OVERVIEW
A Change In Sentiment?

On Thursday, the market’s rally was spearheaded by the surge in tech, propelling all three major U.S. indexes firmly into positive territory. This upward trajectory followed reassuring remarks from Federal Reserve Chair Jerome Powell the previous day, which served to calm investors who were becoming increasingly wary of the looming possibility of an interest-rate hike.

Powell provided a much-needed respite, removing fears and bolstering confidence across the market landscape. The explosive tech earnings, in particular, showcased resilience, driving the broader market upwards and signalling optimism regarding the trajectory of monetary policy and its potential impact on economic growth.

This marks a significant victory for the bulls, given that the market's recent sell-off can largely be attributed to analysts' overestimation of the probability of the Fed cutting interest rates at this point. With inflation proving to be more persistent than anticipated, market sentiment took a hit.

Nasdaq

The technical analysis indicates a contraction of volatility on the QQQ, forming a clear flag pattern. Buyers are maintaining an assertive stance by upholding the ascending level of support established several weeks ago. The Nasdaq is holding steady above the daily 10-EMA, with a critical focus on reclaiming the pivotal $430 level discussed in recent weeks.

Despite prevailing bearish sentiment, large caps demonstrate resilience. The Moving Average Convergence Divergence (MACD) signals 'severely oversold' conditions, suggesting a potential reversal. This indicator analyzes price trends using two moving averages, with the MACD line derived from their difference. Additionally, a nine-day exponential moving average serves as a signal line, aiding in buy or sell signal identification. Traders often rely on MACD to discern momentum shifts and potential trend reversals.

S&P Midcap 400

The midcaps swiftly tested and reclaimed Wednesday's lows, with the MDY currently encountering resistance at a notable overhead supply zone. This zone aligns with the Point of Control (POC) identified by the Visible Range Volume Profile (VRVP).

For the midcaps to initiate an upward movement, it's crucial to observe a break above $532. With a noticeable absence of supply beyond this level, our bullish sentiment strengthens, particularly as there's no significant resistance anticipated until $538.

Russell 2000

The small caps are showcasing significant promise, leading us to increase our exposure rating to moderate risk. The Russell 2000 surged past a crucial supply zone and its point of control in yesterday's session, reinforcing our confidence.

The IWM now faces a clear path upwards toward the $206 supply zone, approximately +3.00% above, provided it sustains above $199 and buyers continue to defend these levels. Notably, the market is exhibiting a change in behavior as sellers have not aggressively intervened, diverging from trends observed in recent weeks.

DAILY FOCUS
Why Theory Matters

We are currently situated within one of two stages, as illustrated by the Kell’s Cycle of Price Action below:

Scenario 1: The market appears to be forming a bear flag (black circle) following a sell set-up, suggesting the possibility of one more downward movement before a potential reversal extension occurs, marking the market's bottom.

Scenario 2: Alternatively, the market may have already reached its correction bottom (yellow circle), with the current consolidation phase potentially serving as a double bottom. A break above the high of this range could signal the beginning of the next bull cycle.

Our positioning strategy is designed to accommodate both scenarios. In the event of breakouts or earnings-based episodic pivots favouring long positions, we will enter trades as usual, but with reduced risk, ranging from 0.25 to 0.5 times our standard risk unit (R).

We are only limited to the the very best “high quality” stocks, the ones with the greatest relative strength and strongest momentum.

It's crucial to emphasise that we're not actively seeking exposure. However, we remain adaptive to market momentum, prepared to adjust our positions accordingly, particularly in response to the potential beginnings of a range break to the upside.

WATCHLIST
Our Favourites

MYO: Myomo Inc

• Myomo, Inc. has been on our radar for months, and we've initiated a small long position in the company.

• With earnings scheduled for next week, we'll be closely monitoring to see if there's a preemptive rally leading up to the earnings report.

• The stock exhibits exceptional revenue growth and belongs to a sector that is negatively correlated with the broad market, granting it high relative strength.

AFRM: Affirm Holdings, Inc

• Affirm is breaking above a significant descending resistance level after forming a multi-month base.

• The stock has shown remarkable revenue growth and despite a recent pullback to the daily 200-EMA, it is consolidating within a tight range ahead of earnings.

• If the upward momentum persists, we plan to initiate a small long position before earnings to capitalize on a potential pre-report rally, with intentions to reduce exposure leading into the earnings announcement.

ARDX: Ardelyx

• Ardelyx, a biopharmaceutical company, has exceeded revenue and EPS estimates by 26% and 25%, respectively.

• The stock demonstrates exceptional revenue growth and is currently surging above all key moving averages.

• Depending on market conditions and ARDX's ability to sustain its opening range highs, we may consider initiating a reduced long position.