OVERVIEW
What Does This Mean For Equities?

The markets were shaken by reports of an escalation in the Russia-Ukraine conflict, with Ukrainian forces allegedly launching their first strike on Russian territory using Western-supplied missiles. This development follows Russian President Vladimir Putin's approval of an updated nuclear doctrine, which now broadens the conditions under which Russia could use nuclear weapons, including in response to large-scale conventional attacks on its territory.

Putin had previously signaled plans to revise the doctrine in September. In reaction to these geopolitical tensions, safe-haven assets such as gold and 10-year U.S. Treasury yields saw an uptick. Additionally, commodities, particularly oil and natural gas, experienced heightened strength, as these markets typically outperform during times of war, especially with Russia being a major exporter of natural gas. The rising volatility and uncertainty continue to influence global markets, with instituional investors closely monitoring the situation for further developments.

The VIX, which measures market volatility, has spiked in recent days after a significant drop following Trump’s victory over Harris in the presidential race. The index is now testing the declining 50-EMA and 20-EMA levels. Although the VIX remains relatively low, below 18, it’s important to note that a move above this level is still a possibility.

This is especially true given the pressure currently on the equities market, with key market sectors experiencing broad sell-offs. The heightened uncertainty could drive further volatility in the near term.

Nasdaq

The Nasdaq found some support yesterday, bouncing off the $497 demand zone (visible on the range volume profile), which helped alleviate some of the aggressive selling after the QQQ started distributing at $516. While the relief was welcomed, the QQQ still looks weak overall. The volume from yesterday was too low to view this as a reversal extension, and we saw resistance as the price hit the falling 10- and 20-EMAs later in the session. Typically, in weak markets, momentum fades as the day progresses, and that’s exactly what happened.

Ideally, we'd like to see more sideways action to build a stronger base here, with the 20-EMA reclaimed and support continuing to hold at the dense volume cluster below $516. It's important to remember that NVDA's earnings are after hours tomorrow, and they could serve as a catalyst to either pull the QQQ out of its slump or add more fuel to the selling pressure. Keep that in mind as we approach the earnings release.

S&P Midcap 400

The midcaps struggled to find solid support during their test of the rising 20-EMA yesterday, with very little volume backing the potential relief bounce. Resistance was found intraday at the declining 10-EMA, highlighting the continued weakness in this segment of the market.

Smaller companies are facing the toughest challenges right now, especially with the rally in 10-year Treasury yields, which naturally pressures these businesses. This shift is also causing money to move out of equities and into the bond market.

We could see a breakdown toward the $574 gap as soon as today, which, while painful for the MDY, should have less of an impact on your portfolio if you've positioned yourself wisely. This could mean raising cash or taking short positions over the past few weeks to mitigate the risk.

Russell 2000

Looking at the Russell 2000, which represents small-cap stocks in the U.S. market, it’s clear that the pressure is hitting the smallest businesses hardest. The IWM has experienced one of its steepest retracements, with over a week of consistent downward movement, and yesterday’s minor relief bounce struggled to hold.

There is the expectation that relief almost needs to happen as the selling in the last week has been extreme however trying to time this bounce is a fools game- it is always better to wait and stand on the sidelines until a confirmation can be seen.

Overall, from large caps to small caps, we believe there’s still more downside ahead, and it’s likely that the gaps left from the Trump election results will eventually be filled. We’re still too early to aggressively accumulate long positions, though there are some strong areas in the market showing real relative strength, which we will discuss in detail here and include a handful of stocks we are targeting today for an entry.

DAILY FOCUS
The Charts > Opinions

In times of significant downturns, our approach remains consistent: raise cash, sell partial profits from open positions into strength, and refrain from adding new long exposure until clearer trends begin to emerge. This strategy helps us protect capital and reduce risk in uncertain environments, ensuring that we're not caught in the midst of volatile swings.

Today, our focus will be on closely monitoring the sectors and stocks that have shown the strongest performance during this pullback. By identifying areas of relative strength, we position ourselves to capitalize on opportunities once the market shows signs of stabilization and recovery. This can offer a more favorable risk-to-reward setup for any new positions.

At the moment, we’re looking for open exposure with a moderate risk status. We're beginning to see trends develop in sectors like financials, consumer cyclicals, and utilities & energy, which have shown resilience in this market environment. As a result, our attention is fully focused on pinpointing the strongest stocks within these sectors that may present opportunities for entry.

Given the current market sentiment is weak, we will be limiting our open exposure to the lowest possible risk per trade—capping it at 0.25% net asset value (NAV). This conservative approach helps to ensure we’re not overexposed while still staying engaged in the market, preparing for when conditions improve.

WATCHLIST
Today’s Potential Movers

TAC: TransAlta Corporation

• TAC has been building a strong multi-month base, positioning itself as a leading name in the energy sector. This relative strength (RS) is a key indicator that makes us bullish on the stock. It’s holding up well despite the broader market weakness, which suggests it has the potential to push higher.

• Over the past week or so, we’ve seen a descending level of resistance along with a series of higher lows, signaling that the stock is setting up for a breakout. Currently, TAC is positioned at the daily 10-EMA, and it looks like it’s contracting for a potential breakout today. If this momentum continues, we could see further upside as it breaks past key levels of resistance.

OIS: Oil States International, Inc.

• OIS is another compelling name in the energy sector that has recently seen a significant move higher. Not only has it made an impressive rally, but it’s also consolidating and basing above its declining 200-EMA, which it recently broke above. This is a major sign of strength, and it has us very interested in whether this momentum can continue.

• A break above the declining daily 200-EMA often signals a shift in the longer-term trend, which can typically last for a while. The fact that the stock is basing above this key level shows that both buyers and sellers are comfortable trading at this price, which is a strong indication of market stability. If OIS can maintain this level and continue to build momentum, it could be poised for further upside.