OVERVIEW
Conditions Are Getting Worse

CPI in-line, short-term pop: July CPI landed right on expectations (headline +0.2% m/m, +2.7% y/y; core +0.3% m/m), sparking a premarket gap led by the Russell 2000 (+1% at time of writing).

Breadth still deteriorating: Across all major indices, fewer than 50% of stocks are above their 50 EMA — well below levels consistent with sustainable bull trends.

Leadership still narrow: Mega-cap tech is holding up, but equal-weight indices, midcaps, and small caps remain stuck in distributional patterns.

Low follow-through environment: Both longs and shorts are failing to sustain moves beyond 1–3 days, making swing-trading edges scarce.

MARKET ANALYSIS
Watch Reaction Close: Be Patient

The July CPI print came in exactly in line with expectations:

• Headline CPI: +0.2% m/m (est. +0.2%), +2.7% y/y

• Core CPI: +0.3% m/m (est. +0.3%)

On the surface, this is a “Goldilocks” outcome — inflation is holding steady without a surprise uptick, which explains why futures are firm and the Russell 2000 is leading in premarket with a gain of over +1%.

However, it’s critical to separate short-term reaction from structural market health.

• Breadth remains poor — % of stocks above their 50 EMA across the major indices is still well below healthy bull market levels.

• Follow-through failure — both long and short setups have struggled to deliver directional moves beyond 1–3 days.

• Leadership concentration — the same handful of mega-cap names are carrying the weight, while mid- and small-cap participation remains muted despite today’s premarket bounce.

If breadth doesn’t expand meaningfully in the next few sessions, today’s gap risks becoming another fade rather than the start of a sustainable leg higher.

Nasdaq

Market Breadth
% over 20 EMA: 42.57% | % over 50 EMA: 48.51% | % over 200 EMA: 58.41%

Looking at the cap-weighted QQQ, we continue to see a pronounced price–volume divergence — price grinding to all-time highs while relative volume steadily declines.

Historically, this is a bearish signal as it shows the rally is being carried by narrower participation rather than expanding demand.

We remain cautious here as the probability skew favors a failed breakout rather than a decisive new leg higher, especially when you cross-check against the Nasdaq’s breadth metrics.

Notice how the QQQ is sitting right at all-time highs, whilst the equal-weight Nasdaq 100 (QQQE) is telling a different story with it breaking down into a bear flag parked right on its daily 50-EMA.

Over the last six sessions, QQQE has been consistently rejected at its declining 10- and 20-EMAs.

The divergence between QQQ and QQQE is a late-cycle hallmark with liquidity crowding into a few mega-cap leaders while the broader base weakens. Until we see breadth expansion and volume confirmation, this type of price/volume pattern typically resolves down, not up.

S&P 400 Midcap

Market Breadth
% over 20 EMA: 37.90% | % over 50 EMA: 48.37% | % over 200 EMA: 47.88%

Midcaps remain one of the weaker areas of the market, enduring one of the sharper drawdowns last week. Structurally, the chart looks almost identical to QQQE — persistent rejections at every attempt to push higher. The declining 10- and 20-day EMAs continue to act as dynamic resistance, and the daily 50-EMA is once again being tested.

From a probability standpoint, we lean bearish here. A breakdown below the 50-EMA would likely accelerate toward the $558 Point of Control (POC) zone — an area that also aligns with the rising 200-EMA. If this level fails, the next major demand pocket sits much lower.

The logic is simple: if Nasdaq breadth is deteriorating (strongest group), it’s unrealistic to expect midcaps to rally in isolation. Risk appetite typically fades across the board in these conditions, and mid-tier growth names get hit hardest when liquidity contracts.

Russell 2000

Market Breadth
% over 20 EMA: 38.91% | % over 50 EMA: 46.59% | % over 200 EMA: 43.38%

The Russell 2000 has spent the past five sessions in a very tight contraction right on its Point of Control (POC) at $221. This type of compression rarely lasts and a sharp resolution is coming soon.

From a positioning standpoint, hedge funds are running one of the largest net short positions in small caps in over a decade. That’s a clear bearish lean, but it also sets the stage for a violent short squeeze if price can push higher and force covers.

From our own scans, however, leadership within this segment is thin to non-existent. That tilts the probability toward a breakdown — with the 50 EMA as the next logical downside target.

If a breakout does occur, we’ll treat it with skepticism unless it’s accompanied by a material expansion in breadth and leadership. Without that confirmation, any upside pop risks being a short-lived squeeze rather than the start of a sustainable trend.

FOCUSED STOCK
META: Two Ways To Play This

ADR%: 1.97% | Off 52-week high: -2.4% | Above 52-week low: +59.7%

META is building a textbook volatility contraction pattern (VCP) on top of its recent earnings gap.

Since the gap, relative volume has steadily declined as price coils tighter which a clear sign we’re approaching an inflection point.

From here, we’re likely to see a large, directional move — either continuation higher or a breakdown. This is why it’s dangerous to “marry” one side. The setup works both ways:

• Bull case: A high-relative-volume push through the top of the range could trigger a breakout, especially given META’s position as one of the strongest names in the Magnificent Seven AI/tech leaders (which is the leading group right now)

• Bear case: Breadth is weakening, QQQ is diverging, and META still carries an unfilled gap. On the weekly chart, price sits ~5.77% above its 10-EMA — historically a zone that often resolves with short-term mean reversion. A breakdown from here could quickly morph into a bear flag failure targeting that gap fill.

Our view: This is a high-quality volatility setup, but conviction should come only after confirmation. If the market narrows further, the bear side gains probability. If leadership broadens, META could lead the upside. Either way, this belongs on the top of the watchlist for a decisive move.

FOCUSED GROUP
XLB: A Big Move is Coming

Over the last week, we’ve seen declining relative volume on a low-energy bounce. This fits the Wyckoff playbook for a low-volume or bear market rally which is the type of action often seen in distributive stages, where smart money is unloading into strength rather than initiating new risk.

While precious metals have been strong, that performance is isolated to a narrow segment of the materials space. The broader XLB chart is far weaker.

Technically, XLB is trapped in a bear flag right on the edge of its rising 200-EMA (~$87).

• If $87 breaks → opens the door to a deeper Stage 4 markdown phase, with the visible range profile showing thin volume support below.

• If it holds → the flag can morph into a base, but the burden of proof is on buyers.

Given the current structure, a clean breakdown of $87 on high volume would be one of the better short setups in the sector and particularly if breadth in materials continues to deteriorate.

Q&A
Got a trading question? Hit reply and ask!

Q: “How can you say to just sit in cash when your system isn’t working?
How are you ever going to outperform and beat the market by doing that?”

Outperformance has nothing to do with constant participation…

It’s about deploying capital aggressively when both win rate and payoff ratio are expanding, and stepping aside when the math flips against you.

A reality most traders never internalize: even the best trend-following breakout systems usually post an annualized win rate below 40% over a multi-year run. That’s because they absorb frequent small losses between outsized winners.

The average is very misleading… it’s the blend of two completely different market regimes:

• Green-light environments (strong breadth, leadership expansion, volume confirmation): historical win rate can easily see spikes to 58–62%, profit factor > 2.0.

• Red-light environments (collapsing breadth, narrow leadership, low-volume rallies like now): win rate sinks into the low 30s or worse, profit factor < 1.0.

That drop mathematically destroys compounding if you keep pressing size through it.

Trade in all environments → You blend high-expectancy periods with low-expectancy churn.

Expectancy refers to the average profit or loss you can expect per trade over the long run. Diluting good trades with bad ones erodes both CAGR (Compound Annual Growth Rate, the rate your account grows over time) and Sharpe ratio (a measure of returns relative to risk).

Trade only in green-light periods → You avoid large drawdowns and focus your capital where probability and payoff align.

A green-light period is one where breadth, leadership, and volume confirm a healthy market, boosting both win rate and profit factor.

This is the same principle professional poker players use when folding 80% of their hands- not out of fear, but because the odds don’t justify betting.

Expectancy = (Win% × Avg Win) – (Loss% × Avg Loss)

When win rate falls and average loss swells due to failed breakouts, the expectancy curve inverts; meaning the market becomes a negative-expected-value game for your system.

In that environment, every trade is a statistical tax on your capital, silently but relentlessly dragging down your CAGR.

In Swingly Pro, we talk about how to build these exact systems so no member has to guess. We all know exactly when the market is ours to attack, and when it’s time to step aside and raise cash

This is the power of trading alongside a team → see what’s included