OVERVIEW
Will Buyers Step In & Show Follow Through?

This week is incredibly important for the bulls and could be the turning point that defines whether the next stage of this medium-term bull market continues its upward momentum, or if Friday's blowout job report was just a one-day burst of euphoria.

If you caught our in-depth weekend report yesterday, you’ll know we covered everything from market internals to the 10-year Treasury yield (US10Y) and how a thorough thematic analysis suggests the future looks bright for equities. The market’s got a lot of potential energy right now, and how things unfold this week will be key in determining whether demand steps in for a strong year-end rally or if we need to reassess.

The biggest catalyst driving the bullish outlook, especially after a week of choppy market action, was Friday’s jobs report. The U.S. government announced that employers added 254,000 jobs in September, a big jump from the 159,000 added in August and well above what economists were expecting.

This positive data has boosted confidence that the job market will remain strong, even after the Fed’s aggressive rate hikes aimed at cooling inflation. Encouraging signs like this suggest the economy is holding up better than feared, which supports the case for the market pushing higher.

Importantly, with the Fed starting to cut interest rates, traders are now forecasting that we won’t see another half-point rate cut before the year ends, especially after such a robust jobs report. This shift in expectations adds stability to the market, and it's fueling optimism for continued upside.

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

What we’re looking for this week is one thing and one thing only: follow-through. So, what does that mean exactly? On Friday, the market responded really well, with buyers showing strength despite the escalation in the Middle East between Israel and Iran, and the jobs report absolutely smashing expectations. This was a big relief, as there had been concerns that the labor market might be weakening.

On Friday, we witnessed a surge of breakouts across the board, and this week even more setups are lining up for potential moves. The critical factor now is whether the market can maintain this momentum. Will we see sustained buying pressure that propels these breakouts further, or will they fizzle out? If the market can build on Friday’s strength, we’re likely looking at a robust rally ahead. However, if it falters, we’ll need to reconsider how aggressive we are not just with our open exposure, but also with new positions going forward.

It’s not just about catching a single day of excitement; the market needs to show consistency. The next few sessions will be key in determining whether this rally has legs or if we need to take a more cautious approach going forward.

We'll dive into our focus for today in just a moment, but first, let's take a closer look at the three major capitalization groups to set the stage for the week ahead.

Nasdaq

The Nasdaq had a very strong session on Friday that definitely deserves our attention. We opened the day right at the top of a dense supply zone, just above $487. However, we quickly saw the QQQ retrace lower to fill its pre-market gap down to the rising daily 10-EMA and the point of control (POC). This POC had been acting as resistance for the two days prior when the QQQ broke below the 10-EMA.

The support found at the POC is crucial as it underscores the strength we’re discussing. For those who may not be familiar, the visible range volume profile (shown on the left side of the chart) illustrates the price level where the most trading activity occurred during a specific time frame. Each bar on the VRVP represents dense levels of supply and resistance.

Seeing the POC cause buyers to step in aggressively and drive prices back up to the gap level is quite bullish. This reaction indicates strong buyer interest and suggests that the market is positioning itself for a big push to the upside.

S&P Midcap 400

The midcaps had an impressive performance, pushing above the point of control (POC) after initially dipping below it. They then rallied toward their own rising 10-EMA, which, much like the QQQ, acted as a significant point of support and demand. This upward momentum helped drive the MDY higher, ultimately closing at the top of its intraday trading range.

As a whole, the midcaps are forming a very textbook sideways consolidation pattern, similar to what we see with large-cap stocks. We anticipate a potential breakout above the descending level of resistance around $572 early this week, provided we see the follow-through that the charts are suggesting.

Russell 2000

The small caps are setting higher lows, just like their larger counterparts, but the recent pullback in the IWM was notably deeper. Not only did it undercut the daily 10-EMA and point of control (POC), but it also lost the daily 20-EMA during the significant sell-off day.

However, the volume over the last two days, as the IWM bounced off the 50-EMA and reclaimed its 10-EMA and 20-EMA, was exponentially higher. This is a very bullish signal given the price action. It demonstrates how valuable volume can be as a confirmation of a move. While Thursday and Friday appeared to be red days at first glance, the high volume and recovery of previously lost levels indicate overwhelming strength.

It’s also not surprising to see greater volatility in the Russell 2000. Smaller-cap stocks tend to be hit harder during market pullbacks due to their generally greater average daily range (ADR). This makes them areas of the market with higher risk/reward potential when prices move up.

We’re closely watching for a breakout above the descending level of resistance and the overhead POC. While the VRVP indicates considerable overhead supply for the IWM to overcome, the generally improving macro outlook for equities, combined with the high number of breakouts showing follow-through, suggests there’s a good chance of this breakout occurring.

DAILY FOCUS
Risk: The Price of Playing the Game

Right now is a crucial moment for us swing traders to take a deep breath, gather our courage, and embrace the opportunities that lie ahead. This is one of those rare times when the potential rewards are stacked in our favor compared to the risks we need to take to seize them. The market typically presents us with just a couple of these windows each year, and we need to be ready to act when they do.

It’s important to stay focused and disciplined during these moments. While the market may feel a bit uncertain, the potential for profit is significant. We’ve all seen how risk can trip up even the most experienced traders. Many newcomers struggle with it, often getting burned by oversizing their positions or taking on too much risk at the wrong time. When those golden opportunities come around, they can feel paralyzed by past experiences, missing out on the rally or chasing prices when it’s too late.

Remember, risk is not something we can eliminate from trading; it's something we need to manage. Think of it as our fuel—it’s the resource we use to generate those rewards.

As we head into today’s session, when your entry triggers light up, don’t second-guess yourself. If you’ve done your homework, now is the time to be aggressive with your exposure. Yes, you’ll get stopped out more than you think—some trades won’t have the follow-through. That’s why managing your position sizes correctly is essential, ensuring you only risk a small amount per trade. For context, our maximum loss per trade never exceeds 0.5% of our net asset value (NAV), and our position sizing can rally up to 30% in overnight exposure.

If you want to learn more about how we manage our positions or delve deeper into our swing trading techniques, click here.

WATCHLIST
The Few Amongst The Many

GDS: GDS Holdings Limited

• GDS is currently showing promising movement in pre-market trading, breaking above the highs of its volatility contraction pattern (VCP). This sets the stage for what looks like another potential leg higher.

• We want to emphasize the volume here, which clearly illustrates how much volatility has contracted. Coupled with the higher lows GDS has formed within a narrow trading range, it’s evident that this stock is coiled up and ready to explode.

• As always, when it comes to gap-up entries, we’ll be using the 5-minute opening range highs to determine our entry and stop-loss levels.

CART: Maplebear Inc.

• CART is an American delivery company based in San Francisco that operates a grocery delivery and pick-up service. It has formed its own contraction in volume and trading range, and it's now gapping up above its descending level of resistance in pre-market trading.

• The higher lows observed over the last three sessions, particularly as CART reclaimed its 10-EMA, indicate the stock's strength. Additionally, the fact that the 20-EMA has held the stock up while other names in its group struggled is a strong signal of relative strength—this is a stock that clearly doesn’t want to go lower.

• Similar to GDS, if CART pushes above the range at the open, we’ll be looking to enter using the 5-minute opening range high (ORH) breakout as our entry point, with a stop loss set at the day’s lows. This strategy helps us manage risk effectively while taking advantage of potential upward momentum.

Note: The stocks mentioned here are just a few examples of those currently performing well in terms of forming consolidation patterns and maintaining their daily flags.

For access to our complete list of stocks, be sure to check the Swingly Circle app daily, where you'll find updates on the latest relative strength leaders.