OVERVIEW
Positive Rate Cut Expectations: Bull Rally

The market experienced a massive intraday surge in the major indices, particularly the Nasdaq and S&P 500, following positive economic data. The most recent information indicates a loosening of the tight labor market, potentially prompting the Federal Reserve to consider cutting interest rates this year. A report released on Tuesday revealed that job openings in April dropped to their lowest level in over three years. Economic indicators are beginning to soften, which in turn is reducing the upward pressure on interest rates.

Traders now estimate a nearly 69% probability of a rate cut in September, a significant increase from the roughly 50% likelihood observed last week, according to data from the CME's FedWatch tool. This shift in expectations reflects growing market sentiment regarding potential monetary policy adjustments. On Wednesday, U.S. 10-year Treasury yields fell to a two-month low, driven by a report indicating weaker-than-expected job growth. This development has heightened anticipation for Friday's release of the May employment report, which is expected to provide further insight into the labor market's trajectory and its implications for Federal Reserve policy decisions.

What does this mean?

The market is becoming increasingly optimistic about a potential rate cut, and yesterday’s data significantly boosted these expectations, leading to widespread optimistic buying. The majority of cash influx in the equities market was primarily directed towards large-cap technology stocks, considered safer compared to more speculative sectors. This trend was particularly evident in Nvidia and generally across the Nasdaq.

We were surprised by the market’s reaction yesterday. While we benefited from the surge due to our open positions in several stocks, including the market leader Nvidia, we are still awaiting further confirmation that the worst is behind us.

Market breadth remains weak, and breakout success rates are still low. Until these indicators improve, we remain cautious about fully embracing risk.

Nasdaq

The Nasdaq experienced a textbook major breakout to all time highs on significant volume. The QQQ tested it’s daily 10-EMA after market open which instantly prompted demand to kick in aggressively and push the index back up.

We were expecting the QQQ to lead any widespread market rally and we clearly saw this yesterday. We are expecting to see this move continue higher and other large cap and technology stocks to begin pushing higher in accordance with this move.

The visible range volume profile (VRVP) is showing almost no selling pressure at these new highs and thus adds to the thesis the market is set for another multi week bull run.

S&P Midcap 400

The midcaps are setting the stage for a double bottom around the unfilled gap below $533, which has served as a major demand zone through several touchpoints.

The MDY is at a critical juncture; although it reclaimed its daily 50-EMA in yesterday’s session, the daily 10 and 20 EMA at $541.50 continue to act as resistance.

The MDY's ability to break higher hinges on general market sentiment following the rate cut expectations. Given the behavior of the QQQ, we anticipate that midcaps may begin to follow suit and test their Point of Control (POC) at $544.50. This zone could attract buyers and sustain high demand.

We remain hesitant yet optimistic. While the breadth of setups is still low, we see signs of improvement. Stay dynamic and vigilant: if the MDY starts moving higher, it signals that stocks within this group are clearly breaking higher as well and you must jump at the opportunity to find them.

Russell 2000

The small caps managed to reclaim all of their daily exponential moving averages in yesterday’s sessions and even surpassed their POC at $204.50, which had been a major resistance zone in the prior day’s session.

The IWM is forming a clear sideways consolidation flag, and a sustained break above $205.50 would be incredibly bullish, particularly if small caps experience widespread upward movement.

We believe this may signal the beginning of the next bull run, especially considering the QQQ’s performance. However, it is important to remember that the indices are only one piece of the puzzle. The number of individual setups is still relatively low, and only select groups and stocks are performing well. Stay cautious and selective and only consider opening naked risk based on each individual stock’s relative performance.

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DAILY FOCUS
Watch Extra Closely Today

The market appeared vulnerable yesterday morning but has taken a dramatic turn in the opposite direction today—demonstrating the dynamic nature of trading. Overarching concerns about market breadth remain real; the number of stocks making new highs and holding their daily 20-EMAs is low but improving, and yesterday’s rally contributed to this improvement.

As swing traders, our strategy involves buying stocks that are just emerging from market corrections and have bottomed out. Therefore, it's crucial to be vigilant in the next several sessions—especially today—to see if we begin to observe a significant and widespread improvement in market breadth and a market-wide rally. If this occurs, it will be important to start accumulating shares.

However, it's equally important not to jump the gun. Volatility is very high, and although yesterday was positive, one green day doesn’t change the overall picture. Don’t let the QQQ's performance mislead you about the broader market; the majority of stocks are not pushing higher the way the Nasdaq may lead you to believe.

WATCHLIST
The Ones We Are Watching

SOUN: SoundHound AI, Inc

• SOUN continues to adhere to its volatility contraction pattern (VCP), and it even made an attempt at a breakout yesterday, prompting us to initiate a long position. However, this resulted in a small loss.

• If the overall market improvement persists and SOUN manages to break above $5.05 in today’s session, we will consider entering another long position.

• We are particularly bullish on the company due to its strong fundamentals, and we believe that the broader theme of AI voice recognition offers significant potential for growth.

SWVL: Swvl Holdings Corp.

• SWVL is another growth name that has recently seen significant improvements in its profitability, leading to a +700% bull run in a matter of weeks.

• We are encouraged by how the stock is consolidating above its major EMAs, and the rebounds from the daily 200-EMA indicate clear demand— the stock is exhibiting a linear behavior.

• Upon a breakout above $10.90, we will consider taking long exposure, provided that the market trend confirms improvements in breadth and there is significant buying pressure driving SWVL higher.