it’s been acting as a solid support level, but if it starts to behave like resistance instead, that’s a big red flag. A shift in how the 10-EMA is acting would signal that it might be time to either go short or step back from the market altogether.

Russell 2000

The small caps have managed to reclaim the daily 10-EMA that they had lost, which is exactly what we needed to signal a potential range expansion to the upside. While it’s not the ideal situation—especially since we would have preferred to see a green close yesterday (we haven’t seen one of those in over a week!)—there are still some positive signs, like the formation of higher lows.

Today is going to be interesting as we’ll see if we can break out toward the point of control (POC) level at $222 above. If we do, that would confirm the range expansion we’re hoping for. On the flip side, if we just linger sideways or, even worse, drift down toward the 20-EMA just below, that could give us some cause for concern.

DAILY FOCUS
Protect Your Profits & Limit Your Papercuts

It’s really important to remember that while looking at large, mid, and small caps can give us a solid picture of overall market health, these indices often lag behind what’s happening with individual stocks. To stay in tune with the market, make it a habit to run regular scans and update your watchlists daily. This way, you can identify which individual stocks are performing better or worse compared to their respective indices.

What we’re seeing right now is that there’s still good follow-through on breakouts. Just yesterday, we noticed some significant movements in cryptocurrency mining stocks like COIN, CLSK, MARA, and MSTR. This is particularly interesting because, even though the small and mid-cap indices aren’t doing great, these individual stocks are gaining traction and attracting investment. This kind of activity is typically a positive sign and suggests that a sell-off may not be looming.

Today, our focus is, as always, on protecting the profits we’ve earned. We’re doing this by selling into strength and adjusting our stops accordingly. Yesterday, we held a seminar in Swingly Circle where we shared our profit-taking strategy using ATR extension levels. We also introduced our updated stop-loss method with a 33% staggered stop loss, which we tested with a Monte Carlo analysis over 1,000 trades. This showed a 25% improvement in our average risk/reward ratio with very little added risk.

If you want to learn more about this and gain access to our full Excel workstation, just click here to join.

WATCHLIST
These Look Ready To Rally

GEVO: GEVO, Inc.

• Right now, GEVO is our primary focus, and you can really see why just by looking at the chart!

• The stock recently had an impressive 100% rally a few weeks back, and it’s currently forming a solid range as it rides along its daily 10-EMA. We’re also noticing that volume is contracting, and the price range is narrowing, which often signals that a breakout is on the horizon.

• What’s exciting is that GEVO has just established a stage 2 uptrend. Given its high Average Daily Range (ADR), there’s potential for a massive rally of 200-500% over the next few weeks! A breakout above its descending resistance level on high relative volume would provide a low-risk entry point for this stock.

EOSE: EOS Energy Enterprises, Inc.

• EOSE, or Eos Energy Enterprises, Inc., focuses on designing, manufacturing, and deploying safe, scalable, and sustainable battery storage solutions for the electricity industry, all while keeping costs low.

• Recently, the stock has made a big move upward, following its rally from early July, which has led to a newly formed major uptrend.

• We’re noticing that both the price and volume are contracting, and given how strong this trend has been, we’ll be keeping an eye out for a breakout on high relative volume that could happen today.