OVERVIEW
A Second Wave Of Uncertainty

Yesterday, stocks experienced a volatile trading session, marked by a significant global sell-off at the start, followed by a strong rebound as the day progressed. A key factor contributing to this volatility was the latest escalation in trade tensions between the U.S. and China. On Tuesday, China announced new tariffs on U.S. imports, including a 15% duty on coal and liquefied natural gas and higher taxes on crude oil, farm equipment, and some cars, effective February 10. This move came right after the U.S. decided to pause the imposition of additional tariffs on Canada and Mexico for 30 days, which had been planned under previous trade agreements.

When tariffs are placed on imported goods, it raises the price of those goods as companies who import them face higher costs. These companies, in turn, typically pass those increased costs onto consumers. So, everyday products—like gasoline, certain cars, and even goods from industries like agriculture and technology—could see price hikes. For example, the new 15% tariff on U.S. coal and natural gas could raise energy prices, and the tariffs on cars and farm equipment could increase costs in both the automotive and agriculture sectors. All these price increases could lead to higher costs of living for consumers, which could be felt across a wide range of products and services.

However, despite the concerns about the potential impact on consumers and the economy, the market didn’t react as negatively as many expected. After an initial global sell-off, stocks managed to rebound and close off their lows. This suggests that investors might not be as worried about the immediate fallout from these tariffs as they were when the trade tensions first started. It also shows that there may be some optimism that these tariffs are more symbolic than impactful in the short term.

Why does this matter?

It matters for us for several reasons, with the first and most important being how major institutions—like the Fed and large financial players—react to these changes. When tariffs increase and the economy gets squeezed, it can influence the Fed’s decision-making. If the Fed decides to take a "hawkish" stance (meaning they’re less likely to cut interest rates or may even raise them), it’s bad news for the stock market. Equities perform best when money is cheap, which happens when the Fed lowers interest rates. But if the Fed stays hawkish, it could create a higher-cost environment, which would slow down growth and put pressure on the market.

We need to see these major institutions step in and buy stocks to fuel momentum, and if they pull back or become more cautious, it can make it harder for stocks to continue performing well. Remember, we simply trade the accumulation patterns left behind by large institutional funds that buy up stocks.

Nasdaq

The QQQ started the day off weak once again, gapping down below its 10- and 20-EMA on the daily chart, and breaking below the 50-EMA as well. It then entered the critical support zone we identified yesterday, between $511-$513, which is the tail end of the dense cluster of demand where the QQQ has found support over the last couple of months.

However, we did see a strong and relatively high-volume bounce, which is significant. The real test today will be whether we can continue to see positive momentum by the end of the day, or if this ascending support will be invalidated.

S&P Midcap 400

The midcaps also had a rough session, gapping lower to start the day. However, they managed to close strong, retracing most of their losses and even filling the lower volume pocket between $575-$588. Despite this recovery, selling pressure did come in at the declining 10-, 20-, and 50-EMAs, which are critical zones that the MDY needs to break through for further upside momentum.

Russell 2000

It shouldn't come as a surprise that the IWM and MDY tend to take the hardest hits whenever equities see a sell-off. This is simply because these small-cap and mid-cap indices have a higher risk appetite, making them more volatile and sensitive to macroeconomic movements. They are typically only accumulated during periods of high growth, which has been difficult to find in recent months, given the various geopolitical events affecting the market.

Yesterday, the IWM sold off into its point of control (POC), but we did see a strong bounce off that level. The IWM has also been rejected against the declining 10-, 20-, and 50-EMAs, and this is the pocket where we would ideally want to see the IWM start basing out. Building some higher lows and continuing to trade within this range would be a positive sign for the index moving forward.

DAILY FOCUS
Don’t Get Too Bearish…

Right now, the worst thing you can do is get overly bearish. Yes, we’ve gone through a difficult period, and there was a noticeable sell-off. However, if you look at yesterday’s close, it wasn’t one that showed major weakness. In fact, we saw some relief, which can often be the first signal that the selling pressure is subsiding.

We've evaluated the current market environment in detail within Swingly Pro, and it’s important to note that we’re also analyzing other asset classes as an indirect way of understanding where money is flowing. What we're seeing is that these markets are showing signs that we might still be in a period where another leg higher could materialize.

Additionally, there are important earnings events coming up. Corporate profits will likely play a major role in steering sentiment, and hopefully, those profits can drive the market higher again. As the earnings reports roll in, we’ll be looking for signs that money is starting to flow back into the market, helping the leaders continue their upward momentum.

What’s most promising is that many stocks are still in the early stages of a stage 2 markup phase. There’s a long list of leaders with multi-month basing patterns that have yet to be invalidated—this is precisely where you want to focus your attention.

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WATCHLIST
A Very Explosive Earnings Play…

PLTR: Palantir Technologies Inc.

• PLTR is our primary focus stock for today, and we’ll be looking for an entry if the episodic pivot entry criteria are met. As always, we wait for the first 5-10 minutes to play out, and if we see confirmation with a breakout above the opening range high and high relative volume, we will consider an entry.

• The company posted incredibly strong earnings yesterday after the close, and the stock is breaking out of a multi-week base with high volume. As one of the few genuine market leaders, PLTR is a stock that cannot be ignored. Given the setup, we believe an entry on controlled risk is worth considering today.