OVERVIEW
The Market Rollercoaster

Yesterday’s trading session was quite a rollercoaster. Nvidia, the $3 trillion AI giant, reported earnings that beat expectations. However, because the beat wasn’t as dramatic as what investors have grown accustomed to, Nvidia's stock sold off, dragging much of the market down with it.

The day actually started on a high note. Stocks like Nvidia, Apple, and Affirm saw big gains in the first hour of trading. But as the day wore on, those gains began to fade, and by the end of the session, we saw a significant pullback.

On the broader economic front, there was some positive news. The US economy performed better than expected in the last quarter. The latest GDP data showed the economy grew at an annual rate of 3% in the second quarter, which was a bit higher than the earlier estimate of 2.8%. This indicates the economy is picking up a little more steam than we initially thought.

Meanwhile, jobless claims—a key measure of how many people are filing for unemployment benefits for the first time—also came in lower than expected. Last week, 231,000 people filed claims, which is not only a drop from the previous week but also below the 232,000 that economists had predicted. This suggests the job market is still pretty solid, with fewer people losing their jobs.

So, why do these numbers matter? The Federal Reserve, which is the central bank of the US, closely monitors this kind of economic data. The Fed uses interest rates as a tool to help manage the economy. Recently, Fed Chair Jerome Powell hinted that they’re planning to lower interest rates in September. Investors and markets are watching these economic indicators closely because they offer hints about how big of a rate cut the Fed might implement and how quickly they’ll do it.

How will the market behave today?

It's challenging to predict how the market will behave today, especially with the Core PCE data being released. Core PCE is a key inflation measure that the Federal Reserve closely watches when deciding on interest rates. While higher-than-expected PCE usually signals rising inflation, which might make the Fed cautious, the current context is different.

Given that the labor market is showing signs of cooling, a higher-than-expected PCE could actually increase the pressure on the Fed to cut rates more aggressively. The reasoning is that if inflation remains high while the job market weakens, the Fed might need to take stronger action to support the economy. This could lead to more significant rate cuts, which the market might interpret as a positive move to sustain growth and given these higher rates are actually what the market is expecting, it is quite a strange period we are in.

We’ll go into more detail about this in our pre-market gameplan.

Nasdaq

The Nasdaq is teetering on the edge, posting another day in the red as it struggles to hold onto its daily 50-day Exponential Moving Average (EMA). Yesterday, the index was rejected at its point of control (POC) level of $481, with high trading volume adding to the pressure.

We ended the session with a red inverted hammer candle, which isn’t a promising sign. According to candlestick theory, this pattern often signals a bearish trend, highlighting the hesitation of buyers to push prices higher. The fact that the QQQ couldn’t stay near its POC, which has again acted as resistance, suggests that a continued downward move could be on the horizon.

Of course, whether this actually happens is speculative, but it’s hard to overlook the combination of technical signals from the QQQ chart and the broader seasonal trend, which historically makes September the worst-performing month of the year.

While it's encouraging that the Nasdaq is still holding above its weekly 10-EMA, the significant drop in demand between the current price level and $465 is a cause for concern.

S&P Midcap 400

The midcap stocks are also in a state of uncertainty, with buyers and sellers battling for control around the rising daily 10-EMA. We've seen demand step in multiple times around the POC level of $555, showing some support.

Technically speaking, the MDY (which tracks midcaps) appears stronger than the large tech stocks tracked by the QQQ. The sideways consolidation above the daily 10-EMA isn't a cause for concern—at least not yet.

However, it's worth noting that when a big rally starts to lose momentum, as we're seeing now, there's always the potential for a distribution phase to be followed by a markdown. Those familiar with Wyckoff Logic or Stan Weinstein's theories will recognize this pattern.

That said, we're not suggesting this will happen immediately. Many growth stocks are still showing strength, with several continuing to follow through on their breakout patterns, indicating there’s still some momentum left in the market.

Russell 2000

Small caps are in a similar position to midcaps, but with a bit more volatility, which is to be expected. The IWM (which tracks the Russell 2000) is holding onto its daily 10-EMA, but it’s showing signs of exhaustion when approaching its significant supply zone and POC at $223.

Yesterday’s trading saw high volume, but we ended the day with a lot of indecision. Whether the IWM can push higher depends largely on its ability to stabilize, build a tight trading range, and attract enough buyer momentum to break above its recent highs.

DAILY FOCUS
Stay On Your Toes

Right now, we’re not entirely convinced by the market’s strength. We’re seeing a mix of conflicting signals. While market breadth remains relatively strong and positive, the pattern of sessions opening strong and closing weak over several days typically isn’t a good sign.

It’s still too early to predict the market’s direction since, ultimately, price action is what counts. For now, we’re not looking to be too aggressive. We already hold several strong stocks that are performing well, and we’re focusing on adding exposure only to top-tier setups in leading market themes.

If you don’t have any open positions right now, it’s best not to jump in too aggressively. The market could shift, and you might end up with losses if things don’t go as planned. Reflect on why you missed the previous rally and, while keeping an eye out for good entry points in promising stocks, it’s wise to stay cautious and not overextend yourself. We’ll be be maintaining a cautious stance and we will still be looking for potential entries but we are being incredibly selective.

For the Swingly Pro readers, you’ll know exactly which themes are leading and the list of setups we are watching today in those themes. More on this here.

WATCHLIST
A Very Strong EP, In A Very Strong Sector

MRVL: Marvell Technologies, Inc

• MRVL is experiencing a late earnings episodic pivot (EP) as it gaps up above the multi-month base it’s been building since early April. Although the stock fell yesterday due to weakness in semiconductor names, it’s showing a delayed positive reaction to its earnings beat in pre-market trading.

• Given the stock’s strong position in the aerospace and defense sector, it's worth noting that during uncertain market conditions, using the 5-minute opening range highs can be a helpful strategy for timing entries. This approach is particularly useful when you're unsure about the strength of the breakout or episodic pivot.

• From a technical perspective, MRVL is also showing a cup and handle formation, which is a strong bullish pattern that often precedes significant price moves.