OVERVIEW
A Bullish Undertone

As of this morning, futures for U.S. stocks increased, indicating that Wall Street aims to extend the momentum from the previous trading day's significant gains. This optimism follows the release of the new employment figures last Friday, which have reignited expectations that the Federal Reserve might consider reducing interest rates.

Comerica Bank's chief economist, Bill Adams, remarked that it seems premature to assert that the U.S. economy has smoothly transitioned to a softer landing, given that the Federal Reserve is maintaining interest rates at levels considered restrictive. However, he noted that the April jobs report provides a positive indication towards reaching that goal.

In a note from Barclays, Emmanuel Cau observed that during the first quarter, companies beating earnings expectations saw a resurgence, largely due to improved profit margins. Even though companies missing their targets faced consequences, the general robustness of earnings likely limited any significant negative impact on the stock market.

Why Earnings matter

We're currently at a crucial juncture in the US equities market. Earnings season serves as a pivotal moment where potential frontrunners for the upcoming bull market start to reveal themselves. It's a period when companies come forward to display their performance, often indicating the direction of market leaders in the near term.

Earnings season not only plays a crucial role in determining individual stock performance but also significantly bolsters the overall market sentiment. During this period, there is a notable influx of capital into the market as investors react to corporate earnings reports. This influx of cash injection often leads to increased market activity and liquidity, influencing the direction of stock prices and market indices. Consequently, earnings season serves as a pivotal time when market dynamics are in flux, presenting both opportunities and challenges for traders and investors alike.

During this time, companies that have previously underperformed or surprise the market with exceptional revenue or profitability reports often experience the most significant upward movements in their stock prices.

A prime example that illustrates this dynamic occurred with DRCT towards the end of last year. The trade unfolded as follows:

On November 9th, 2023, Direct Digital Holdings (DRCT) stunned the market with an astounding +330% surge in earnings per share (EPS) growth, coupled with an impressive +70% increase in revenue. Following this remarkable performance, the stock surged over +200% without once dipping below its daily 10 exponential moving average (EMA), while also forming a classic volatility contraction pattern. Subsequently, on robust trading volume, DRCT experienced another explosive surge of +125%, maintaining its position above the daily 10- EMA throughout.

This stock presented an opportunity for investors to potentially earn close to a +1000% return on their investment, provided they managed their positions effectively and added to their winning trades. These instances exemplify the opportunities that earnings season can offer and underscore the market's potential. They also highlight the effectiveness of the swing trading style that we advocate for our readers to implement.

As a trader, your primary responsibility is to identify these lucrative opportunities and act upon them decisively.

Nasdaq

On Friday's session, the QQQ experienced a notable gap up, accompanied by relatively high volume, although not reaching exceptional levels. This surge propelled the Nasdaq index above all of its key short-term daily Exponential Moving Averages (EMAs), indicating a strong bullish momentum in the market.

Initially, we witnessed the QQQ retreat, finding support near its 50-day Exponential Moving Average (EMA). This level coincided with a significant demand zone around the $433 mark, where buyers stepped in decisively, resulting in a healthy reaction.

S&P Midcap 400

Following suit with their larger counterparts, the midcaps also exhibited a gap up above their key Exponential Moving Averages (EMAs). However, their upward movement encountered an exaggerated rejection upon reaching the looming overhead supply around the $540 level.

Analysis of the Visible Range Volume Profile (VRVP) on the MDY indicates a higher probability of the Midcaps revisiting the $530 demand level before any sustained upward movement occurs.

Russell 2000

The IWM finds itself in a challenging position, caught between conflicting factors. While it benefits from a denser support zone due to the volatility contraction it broke out of during Friday's session, it also faces hurdles. Its Point of Control (POC) remains significantly below its current price, and it encountered substantial overhead supply, leading to rejection in Friday's session.

We anticipate the IWM will likely retest and ideally rebound from the $200 level before any sustained upward movement can occur.

DAILY FOCUS
Watching Closely

In Friday's report, we detailed two potential scenarios that the market could follow, with one leaning towards a more bullish outcome and the other towards a more bearish one. As of premarket Monday, it appears that the less probable but more optimistic bullish scenario is starting to materialise.

Don’t get too excited

One of the most detrimental traits for any trader to possess is the inclination to impose their opinions on the market. Instead, our role is to align ourselves with the path of least resistance, rather than attempting to forecast the market's next move.

We've maintained our moderate risk exposure status as we enter today's trading session. Our strategy for the day involves closely monitoring how traders respond to the market's new levels and assessing whether buyers will assertively step in, signalling the end of this pullback, or if sellers will emerge to quell the optimism. This evaluation will guide our decisions moving forward later this week, going into next week.

We've decided not to hold any exposure leading up to an earnings report for any stock. Consequently, we are unlikely to initiate any positions until the actual earnings dates approach.

WATCHLIST
The Focus List

MYO: Myomo Inc

• Myomo, Inc. is experiencing significant growth on high volume as it approaches its upcoming earnings report on Wednesday.

• The stock has maintained an upward trajectory above its rising daily 200-day Exponential Moving Average (EMA) since late 2023.

• Market sentiment indicates that buyers anticipate a positive earnings beat later this week.

• We will closely monitor whether MYO can sustain these levels and whether an earnings beat could lead to a substantial gap up on Wednesday, preferably aligning with an improved overall market sentiment.

WULF: TeraWulf Inc

• Crypto mining "meme" stock WULF continues to consolidate within its substantial year-long base leading up to its earnings report on Wednesday.

• The recent improvement in Bitcoin prices serves as a positive backdrop, heightening anticipation for WULF's potential reaction to a positive earnings outcome.

• While TeraWulf may be favoured within the "meme" crypto community, WULF stands out not only for its exceptional relative and absolute momentum but also for its robust fundamentals.

• WULF emerges as one of our top prospects for adding long exposure, provided that market conditions align favourably and the trade opportunity materialises.