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Expect Volatility Today

Swingly Exposure Status: Moderate Risk

OVERVIEW
We Aren’t Quite There Yet

The last two sessions in the US equities market have been strong. We saw the major indices have a strong performance on Wednesday following the job data report, and yesterday’s session served as a healthy consolidation day, allowing the market to digest the significant moves in the SPY and QQQ. Investors are now anticipating Friday's crucial U.S. nonfarm payrolls report. The recent weekly jobless claims data suggests a softening labor market, which could give the Federal Reserve room to begin cutting interest rates.

Megacap technology stocks have been performing well, as evidenced by the Nasdaq's performance. However, most other stocks and sectors are still underperforming. Crypto-related stocks such as $COIN, $IREN, and $WULF are doing well relative to other industry groups. Apart from these and, of course, $NVDA, most other stocks remain in their bases or have broken down into stage 4 declines..

Nasdaq

QQQ VRVP Daily Chart

The QQQ is consolidating on low volume following its initial surge on Wednesday and is looking strong. Yesterday’s session saw an intraday dip down to the end of its demand zone at $462, which was immediately bought back up, allowing the Nasdaq to close the session nearly breakeven.

This is very healthy action, and we are particularly pleased to see that the majority of buyers are holding their positions or stepping back in to drive demand rather than selling easily. This is evident by the low volume on the day; a low-volume day with price remaining tight and the candle closing strong indicates that sellers are passive and buyers are in control.

We'd like to see the QQQ hold above $462 by the end of the session and ideally continue higher going into next week.

S&P Midcap 400

MDY VRVP Daily Chart

The midcaps have encountered a strong sell wall between $539-$541, which has once again rejected the MDY. This zone coincides with the falling daily 10 and 20-EMAs, which buyers are struggling to reclaim. The doji candle from yesterday highlights the uncertainty about the future price direction for the MDY.

We were hoping to see money trickle down into the midcaps following the major rally in the QQQ, which could have boosted sentiment. However, we have yet to see this demand extend to the more speculative names.

For today’s session, we expect the MDY to retest $541. Unless the data report significantly boosts bullish sentiment, it is likely that midcaps will face rejection again and could experience another day of sideways action.

Russell 2000

IWM VRVP Daily Chart

The small caps are still below their fastest daily EMAs and were intraday rejected yesterday from reclaiming them, along with their point of control (POC).

Volume is beginning to diminish as the IWM forms a range between $201 and $205, which is intriguing. Considering the robust level of demand that has emerged to protect the unfilled gap at $199, we anticipate a strong move to the upside in the foreseeable future.

Whether or not the IWM makes a decisive move to finally break out of this range depends on how the market reacts to the unemployment rate this morning.

DAILY FOCUS
Stay On Your Toes

The latest unemployment rate is scheduled to be released today, one hour before market open. The IWM and MDY are currently coiling up, indicating they are preparing for a move in either direction. Whether or not we witness this move today, and in which direction, largely depends on how the market reacts to the data.

Considering how closely the Fed monitors this data and uses it to gauge the likelihood of interest rate adjustments and their timing, the market's response to the unemployment rate announcement will be crucial.

Volatility is expected today, leading us to adopt a neutral stance. The reality is that market breadth remains poor, with a limited number of setups available. This caution has led us to refrain from adding naked long exposure. However, the small and midcaps are primed for a move soon, especially given the QQQ's leadership and the positive response to Wednesday's job report. There's potential for this positive sentiment to continue into next week.

If we observe the IWM and MDY breaking above their ranges, accompanied by the QQQ pressing higher on strong volume, we will shift to a risk-on stance and actively seek to add long exposure heading into Monday’s session.

WATCHLIST
The Few Set-Ups

AMD: Advanced Micro Devices Inc

AMD Daily Chart

  • Following in the footsteps of Nvidia, AMD, although slightly less robust, is displaying strength in the semiconductor sector. It's currently forming a tight range after experiencing a significant upward move a month ago.

  • AMD is maintaining its position above key daily EMAs and appears poised to initiate a stage 2 uptrend upon surpassing the $170 mark.

  • Despite facing challenges in revenue growth, overshadowed by Nvidia's prominence, AMD remains a strong growth candidate within a crucial industry group.

  • Given its low ADR% (Average Daily Range), if trading AMD, employing a leveraged ETF could enhance volatility.

ALAR: Alarum Technologies Ltd

ALAR Daily Chart

  • ALAR is a small-cap powerhouse that has surged an astonishing 700% since the beginning of 2024.

  • With remarkably strong fundamental growth and powerful momentum, it has consistently stood out on our scans for months.

  • Trading ALAR can be challenging, as it often dips below its 10-EMA. Therefore, we're adjusting our sell rules to incorporate the 20 & 50-EMAs instead of the usual 10 & 20.

  • The stock is currently forming a classic volatility contraction pattern (VCP), with volume dwindling. If we witness a breakout higher in the IWM & MDY today, ALAR has the potential to skyrocket.

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This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.

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