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Barely Trading > Trading > Overtrading

Exposure Status: Risk Off

A Big Week Of Potential Uncertainty

Hello traders!

The megacap stocks that had a strong session yesterday are pulling back pre-market today, and there’s some caution in the air as we all await several key labor market reports throughout the week.

The first significant report is the JOLTS survey, which is expected after the market opens today. Projections suggest job openings fell to 7.91 million in May from 8.059 million the previous month. This data is crucial because it provides insights into the current state of the U.S. labor market. Despite the decades-high interest rates, the job market has remained fairly resilient.

Additionally, other jobs data due this week include the ADP National Employment report, weekly jobless claims, and non-farm payrolls. We'll also see prints for factory orders and services PMI, along with the minutes from the Federal Reserve's latest policy meeting. With the equity market closed on Thursday for U.S. Independence Day, the market is expected to be quieter this week. However, that doesn’t mean we can’t see sharp volatility swings in reaction to this week’s economic data and the Fed's speech.

What does this mean for us?

The remainder of the week might not be the best time to actively increase exposure. Although we’ve seen a rotation in the market recently, with small and midcap stocks like SLQT, ROOT, and INSG performing well, the broader indices like the MDY and IWM did not fare as well yesterday. This suggests that while individual smaller stocks are seeing gains, the overall market sentiment remains cautious.

INSG Daily Chart

Take INSG, for example. We added exposure to this stock on June 20, 2024, and it’s currently up close to 50% from breakout day, despite being a small-cap stock. This is a prime example of a small or midcap stock that has shown strong momentum and efficacy in its breakout, even while the index it’s represented by, the Russell 2000, has been erratic.

This tells us that while using the MDY and IWM as proxies for the health of mid and small cap stocks makes sense given their internals, the market is more selective than ever. We need to be meticulous in our scanning process and not be discouraged by the falling MDY and IWM. Even though these indices are struggling, there are still opportunities in specific stocks if we approach our analysis carefully.


QQQ VRVP Daily Chart

The QQQ had an interesting session yesterday. It dipped early on but managed to close out on a positive note with a nice recovery intraday from its sell-off. It’s forming that volatility contraction pattern (VCP) we’ve been talking about in the last few sessions, which is pretty encouraging.

This morning, we’re seeing more of the same distribution we discussed yesterday, with several megacap and large-cap stocks taking a breather. This is likely due to the looming data reports and the upcoming Fed minutes, which could definitely shake up sentiment.

We’re expecting the QQQ to trade sideways for the rest of the week. Ideally, this will give time for stocks like Nvidia to form solid bases. Once they break higher, we can definitely take advantage of those moves.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps completely flopped in their attempt to break above their descending resistance level yesterday. There was a ton of selling volume that just wiped out any optimism for the rest of the week.

The point of control and all of the daily EMAs didn’t provide the same support we saw on Friday. As a result, the MDY is back to clinging to its ascending support level.

This is pretty disappointing, but it highlights a trend we've been seeing: most midcaps haven’t made any significant moves higher. There are some midcaps with promising setups, but whether these setups will lead to successful breakouts still looks doubtful at this point.

Russell 2000

IWM VRVP Daily Chart

The small caps are pretty much in the same boat as the midcaps right now, but there’s a notable difference in the selling pressure between them. The Russell 2000 didn’t see as much selling volume compared to the midcaps.

Unfortunately, the IWM didn’t hold its key EMAs and point of control (POC), which is not ideal. We did anticipate continued sideways movement into next week, and that scenario seems more and more likely.

Right now, our focus is on whether the IWM can maintain its pennant formation and avoid breaking below ascending support. If it does break down, it’ll be another letdown for small caps.

Earlier, we talked about INSG, a small cap that’s been performing well despite the broader market trends. It’s a reminder that while major indices give us a sense of the overall market health, it’s crucial to stay on top of individual stock setups and performance every day.

Just Ride Your Winners

At the moment, taking on new open risk might not be worth it. This week's events could bring unpredictability, and there aren't a ton of actionable setups right now. The best approach is to stick with the stocks already in your portfolio that are performing well.

Currently, we’re riding the momentum of INSG, ROOT, SEZL, and SLQT, which are driving our portfolio to peak equity. We’re not planning to add any new risk at this point. As we've emphasized before, as swing traders, money is often made by patiently waiting for the right opportunities rather than constantly adding new risk.

Let’s continue to monitor our positions closely and see how things develop from here.

One To Add To Your List

CORZ: Core Scientific, Inc

CORZ Daily Chart

  • Core Scientific, one of the largest bitcoin miners and hosting solutions providers in North America, has been making waves lately.

  • After a massive +130% rally, it’s currently consolidating above its daily 10-EMA. Despite Bitcoin’s recent struggles following its all-time high breakdown, CORZ is showing impressive relative strength compared to both BTC and the Russell 2000.

  • The company recently posted a significant turnaround in annual gross profit, and its operating income has finally turned positive.

  • Our focus isn’t necessarily on seeing CORZ break higher today. Instead, we’re looking for it to ideally tighten up as it heads into next week, forming a bigger and potentially more explosive volatility contraction pattern (VCP) base.

  • Looking at how MARA broke out yesterday, CORZ is a very viable candidate to be next.

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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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