OVERVIEW
Not Convinced Yet

As we head into a seasonally weaker period, especially in an election year, those of you subscribed to Swingly Pro have already have a report published yesterday (you can find it here) that evaluated the historical patterns and the potential market direction we've highlighted based on over a century of data.

Last Friday, we saw the market finish strong, with the S&P 500 (SPY) nearing all-time highs and the equal-weighted RSP already there. This might make it seem like everything is great, and it’s time to jump in and take on more risk.

But here’s why we’re not fully convinced. Despite the recent rally, several big-name stocks are struggling to break out and are trading below their key daily moving averages. Even leaders like AAPL, NVDA, MSFT, and META are showing signs of weakness, which gives us a reason to stay cautious.

Now, it's important to note that the stocks we're talking about all fall under a specific sector—AI-related technology. So, it's not entirely fair to say the whole market is weak just because these stocks are lagging. In fact, other areas of the market are doing quite well, and we’ve got some exposure to those, like Aerospace & Defence.

But here's the thing: the biggest companies with the most influence on the broader market are exactly the ones we just mentioned. So, while not every sector is struggling, the performance of these tech giants has a significant impact on the overall market sentiment.

There's another major red flag that's starting to emerge. Beyond the typically weak September period, we've noticed a shift in how stocks are behaving. Over the last week, several stocks we’ve tried to enter haven’t followed through as expected. This is a noticeable change from the previous period.

Now, this could just be part of the usual price cycle—stocks move up, then pause to consolidate before climbing higher again. However, with more stocks beginning to distribute and even trend downward, it's a signal to be cautious.

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

All the relatively bearish sentiment we've shared doesn't necessarily mean the market is on the brink of a major downturn, but it has definitely made us pause.

There are still plenty of promising setups out there, and we're watching closely to see if these can provide the momentum the market needs right now. At this point, it’s a waiting game to see how things unfold.

We may soon see a sector rotation, and as traders, our best move is to follow the money as it cycles from one sector to another. Lately, technology stocks have been underperforming, while defensive sectors have been doing well. This dynamic could shift in the coming days if the market continues its push toward all-time highs and manages to overcome the historically weak period we’re in.

We will outline all of these in the Swingly Circle app before market open today.

Nasdaq

The Nasdaq is currently forming a bull flag on the daily timeframe, with price action settling into a tight range as it holds above its point of control (POC) and the rising daily 50-EMA.

Volume is telling an important story right now. We're seeing a slight uptick in average daily volume as the QQQ trends sideways and finds support. It’s also noteworthy that we’ve had three consecutive days of higher lows, which is a sign of underlying strength.

A significant part of the QQQ’s recent rejection at its $483 POC level can be attributed to NVDA's big gap down following its earnings report, along with Apple’s failed breakout attempt dragging the index lower.

For AI, technology, and semiconductor stocks to regain their usual outperformance, the QQQ needs to break through the descending resistance level around $478 and push past that key POC zone. The visible range volume profile (VRVP) shows just how much potential there is for growth, with very low volume above $483 and the next major supply zone not until $495.

S&P Midcap 400

The midcaps are also consolidating above their rising daily 10-EMA, finding support on increasing volume as they position themselves for a potential second leg higher. It's a positive sign that the POC is well below the current share price, and the dense supply zone at $564 has also been overtaken, which bodes well for the MDY.

As we head into this week, we’d ideally like to see the MDY tighten up and volatility contract, as this often leads to the highest quality breakouts. However, with the 10-EMA acting as solid support and volume on the rise, this tightening might not happen, but the setup still looks promising.

Russell 2000

The Russell 2000 is showing a more promising contraction, with the price forming a clear range as the IWM zig-zags between $222 and the rising daily 10-EMA.

We anticipate that a few more days of sideways action are needed before we can expect a sustained move toward near-term highs, especially considering that September is typically a weaker month.

DAILY FOCUS
Don’t Anticipate A Move

Right now, we're seeing a mix of conflicting signals. On one hand, we’re observing bull flags forming and the overall market (SPY & RSP) pushing toward all-time highs. On the other hand, we’re also noticing signs of weakness, with leading stocks breaking down and defensive sectors gaining strength.

As much as we’d like to take a firm stance—whether bullish or bearish—that's not how a successful trader should operate. Opinions don’t pay; only price action does.

We’re positioning ourselves with a moderately risk-off approach. While several of our current positions are performing well and we'll continue to trail these stocks, we’re also being cautious about accumulating new positions. That said, we remain flexible. If we see strong breakouts in the QQQ, MDY, IWM, or stocks on our watchlist with high volume, we won’t hesitate to capitalize on the momentum.

Our role as swing traders isn’t to predict the market’s next move but to ride the trend once it’s established. Right now, the market could break higher or lower—there’s no clear short-term trend yet.

WATCHLIST
If QQQ Breaks Higher, Tesla Will Rocket

TSLA: Tesla, Inc

• TSLA has been forming an exceptionally well-defined flag pattern since its rally in July. We've observed the price range tightening and volume significantly decreasing as the stock consolidates heading into September.

• On Friday, TSLA attempted to push above the descending resistance level at $216, but it didn't gain the momentum needed for a breakout. However, there's a strong chance we could see this breakout occur this week.

• This is the large-cap technology stock we're prioritizing, especially if the QQQ makes a move higher. The setup looks promising from both a technical and fundamental perspective.