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Don't Let The Market Fool You

Swingly Exposure Status: Risk On

The Domino Effect

The last trading session on Friday likely had your blood pressure and heart rate rocketing as your portfolio experienced a significant drawdown in open profit. Welcome to swing trading—it isn’t for the faint of heart.

All major indices, from large to small capitalisation, experienced a sharp decline at the beginning of the day. The S&P 500 and Nasdaq suffered one of their worst breakdowns in recent memory, stretching over three times their average daily range (ADR). Sentiment was incredibly bearish throughout the day, even affecting the most liquid and resilient technology stocks like Nvidia, which had been propping up the market. Nvidia saw a major decline, retesting its rising daily 10-EMA.

This exaggerated sell-off was due to the "domino effect." When one stock or a small group of heavily weighted stocks, such as Nvidia, experiences selling pressure, it triggers a broader decline. Traders start taking profits and panicking, which impacts the prices of major indices that serve as barometers for overall market health. As these indices decline, they exert downward pressure on all other stocks in the market, leading to more profit-taking and a snowball effect. This explains why pullbacks and sell-offs often occur with greater magnitude but shorter duration in the market.

What was absolutely amazing was the market's recovery in the space of a couple of hours heading into the close. Buyers aggressively stepped in, driving the market to retrace almost all of its lost ground and actually close the day ahead. This phenomenon is called a bear trap, or a shakeout, otherwise known as a liquidity grab. This is usually bullish.

What does this mean?

Almost everything in our portfolio was red on Friday. However, and this is crucial—nothing violated our sell rules. Nvidia, one of our largest holdings, remained firmly above its daily 10-EMA. Therefore, we didn't need to fully close the position. We trimmed some profit into strength on an undercut of the 4H 10-EMA, given how extended the stock is, but we still hold the bulk of our position and are looking to add more.

When the entire market is fearful and declining, but your positions remain firmly above your rules—above their daily 10 & 20 EMAs—you do not need to sell. Taking profits like we did with Nvidia into strength makes sense, but panic selling does not. Do not be fooled by the shakeouts, of which there will be many more in the future.


QQQ VRVP Daily Chart

The Nasdaq looked absolutely crazy last session. Within the space of 4 hours, the index plunged -2% below its daily 20 and 50 EMAs, only to retrace that entire move and retest its daily 10-EMA and its point of control (POC) at $453.

Given Friday’s liquidity grab and the insane relative volume during the session, which resulted in a very bullish candle, things look optimistic. The POC needs to be breached this week, and the QQQ has to reclaim and find support above the $455 major supply zone overhead. However, given how aggressively the index bounced, we don't think this will be difficult.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps are looking rather strong for the first time in weeks after Friday’s incredible volume surge drove the MDY above all of its key daily EMAs. This resulted in a major breakout above a dense cluster of supply that had been acting as resistance for weeks (notice VRVP histogram).

We expect clear skies ahead as the midcaps are likely going to test $550 today. Hopefully, this will see demand continuing to step in and drive the share price even higher.

The most exciting aspect here is the level of market participation on Friday, which is a breath of fresh air. This is the key indicator that buyers are in control.

Russell 2000

IWM VRVP Daily Chart

The small caps are lagging behind the MDY, but not by much. At the time of writing, the IWM is gapping up significantly above the declining level of resistance at $206, ready to make a run at the POC at $208. We think this shouldn't encounter too much resistance given the lapse in volume between these two levels.

Assuming the larger indices continue to attract buyers with the new level of volume, the IWM should see a break above $210 in the next two weeks.

If You See Confirmation Today- Go Hard

The market made a major shift in sentiment, and things look strong. The best time to buy stocks is right after a pullback or a correction—we just had a major liquidity grab and bear trap that is setting the scene for a continued move higher. We are going risk-on today, and if we see new breakouts that look good, we won’t hesitate to add long exposure.

It is important to remain vigilant and ensure that conditions confirm the bullish thesis. However, from a probabilistic standpoint, the market looks ready to go higher.

The Set-Ups We Like

REAX: The Real Brokerage, Inc.

REAX Daily Chart

  • The Real Brokerage, Inc. is a Canadian real estate brokerage that provides services through a mobile application.

  • REAX has experienced unbelievable revenue growth. Although it is lagging in profitability, the market does not seem to care. The stock has climbed +200% since January 2024 and continues to exhibit exceptional relative strength compared to the broader market.

  • We will look for an entry today if it can breach $4.92 on a strong market climate.

TSLA: Tesla, Inc.

TSLA Daily Chart

  • TSLA continues to adhere to its volatility contraction pattern (VCP) and has proven rather tricky to trade, despite several breakout attempts.

  • The stock has managed to maintain this bull flag, with clear support coming in from buyers to prevent a breakdown.

  • Assuming the market remains strong, we will consider a long position through a 3x leveraged TSLA ETF to gain more exposure and potentially capitalize on increased volatility, especially considering Tesla's relatively low ADR%.

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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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