OVERVIEW
Positive Trends Continue

In yesterday's publication, we highlighted an emerging shift in behavior within the US Equities market, particularly evident as we transition into earnings season. Notably, starting late last week, we've observed a discernible uptick in cash inflows. This trend suggests growing confidence and an increased appetite for equity positions as earnings announcements continue loom on the horizon.

The highlighted 10-Year Treasury yield serves as a vital piece in unraveling the potential conclusion of the market pullback, a puzzle traders have been carefully piecing together in recent months. The multi-week decline in the USD10Y has closely aligned with the surge in tech earnings witnessed in companies like Alphabet and Microsoft. Moreover, it has synchronously corresponded with a market-wide breakout in all three major indices from their volatility contraction patterns (VCP).

The relationship between the equities market (tracked by ETFs like SPY) and the 10-year Treasury yield typically exhibits an inverse correlation, though nuanced by economic conditions and investor sentiment.

When Treasury yields rise, indicating higher interest rates and potentially stronger economic growth, stocks may face downward pressure as fixed-income investments become relatively more attractive. Conversely, falling Treasury yields, signalling economic uncertainty or lower interest rates, can boost stock prices as investors seek higher returns.

Nasdaq

The large caps sustained their upward momentum, marked by a full green candle propelling the QQQ to multi-week highs of $440. However, we're closely monitoring the volume, which is raising some slight concerns. Notably, we observed the lowest bullish volume in over two months, signalling one of two potential scenarios:

1. Lack of Conviction: The low bullish volume could reflect a lack of confidence amongst investors. In this scenario, market participants may be hesitant to commit to buying positions, potentially due to uncertainty about future market direction and lack of trust in the recent VCP breakout late last week.

2. Passive Sellers: The low volume clearly signals a lack of market participation, specifically highlighting the absence of aggressive selling pressure. Buyers are demonstrating more assertiveness by meeting the asking price with offensive moves, yet they encounter passive sellers who are not actively engaging in the market. 

S&P Midcap 400

The MDY experienced a violent gap up and closed the day decisively above its Point of Control (POC). Demand surged, propelling the Midcaps above the $538 level, which we had been closely monitoring as a potential short-term zone for rejection.

The narrative parallels that of the Nasdaq, with the last three trading sessions driving the MDY to a notable +2.5% gain amid relatively low volume. However, the Visible Range Volume Profile (VRVP) distinctly signals a significant bullish shift in investor behavior following last week's confidence-boosting FED talk.

Russell 2000

The small caps swiftly pierced through the levels we outlined in yesterday's morning report, breaking through the low-volume clusters and advancing toward the significant supply zone at $205, which the IWM is currently nearing.

The Russell 2000's Point of Control (POC) level remains approximately +3% below the current share price, suggesting a heightened likelihood for the index to revisit the $199 level in the near term before resuming any upward movement.

Such a retracement is something we welcome; it's a natural part of market dynamics. Retesting prior resistance levels and having them act as demand zones would further strengthen our confidence in this breakout.

Important

All three major indices we previously highlighted are undeniably embodying their most bullish potential scenarios outlined in recent reports. The sudden resurgence into an early-stage uptrend took us by surprise, yet the large, mid, and small caps are all showcasing textbook recoveries from typical short-term pullbacks inherent in every bull market.

DAILY FOCUS
We Are Smiling

Since our mid-March sell signal, we've exercised patience, anticipating a market sell-off and pullback to set the stage for the next leg higher. It's been nearly two months for the major indices to breakdown and rebase, but we're finally at the finish line, traders.

Today, our primary focus will likely involve directly entering positions, as the bulk of our watchlist still has their earnings reports scheduled for this week. Therefore, our goal will be to closely monitor how those stocks that have broken out of their volatility contraction patterns (VCPs) are behaving and whether there is follow-through in their moves.

WATCHLIST
The Leaders To Watch

AFRM: Affirm Holdings, Inc

• Affirm has broken out of its five-month-long base and is maintaining its position above all of its key exponential moving averages (EMAs) as it approaches its upcoming earnings report.

• This stock has demonstrated exceptional year-over-year (YoY) revenue growth and is expected to begin narrowing its earnings per share (EPS) loss this year.

• Ideally, we would like to see AFRM hold this level until its earnings, which should propel the stock to gap up and set a good episodic pivot (EP) trade later this week.

KULR: KULR Technology Group

• KULR Technology Group, Inc. specializes in the development, manufacturing, and licensing of advanced thermal management technologies using carbon fiber. These technologies are designed for enhancing the performance and safety of batteries and electronic systems.

• While this stock falls outside our typical focus list parameters and is considered more speculative, it's noteworthy for its remarkable performance, having surged over 300% in less than three weeks.

• This surge coincides with exceptional year-over-year revenue growth figures, making it an intriguing prospect. Moreover, it operates in a key industry group closely tied to one of the hottest themes in the market.

SMR: NuScale Power Corporation

• SMR is another small-cap stock we are closely monitoring as it approaches its upcoming earnings report later this week.

• NuScale has experienced a significant surge in momentum, both relative and absolute, over the recent months. It has notably outperformed the Russell 2000 index while establishing its multi-month volatility contraction pattern (VCP) base.

• With robust fundamentals and strong technical indicators in place, we are poised to initiate a long position, ideally capitalizing on an earnings-driven episodic pivot (EP) in the days ahead.