OVERVIEW
A Dead Cat Bounce

In a quite the volatile trading session on Wednesday, stocks managed to turn positive initially after new data signaled further cooling in the labor market, leading bond yields to drop and providing a slight boost of optimism for more substantial interest rate cuts that are set to come out this month.

We saw the data reveal that job openings fell to 7.67 million in July, marking the lowest level since January 2021. Job openings refer to the number of available positions that employers are actively seeking to fill within a specific period. These are jobs that are unfilled because the employer is looking for the right candidates, and they typically reflect the demand for labor in the economy.

When job openings are high, it’s usually a sign that businesses are growing and there’s strong demand for workers. But with job openings now at their lowest in three years, it’s a red flag. It shows that companies are pulling back on hiring, which could mean the economy is slowing down or even heading toward a recession.

As traders, we might see this as a potential upside because a cooling labor market could push the Federal Reserve to cut interest rates more aggressively—something that typically boosts the stock market. While we’d like to see more substantial rate cuts this September, we also need to be aware of the real-world impact. Fewer job openings mean more people could struggle to find work, which will really hurt consumer spending and overall economic health, which will hurt us as human beings in the real world.

So, while we’re eager for the Fed to cut rates, we have to remember that it’s not just about the market rally. A cooling economy comes with consequences that go beyond trading, affecting people’s lives, their ability to live happily and the health of the broader economy.

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

Yesterday’s session was weak. The market made a half-hearted attempt to push higher, only to be quickly knocked back down. We’ve talked about how September tends to be a tough month, especially during an election year, but the chart really tells the story.

Nearly all the stocks that were leading before have now broken down into stage 3 declines, and those that haven’t are still in a distribution phase, showing signs of weakness.

Nasdaq

The Nasdaq looks ready for a sharp move to the downside, potentially heading toward $450. The Visible Range Volume Profile (VRVP) shows very little demand between the current price and this level. Historically, when there are large low-volume pockets like this, they tend to get filled.

It's becoming increasingly likely that the daily 200-EMA will be tested again. If that happens, it could make the last few months look like a significant bear market with the most recent run seeming like a bear rally—a reality that most people are hesitant to acknowledge.

We expect the QQQ to attempt an intraday push higher, similar to yesterday, but it will likely be rejected around yesterday’s highs and end the day on a weak note.

While there’s a slim chance the QQQ could base out sideways if enough demand surfaces, this seems unlikely given the overhead low-volume pocket up to the point of control (POC) at $475 and the overall weakness in the market, particularly in large-cap technology stocks.

S&P Midcap 400

The midcaps are also teetering on the edge of a sharp move lower, potentially even more volatile than what we've seen so far. They're likely headed toward the low-volume pocket between $540 and $535, which is the next significant area of demand. While the MDY is currently clinging to the daily 50-EMA, the reality is that this support probably won’t hold.

If this area was going to see any significant demand step in, we probably would have seen a stronger close yesterday off the 50-EMA. Given the broad market sell-off, it's more likely that we won’t see any consolidation here. Instead, the market seems ready to continue its downward trajectory without much resistance.

Russell 2000

The story is much the same for the small caps. The Russell 2000 might typically benefit from interest rate cuts, as smaller companies often gain the most from lower borrowing costs. However, the negative economic sentiment is hitting all capitalization groups across the market. Just like the QQQ and MDY, the Russell 2000 is facing a similar low-volume zone, potentially dropping further to around $207.

While we can analyze the data and make informed predictions, the reality is that we can't predict the future with certainty. Markets are unpredictable, and conditions can change rapidly. We very well may see the 50-EMA on all indices hold up but it just seems unlikely from a technical standpoint.

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DAILY FOCUS
Being A Hero Doesn’t Pay The Bills

As swing traders, the best thing you can do in a market like this is to be patient. It may seem challenging right now, but this sell-off is actually a valuable opportunity. It’s during these downturns that you can clearly see which stocks have the highest relative strength and which ones don’t. When the market is pushing higher, it’s much harder to separate the strong performers from the weaker ones.

This period of market weakness is your chance to refine your trading system, analyze what worked and what didn’t, and make sure you’re better prepared for the next rally. Every trader faces setbacks, but what sets successful traders apart is their ability to learn and adapt. Use this time to fine-tune your strategies and strengthen your approach.

Remember, every market cycle includes ups and downs. This current sell-off is not the end; it's just a part of the cycle. There will be another rally, and when it comes, you want to be ready to seize the opportunities it brings. Don’t give in to FOMO or be tempted by low-probability trades that don't align with your strategy.

Stay focused, stay disciplined, and keep adding stocks to your watchlist that are showing strength and forming solid bases during this sell-off. Your patience and preparation now will pay off when the market turns.

Stock Of The Day
A Very Interesting Stock…

SAVA: Cassava Sciences, Inc.

• SAVA has been forming an impressive volatility contraction pattern (VCP) on its rising EMAs and is approaching a potential sharp move.

• The stock is drawing significant interest, which means that if it starts to move higher and forces shorts to cover their positions by buying back shares, it could trigger a substantial rally.

• While SAVA does have some controversial data and several high-profile traders, including Martin Shkreli, are heavily short on the stock, we’re focusing on the trading opportunity here.

• Whether SAVA pushes higher on strong volume or breaks down lower, it could present a great momentum play over the next few days.

• The stock is in the healthcare field which does have very high relative strength to the overall market making a brief rally definitely possible. Keep this one on your watchlists.