OVERVIEW
The Catalyst Is Irrelevant: Follow The Tape

Yesterday, we witnessed a significant sell-off in the markets, with U.S. equities falling below key support levels due to heavy selling pressure. This decline came after news that many U.S. stocks ended lower following Iran's missile strikes on Israel, raising concerns about escalating geopolitical tensions in the Middle East.

As troubling as it is to hear about such potential global conflict, it’s important to set aside our emotions and view this situation through the lens of a professional swing trader. The catalyst for the sell-off, while serious, is secondary. Your primary responsibility as a trader is not to speculate on the reasons behind the market’s decline but to recognize that it is indeed selling off. This is the moment to manage your risk more aggressively and adapt to the changes in market behavior.

Of course, rising tensions will naturally affect the markets, likely pushing oil prices higher, but the real issue is the uncertainty that comes with it. From a technical perspective, the market has been trending sideways since the interest rate cut, and we haven't seen stocks gain any real momentum during that time. If you follow our Swingly Pro report, you’ll know we've been highlighting the market breadth and leading themes, which have been quite inconsistent since that initial rate cut.

So, what does this all mean? It shows that, even technically—regardless of any catalysts—the market has been reluctant to push higher. Uncertainty has already started to creep in, and we know that uncertainty is the kryptonite for rising stock prices.

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

Simply put, it's time to go risk-off. With the markets feeling turbulent and lacking a clear direction, there's no need to put yourself in a position where you could get caught in that volatility. It’s completely understandable to be on the lookout for short opportunities during times like these, but we prefer to take a different route.

Our primary goal is to trade in sync with the trend. As long-only momentum swing traders, we want to profit when the market is moving higher or showing strong signs that it’s about to trend up. Right now, though, many of our positions are getting stopped out, and we’re seeing our portfolio drift further into cash. This isn’t necessarily a bad thing!

In fact, it’s a great opportunity for us to take a step back and reflect on our past performance. This is the perfect time to analyze what’s been working and what hasn’t, so we can refine our trading strategy and keep improving our edge.

Nasdaq

Yesterday, the Nasdaq couldn’t maintain its point of control (POC) level at $481. It broke down on high volume, losing both that level and its rising daily 10-EMA. This drop came after a failed attempt to push past the near-term highs on the way to $500 last week.

This was our first warning sign that something wasn’t quite right. If you remember from our previous reports, while the macro outlook seemed positive and suggested that equities should be climbing higher, the low volume and the rejection we observed were clear indicators that a pullback or near-term correction might be on the horizon.

At the end of the day, predicting market movements is tricky, and as traders, our best approach is to stick to defined trends. This means entering positions during breakouts or continuations of higher trends and being ready to step back during uncertain periods.

Right now, it’s evident that the QQQ isn’t ready to hit new highs just yet. The duration of this sideways, choppy market is still up in the air. If we can’t hold the rising 20-EMA—where we did see a bounce yesterday—the next key level to watch will be the daily 50-EMA. This level aligns with a significant supply/demand zone that provided support during yesterday’s trading.

S&P Midcap 400

The midcaps also faced some challenges yesterday, losing their daily 10-EMA and POC level. However, they managed to stay above the 20-EMA thanks to a strong response from buyers who stepped in aggressively to hold that level and prevent a more significant drop.

It’s actually a bit ironic that this can be viewed as a bullish sign in what was otherwise a tough trading session. Still, we’ll need to see the sideways consolidation that the MDY has been building over the past two weeks continue. For a quick restoration of prior trends to be in the cards, the MDY must close back above the daily 10-EMA in the next few sessions and respect the ascending support level it lost yesterday. If this happens, it could give the impression that yesterday’s downturn was merely an overreaction to some troubling global news event.

Russell 2000

The small caps are looking quite weak at the moment. Not only did they lose their daily 10-EMA yesterday, but they also barely held onto the 20-EMA as we wrapped up the day. What’s really telling is how the POC on the IWM failed to act as support and instead turned into resistance again. We talked about this last week, noting that for a bull flag to form on the daily chart, we needed the POC to hold firm.

Right now, the IWM seems to be showing clear signs of weakness. Yesterday’s action looks like a breakdown that could lead us down to the daily 50-EMA pretty soon. The visible range volume profile (VRVP) on the right side of the chart highlights just how little demand exists below the current level, all the way down to around $213, which aligns with the 50-EMA.

DAILY FOCUS
Use This Time for Your Edge Development

Right now, putting risk on in this market doesn’t seem like the smartest move for us. We focus on trading to the long side, not just because it’s our preference, but because it’s generally easier to trade breakouts than breakdowns. Given that the market tends to move higher about 67% of the time, we think it's wiser to sit tight during these rough patches.

But don’t think of this as a vacation! This is actually one of our busiest times. During pullbacks and corrections, we meticulously break down every trade we’ve made, analyzing our edge to see how we can improve our performance, even by just 1%.

Recently, we held a seminar where we shared our latest development: a staggered stop-loss approach. After running a Monte Carlo simulation on 1,000 trades, we found a 27-33% reduction in our maximum R loss. Since momentum swing trading has a low win rate but a high risk-to-reward ratio, this tactic can significantly enhance our performance.

Here are some questions to consider as you navigate through these challenging periods:

• How can you improve your reward?

• How can you minimize your risk?

• Are you adding to your positions correctly?

• Are you scaling out of your positions effectively?

• Are you identifying the winning stocks in each cycle?

• Are you entering those winning stocks correctly? If not, why?

• Are you managing your position size correctly?

If you’re not tracking your metrics and committing to a path of continuous learning and growth in your trading system, you’ll always be a step behind.

Additionally, now’s a great time to run market scans daily and keep your watchlists fresh. Ask yourself:

• Which stocks are showing the highest relative strength right now?

• Which sectors or themes are holding up the best?

Put those stocks on your daily watchlist and update it every day. When you see these stocks start to set up again and break out—whenever that may be, whether it’s in a few days or weeks—it’s crucial to start sizing back up and entering those trades.

WATCHLIST
The Relative Strength Leaders

NNE: Nano Nuclear Energy Inc

• NNE had a solid performance yesterday, managing not only to stay above its daily 10-EMA but also breaking out of the descending resistance level on its daily flag pattern.

• While we were definitely keeping an eye on this breakout, we didn’t look to add any new positions yesterday due to the intense selling pressure in the market.

• That said, NNE is a fantastic example of the kind of stock you want to keep on your radar. Its resilience in the face of overall market weakness is a key indicator of future leaders that can pull you out of a correction, setting themselves apart from the laggards you’d want to avoid.

Right now, it's still a bit early to compile a long list of relative strength leaders. However, you can use NNE as a template for what to look for in your daily market scans during this period.

In Swingly Circle, we always share our complete focus list along with a daily breakdown of market internals, including:

• Overall market breadth

• Leading sectors and themes

• Key stocks to watch

• Daily report card

If you’d like to access this information, plus join our two weekly seminars, dive into the swing trading school, and get a more detailed weekend report, just click here!