OVERVIEW
This Doesn’t Feel Quite Right

We're noticing something unusual starting to unfold in the market, which raises our suspicions about how much follow-through we can realistically expect this week compared to the overwhelmingly strong session on Friday. To recap what’s been happening, Friday brought a blowout jobs report, which seriously weakened the bear thesis that the labor market is crumbling under the pressure of the last four years of restrictive Fed policy aimed at controlling inflation.

The market responded very positively to this, with broad strength and a surge in demand pushing equities higher. However, despite this initial optimism, Monday's session brought some warning signs. While the weakness we saw yesterday hasn’t completely invalidated the bullish narrative, there’s a concerning development—new breakouts are beginning to fade. And that's never a great signal.

Now, let's not overreact here. If you’ve been holding positions from the past few weeks, those stocks are still largely trending higher and pushing forward. Most haven’t entered distribution yet, which is encouraging. But what's become tricky is initiating new exposure. Breakouts that we’re trying to catch now are proving more difficult to sustain.

Take Nvidia, for example. Yesterday, it finally woke up and broke above a massive multi-week flag pattern—a breakout we jumped into with some aggressive share buys. But in contrast to Nvidia’s strength, we’re seeing divergence from other big names we’d expect to move in tandem: Microsoft, Google, Meta, Apple, and others. Instead of rising alongside Nvidia, these stocks are showing weakness or just not following through as expected.

Divergences like this can often be a red flag. It suggests that while some parts of the market are pushing higher, others are lagging behind. This can indicate underlying instability or hesitation in the broader market. We don’t have a clear answer yet, but it’s something to watch closely in the coming days. One side of this divergence will likely win out, and that will help determine whether we see a stronger continuation of the rally or a potential pullback.

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

For today, the focus is on caution. While stocks like Nvidia continue to show promise, the increasing number of fading breakouts suggests we should ease off the aggressive approach we initially planned. Given that our current swing trades are risk-free and generating returns, there's no urgency to force new positions.

This is also a time when solid risk management is crucial. The easiest mistake to make right now is overtrading, which can quickly eat into the profits we've already locked in. It’s tempting to chase every setup, but that’s how you end up giving back everything you've gained. Our goal today is to avoid unnecessary risk and preserve what’s working for us.

We'll remain selective and patient, observing how the market responds after yesterday’s softness. If strong opportunities present themselves, we’ll act, but our priority is protecting gains and maintaining discipline in this uncertain environment.

Nasdaq

The Nasdaq is still holding its point of control (POC) and sitting just above the rising 10- and 20-day EMAs, though it’s barely clinging to the daily 10-EMA. Yesterday’s session made it clear that Friday wasn’t the bullish pre-breakout day we expected. Instead, the QQQ is struggling to break above a descending level of resistance it’s been wedged under since hitting July highs.

The big question right now is whether it can hold the daily 20-EMA and that crucial POC level around $482. If it fails, we could see a quick drop to $474, or even the rising 50-EMA, which coincides with the next significant demand zone on the visible range volume profile (VRVP).

Much of this will depend on what Nvidia does next. Nvidia has recently broken out, and if buyers step in to drive the AI giant higher, it could pull the Nasdaq up with it, improving sentiment across the board. Nvidia’s influence is so powerful—being worth more than the entire economy of the United Kingdom—that its movement could shift the entire market’s tone.

That’s why our attention is squarely on Nvidia right now. We’ve noticed a divergence between Nvidia and the other "Magnificent Seven" stocks like Microsoft, Apple, and Meta, which are either breaking down or failing to push higher. One of these trends is wrong, and whichever side is on the wrong end of this divergence could face serious trouble if they don’t manage risk effectively.

S&P Midcap 400

The midcaps also experienced what seemed like a breakout on Friday, but the MDY quickly retraced intraday down to the rising 20-EMA, which thankfully acted as support for buyers once again—this is a very bullish scenario.

However, we’ve noticed that volume has been declining over the past few sessions, even as the MDY has been making higher highs, which is positive. The big question now is whether the brewing move, indicated by the tightening price action and decreasing volume, will result in a breakout or a breakdown.

Observing how well the dense levels of supply and demand within the MDY are defending the lows and pushing midcaps higher during retracements gives us some confidence. Still, with the high degree of uncertainty as we approach the U.S. election and the elevated volatility index (VIX), it’s hard to be completely sure of what lies ahead.

Russell 2000

As usual, the small caps are mirroring the midcaps but with more exaggerated moves due to their inherent volatility. Yesterday, the volume was quite low as the IWM tested its rising 50-EMA, but it managed to attract a strong influx of demand, pushing the Russell 2000 back up to the daily 20-EMA.

We’re actually seeing some strength in the small caps during this minor pullback they've experienced over the past few months. The 50-EMA is holding up well, indicating that buyers are actively defending these levels.

However, the decrease in volume suggests that a breakout or breakdown could be looming, making it incredibly important to prepare for that possibility. Let’s discuss how we plan to manage our risk during these uncertain times.

DAILY FOCUS
This Is The Easiest Time To Over Trade

Today, the most efficient and optimal approach is one of caution and patience. With volatility high and uncertainty on the rise, initiating new long positions—or any positions, for that matter—can be incredibly costly. As we navigate this choppy market, trying to pick a clear direction, we must remember that as swing traders, we need trends to make money. Right now, determining a solid trend is proving to be a challenge.

If you've been trading thoughtfully over the past few weeks, as we’ve discussed, you should now have a portfolio of stocks that you’re holding. Your first priority should be to manage those positions effectively. Always aim to minimize your downside risk. You can achieve this by raising your stop-loss levels to breakeven, selling into strength to finance your risk, or, perhaps the best strategy of all, allowing each stock to tell you how it wants to behave.

In fearful market conditions, it's easy to succumb to the urge to sell everything when you see a dip, especially when the market feels shaky. However, it’s crucial to remember that each stock in your portfolio should be treated based on its own action and performance. Stick closely to your trade management rules and resist the temptation to react emotionally.

When it comes to new exposure, we see little reason to initiate any new positions until we have clearer evidence of how the market intends to behave. Staying disciplined now will serve you well in the long run.

If you want to see how we manage our trades or gain access to our complete strategy, we invite you to download our desktop and mobile app by clicking here. In the app, we go over our strategies in detail and provide countless resources to help you along the way. You’ll also connect with a community of serious swing traders like yourself, offering a fantastic opportunity to network and share insights.

Remember, this phase is just a part of the journey. The market has its ups and downs, and while we may feel the pressure to act, the best decision is often to remain calm and focused. By managing your current positions carefully and waiting for the right opportunities, you set yourself up for success when the trend finally reveals itself.

Stay patient, stay focused, and trust the process. Your hard work and discipline will pay off!

WATCHLIST
Focus On These On Follow Through Higher

CRS: Carpenter Technology Corporation

• CRS is currently positioned as a leader in the market theme, and given the strength of the sector, it stands a higher likelihood of seeing follow-through on any breakout, even if the broader market struggles. This resilience is a key factor to consider as we navigate current market conditions.

• Additionally, CRS has formed a textbook volatility contraction pattern (VCP) on its rising 10-EMA, characterized by both narrowing volume and price range. This pattern is often a precursor to significant moves, making CRS an intriguing candidate for potential trading opportunities.

• In the first 30 minutes of trading, if we see a breakout on the 5-minute opening range high with high relative volume, we would look to initiate a position. However, given the current general market climate, we recommend entering with half-sized risk to account for any volatility or uncertainty.

ARM: ARM Holdings plc

• ARM is a trade that hinges significantly on Nvidia's movements. Since we already hold a large position in NVDA, we’re well-positioned to capitalize on any developments in the AI theme.

• ARM has established a solid base, and the correlation between these two stocks is strong. Given this relationship, ARM is considered a higher Average Daily Range (ADR) name, meaning we can expect a substantial move on a breakout that actually holds.

• As we monitor Nvidia’s performance closely, we should remain alert to potential entry points in ARM. If Nvidia continues to gain traction, it could provide the catalyst ARM needs to break out and move decisively higher.