OVERVIEW
A Tough Week Ahead

If you caught yesterday’s report, you probably noticed how tough things are looking for the U.S. stock market right now. While some of this can be blamed on typical seasonal weakness, that’s not the main issue. The real problem is the weakening job market and growing fears that the U.S. economy could slip into a recession. This is largely due to high borrowing costs and tight monetary policies aimed at fighting stubborn inflation. That’s why last week was the worst week for the U.S. stock market in about three years.

This week, there’s a bunch of important economic data coming out, including the CPI and PPI reports. Normally, these would be a big deal, and we’d be talking about ways to protect yourself or take advantage of the situation. But right now, it looks like the CPI will match expectations, and PPI isn’t as critical, so they’re not likely to move the market much.

To make matters worse, the latest jobs report, released last Friday, showed fewer jobs were added than expected. This has only intensified worries that the Federal Reserve is behind the curve on interest rates. The market has now priced in a 71% chance that the Fed could cut rates by 25 basis points at its next meeting, and just a 29% chance of a 50-basis-point rate cut, according to the CME Group FedWatch Tool. This uncertainty is adding to the already tense situation.

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

Honestly, the best approach in a situation like this is to step back and let the market move as it will. Trying to outsmart the market or perfectly time the bottom is a losing strategy, especially when none of us have the billions needed to influence the market's direction. It’s better to avoid getting caught in the turbulence and let the prevailing forces drive the market wherever it needs to go.

Nasdaq

The Nasdaq is in a steep decline, with Friday's session breaking through the multi-month rising support level that had been holding since April 2024. Now, it's headed towards its next likely point of consolidation: the rising 200-day EMA at around $440. This level is crucial because it's where we need to see demand step in if there's going to be any hope of a recovery in the coming weeks.

While we had discussed this possibility in the weeks leading up to this massive sell-off, our concern is growing over just how deep this correction could go. The volume, especially on down days, is rising sharply, which is never a good sign and shows just how aggressive sellers are being with almost no buying coming in.

If the 200-day EMA fails to hold, we’re likely to see a further pullback in the QQQ to at least $420, especially if the large technology stocks it tracks continue to weaken. Given how Nvidia and others are behaving, this is becoming more and more concerning.

S&P Midcap 400

The midcaps aren't looking great either, but there is a potential saving grace. The point of control on the Volume-Weighted Average Price (VRVP) is approaching at $533, which might slow down the decline in the MDY and allow for some profit-taking from short sellers. This could help support the midcaps.

Additionally, the rising 200-day EMA for the MDY is nearing $525. If this level is tested, it must hold to prevent the MDY from falling below $500 for the first time since early February.

Russell 2000

The small caps are facing a situation similar to the midcaps, but they might have even more downside risk. The $200 level, which is the current point of control (POC) on the Visible Range Volume Profile (VRVP), is a crucial support level, and the rising 200-day EMA is also approaching this area.

It’s likely that the 200-day EMA will be tested, which is expected. However, if the 200-day EMA fails to hold the IWM (Russell 2000 ETF) up for more than a session or two, it could drive small caps into a bear market. It’s unfortunate, as lower interest rates typically benefit small companies, but the charts show no signs of a quick recovery.

DAILY FOCUS
Don’t Try To Outsmart The Market

It’s very obvious for anybody who has been a swing trader for any length of time that right now is the absolute worst time to be looking for entries—whether long or short. In periods of market turbulence like this, trying to outsmart the market is not only challenging but often counterproductive.

The best course of action is to observe and adapt rather than attempt to predict the market’s next move with precision. The current environment is too volatile for making bold bets on either side, and the risks of misjudgment are high.

For those looking to refine their strategies and understand past successful trades better, don’t miss today’s live session in the Swingly Circle app. We’ll be going over the best trades from the recent rally, how to scan for similar setups, and the strategies that worked—or didn’t work.

Join us to get insights that could help you navigate the current market conditions more effectively and how to make sure you are posotioned to take control of the next bull rally.

Stock To Watch
The Best Relative Strength Leader

CAVA: CAVA Group, Inc

• Instead of trying to predict the market’s next move, focus on identifying stocks with high relative strength. One standout example is CAVA.

• For our non-U.S. readers, CAVA is a Mediterranean fast food restaurant that has shown remarkable growth recently. The stock surged by over 75% in just a few weeks and experienced a significant gap up on its latest earnings report.

• What makes CAVA an excellent example of relative strength? It’s all about how it interacts with its moving averages. Despite the broader market decline, CAVA is firmly above its daily 10-day and 20-day EMAs (Exponential Moving Averages).

• The stock has respected these fast-moving averages and has maintained a narrow trading range, showing strong demand even as the market melts down.

• These are the types of stocks you need to build a list of right now. They demonstrate exceptional strength and resilience, making them valuable candidates for your watchlist and likely will lead us out of this most recent correction when the time is right.