OVERVIEW
Better Than Expected

The Federal Open Market Committee (FOMC) decided to keep interest rates unchanged for the sixth consecutive meeting. Powell noted that regaining confidence in achieving the Fed's 2% inflation target will take longer than anticipated, effectively ruling out a rate cut in the near future. He emphasized the need for patience and indicated that a rate hike is also unlikely for now.

Powell stated that current monetary policy is restrictive and will remain so for a while to bring inflation back to the target level. He refrained from speculating on the likelihood of rate cuts this year and highlighted the necessity of allowing more time for policy measures to take effect. He emphasised that decisions regarding rate cuts will depend on incoming data.

The FOMC continues to pursue a soft landing strategy, noting that risks to achieving employment and inflation objectives have become more balanced over the past year. Powell emphasized a shift in focus towards achieving full employment, particularly with inflation decreasing over time. He clarified that the Fed does not set targets for wages.

In terms of quantitative tightening, the Fed announced a reduction in the pace starting June 1st, with the cap on Treasury securities rolling off the balance sheet lowered by more than half to $25 billion per month from $60 billion. The pace of runoff for mortgage-backed securities will remain unchanged at a maximum of $35 billion per month. Powell stressed that these adjustments do not signal changes in policy direction.

The Federal Open Market Committee (FOMC) restated its stance that it won't consider lowering the target range until it's more assured of inflation's progress towards 2%. Nonetheless, this unanimously approved statement still hinted that the next step regarding rates is likely to be a reduction, not a hike.

Initially the market responded positively to Powell's comments. We witnessed significant upward movement in the major indices, followed by a somewhat lackluster sell-off afterward.

Nasdaq

The QQQ experienced a notable rejection around the $430 supply level, a point we've been discussing for several days. Sellers intervened aggressively to dampen any optimism following the price surge triggered by Powell's remarks.

The formation of the bear flag by large caps is becoming more evident with each trading day. The QQQ is currently at a critical juncture, resting on its crucial support line. This line has acted as a lifeline for the index three times in the last two weeks. If there's a breach below the $420 mark on significant volume, there's a high probability of a complete breakdown, with the index potentially reaching the daily 200-EMA at $399.

Examining the Visible Range Volume Profile (VRVP), it's worrisome to note the lack of substantial support below the Nasdaq's current level. The rejection from yesterday's highs wasn't unexpected, particularly considering the presence of a significant overhead zone.

S&P Midcap 400

The rejection is even more apparent in the midcaps, highlighted by yesterday's significant reversal candle, which recorded the highest volume in over three weeks.

There seems to be a divergence in the signals provided by the QQQ and MDY. The QQQ's Visible Range Volume Profile (VRVP) indicates minimal demand below current levels, while the MDY displays a dense area of demand, suggesting support for midcaps and the likelihood of maintaining their bearish volatility contraction.

Russell 2000

The small caps, as represented by the IWM, are currently hovering around their Point of Control (POC), which signifies a robust demand level. This aligns with the ascending support line formed following the rebound from the daily 200-EMA earlier this month.

The overall outlook appears bearish, which doesn't come as a surprise. We anticipate a swift movement towards the daily 200-EMA again in the coming week or so, especially if there's a breakdown of the current ascending support line.

DAILY FOCUS
Stay Vigilant

The market is currently undergoing a stage 3 breakdown in the short-term. Barring any highly unlikely surge in volume leading to a significant move to the upside, this period calls for a clear stance of patience and waiting.

We understand that it may seem dull for some of our readers who have the urge to trade frequently and seek to take positions every day in the hopes of "outsmarting" the market. However, it's important to recognise that this strategy is unlikely to be successful in the current market conditions.

The market-wide breakdown is expected to reach a conclusion in the medium term. As a trader, your role is to identify stocks that exhibit the highest resilience during this downturn. When the market eventually reverses course and starts trending upwards again, it's crucial to scale in aggressively with size on these selected stocks to maximize profit potential.

WATCHLIST
High Relative Strength

MYO: Myomo Inc

• Myomo, Inc. is a company that specializes in wearable medical robotics, particularly in the development, design, and production of myoelectric orthotics for individuals with neuromuscular disorders.

• The stock has been forming a base over several months, with a increase in volatility leading up to its upcoming earnings announcement next week.

• We suspect to see yesterday’s breakout fail and for MYO to come back to finish out it’s accumulation before a sharp move into earnings. Ideally the market begins to bottom out which should set MYO up for a strong earnings pivot (assuming positive results).

ADCT: ADC Therapeutics SA

• ADCT continues to experience a contraction in volatility as it approaches its earnings announcement.

• Unlike many other stocks, ADCT stands out for its relative strength, maintaining its base even after a significant prior run-up of over 200%.

• We are closely monitoring how the stock will respond as it approaches its earnings report. Since it isn't strongly correlated with major indices, if there's a positive earnings surprise and a subsequent price increase, we may consider cautiously adding half-sized exposure to test the waters.