OVERVIEW
The Seasonal Sell-Off Begins

Yesterday was a tough day in the U.S. stock market, with half a trillion dollars disappearing in just a few hours of trading. Nvidia, a major player in the AI space, lost $400 billion in value in a single day, dragging the entire market down with it.

This sell-off couldn’t have come at a worse time, especially with everyone already on edge about the economy. With concerns that the job market has slowed significantly due to tight monetary policies, people are starting to worry that a recession might be just around the corner. The market started sliding on Tuesday morning after two reports showed weakness in manufacturing, and now, all eyes are on Friday’s August jobs report, which could heavily influence what the Federal Reserve decides to do with interest rates this month.

If you’ve been following the market closely over the past week, you might have noticed the signs that this sell-off was coming. Several stocks struggled to push higher, the market breadth was getting too stretched, and conditions were beginning to feel overbought.

This brings us to an important lesson we want to share with you—trusting your own analysis. At Swingly, our goal is to help you learn from our mistakes. It’s crucial that you do your own research and avoid simply following others.

Here’s why: In our recent reports, you may have noticed that we were growing more bearish and cautious as market conditions worsened. The best move in such a situation is to start taking profits on your stocks, consider flipping short to capitalize on a potential trend change (which can also act as a hedge against losses on your long positions), or simply move to cash by closing out your positions.

We saw the warning signs and even started closing our long positions to limit exposure. But our biggest mistake was not fully trusting our own analysis. We identified an opportunity to short the Nasdaq (QQQ), but we hesitated—and in trading, hesitation can be deadly.

Instead, we got swayed by industry “experts” who insisted that conditions were still optimal. We’re sharing this with you to show that even with experience, mistakes happen. The key takeaway is to always trade based on your own ideas and analysis. Believe in yourself, especially when you’ve done the work. If you make a mistake, at least it’s yours, and you can learn from it. But if you trade based on someone else’s ideas and it goes wrong, you’ll feel ten times more foolish.

Nasdaq

The Nasdaq had a significant breakdown, plunging below all of its key daily moving averages and slicing through the low-volume area identified by the Visible Range Volume Profile (VRVP) between $475 and $461, where it currently stands.

We’ve mentioned before how we ignored our trade idea of shorting the QQQ, even though it was clearly gearing up for a big move in either direction within its volatility contraction pattern (VCP). Our failure to stick to our own analysis got in the way. You can see why this idea made sense— the QQQ was teetering on the edge as it broke below the daily 50-EMA at $475, the last remaining dense volume pocket.

As for where the QQQ might be heading, it wouldn’t be surprising to see it test the daily 200-EMA again in the next few days, especially given how weak September tends to be, particularly in an election cycle.

S&P Midcap 400

The midcaps have also experienced a significant breakdown, and they’re actually looking even worse than the larger indexes. The Visible Range Volume Profile (VRVP) on the right highlights just how little support there is between the current level and the point of control (POC) at $534.

This is concerning for anyone holding long positions in the MDY or any midcap stocks. The low-volume area is due to a gap that still needs to be filled, and it’s becoming increasingly likely that this gap will close soon.

The best course of action is to stay out of the firing line unless you’re considering playing the MDY as a gap-fill opportunity with a short position. However, the ideal time to short was during yesterday’s breakdown with the risk/reward now not being great.

Russell 2000

The small caps are unsurprisingly in a similar situation, with low demand below their final support level, which is the rising 50-EMA at $212.

We’re kicking ourselves for missing out on these short plays yesterday because they looked so promising. But this highlights the importance of doing your analysis and studying your trades—you have to spot these mistakes and learn from them.

If the 50-EMA doesn’t hold (and it probably won’t), it looks like the IWM could drop further to $207.

DAILY FOCUS
Let The Dust Settle

Right now, our priority isn’t on opening new positions but on evaluating our trading process. We’re focusing on what we did well, what we could have done better in the last cycle, and figuring out how we can come back stronger in the next run, likely as we approach the end of the year.

The best traders all share one trait: they can set their emotions aside, obsess over self-improvement and growth, and meticulously analyze every aspect of their process from start to finish. This commitment to constant betterment helps them improve month after month.

Setups will come again—maybe not every day or week, but they will return. For now, we’re back in risk-off mode for the foreseeable future. Our focus will be on finding the stocks that show the greatest relative strength while the market is in a sell-off.

In this phase, patience is key. We’re not just waiting for any opportunity; we’re waiting for the right opportunities, the ones that align with our refined strategies and analysis. This period of reflection and adjustment isn’t just about pinpointing mistakes—it’s about refining our edge. We’re scrutinizing everything from entry points to risk management, and even the psychological aspects of our trading, ensuring that when the market conditions improve, we’re not just reacting but executing with precision.

It’s important to remember that growth in trading doesn’t come from constant action but from thoughtful inaction. Sometimes, the best move is to step back, reassess, and prepare. When the time comes, we’ll be ready to move with confidence, armed with a deeper understanding and a more disciplined approach.

As we wait for the next wave of setups, our goal is to build a watchlist of strong contenders—stocks that have demonstrated resilience and strength, even in a weak market. These will be the leaders in the next uptrend, and we aim to be ahead of the curve, positioning ourselves in those names as soon as the market signals it's time to shift back into risk-on mode.

WATCHLIST
Nothing To Declare- Protect Your Capital