OVERVIEW
This Is Why You Always Sell Into Strength

Stocks took a major hit on Wednesday after the Federal Reserve delivered a blow to the bullish sentiment driving the market. The central bank surprised investors by signaling that it now expects only two rate cuts in 2025, down from the four previously anticipated. This shift in outlook spooked the market, especially after the Fed lowered its benchmark borrowing rate by a quarter percentage point to 4.25%–4.5%.

By the close of trading, the S&P 500 had fallen nearly 3%, reaching a one-month low and shedding $1.8 trillion in market value. The selloff was largely a reaction to the Fed’s revised rate-cut forecast and the market’s need to adjust to this new reality.

The Fed's meeting has sparked concerns about the direction of monetary policy in 2025. At a minimum, the market now expects a slower, more gradual pace of rate cuts than initially hoped. Adding to the pressure, the outlook for 10-year Treasury yields suggests they could continue to rise, creating more headwinds for stocks. Rising yields make borrowing costlier, attract capital away from equities, and push down stock valuations—factors that weigh heavily on the market.

Fed Chair Jerome Powell’s cautious comments didn’t provide much reassurance. While he argued that the current 4.3% rate is “meaningfully restrictive” and essential for managing inflation and the labor market, his outlook only deepened the uncertainty.

Tech stocks, which had been the primary driver of the market, began to lose momentum, and no other sectors stepped in to fill the void. A jump in inflation expectations further fueled the selloff, while a bond market retreat added to the pressure on equities. Despite Powell’s insistence on a measured approach, his comments failed to calm the market.

Nasdaq

The Nasdaq finally experienced the pullback that was long overdue—though nobody could have predicted the dramatic breakdown we saw. The QQQ dropped sharply, breaking not only its daily 10-EMA but also its daily 20-EMA on the highest relative volume seen in months. The ETF sliced through all demand levels, only finding support around its point of control (POC) at roughly $515.

We've been warning about the incredibly low participation in the stocks that had artificially propped up the rally in the SPY and QQQ—both heavily capitalization-weighted indices, with the QQQ tracking mostly tech-related stocks. Once this small basket of stocks—primarily the FAANG names—started to retrace, the entire QQQ became highly susceptible to a breakdown, and that’s exactly what happened. However, the fallout wasn’t just contained to a handful of tech stocks; the breakdown was much more widespread, with the majority of sectors and industry groups also breaking down—some worse than others.

This pullback highlights the dangers of an over-reliance on a small group of stocks to drive broad market performance, and it serves as a reminder of the fragility beneath the surface. The market is now at a crossroads, and it's clear that broader participation and stronger underlying momentum are needed for any meaningful rebound.

The QQQE, the equal-weighted version of the Nasdaq 100, highlights just how weak the majority of stocks in the Nasdaq have been performing recently. Not only has there been dramatic underperformance since the start of December, but yesterday’s breakdown was far more extreme. The QQQE plummeted below its daily 50-EMA and its weekly 10 & 20-EMAs—all within the span of just two hours.

The big question now is how buyers and sellers will react. Will sellers take profits from yesterday's panic-driven sell-off, and will we start to see buyers stepping in to capitalize on the extreme fear? Or is this the beginning of something more prolonged and pronounced, signaling further weakness ahead? How the market responds in the next few sessions will tell us a lot about the near-term direction.

S&P Midcap 400

Midcaps have been absolutely hammered since late November, when they peaked at $624. Since then, they’ve been on a steady downtrend, experiencing a brutal 16 consecutive red days—only one inside day back in early December broke the streak.

At this point, there’s not much more analysis to add to the MDY. The underperformance over the last two months is clear, and we’ve discussed it every day. The failure to find any demand at key levels like the 10, 20, or 50 daily EMAs shows just how incredibly weak this segment is. Until we see a base form and the MDY finds support at a sustainable level, we’re staying far away from this area. The risk here is simply too high, and there’s no reason to engage until we see a clear shift in momentum.

Russell 2000

The small caps are showing an identical technical setup to that of the Russell 2000, with the IWM breaking below its 50-EMA early yesterday, selling off nearly -5%, and also taking out its weekly 10 & 20-EMAs.

Both the IWM and MDY had an unfilled gap from the November 6th gap up, which has now been filled. While this gap fill is a minor "upside" in the context of this sell-off, it’s still worth noting as a potential point of interest. Despite the overall weakness, it shows some residual support at certain levels, though the broader trend remains bearish.

DAILY FOCUS
Get Out Of The Way: Let The Trend Play Out

Let’s get one thing straight: it’s way too late to be initiating new short positions after a big sell-off. The time to short is before the decline, not after it. Chasing the market down can leave you with unnecessary risk and little reward. If you’re looking to short now, you’ve missed the best opportunity to capitalize.

Similarly, jumping into new long positions after a big pullback is a dangerous game. Unless you have a crystal ball that can predict market bottoms, trying to catch the perfect low is a fool’s errand. Instead of trying to time the market, focus on holding any open positions you have and letting them play out. Use your 10 & 20-EMAs to trail your stops and manage risk as you ride out the volatility.

If you truly want to be a top trader, understand that trading is 90% research, sitting on your hands, waiting for the right moment to initiate exposure—and then waiting some more. Think of it like how a lion hunts: patient, calculated, and always waiting for the perfect opportunity to strike.

The key right now is patience and discipline. Run your scans every day to identify the highest relative strength sectors, industry groups, and stocks. Focus on those setups, but don’t rush into anything. Opportunities will present themselves, but they need to come to you—don’t force trades.

Join The Team!
Turn Market Volatility into Opportunity

Swingly is designed to help you take your swing trading to the next level. With daily insights, expert strategies, and full transparency into how we manage our own trades, you’ll have everything you need to trade smarter, more confidently, and more profitably. Here’s what you’ll get:

• Daily Market Reports: Stay ahead with our daily breakdown of market breadth, top-performing sectors, and industry groups—highlighting where the best opportunities are right now.

• Swing Trading School: Access a complete library of lessons, from foundational strategies to advanced techniques, all designed to sharpen your skills and boost your trading confidence.

• Real-Time Trade Transparency: See how we’re managing our own positions, offering you direct insight into our strategy, risk management, and decision-making process.

• Trade Management Database: Gain access to a comprehensive archive of past trades, performance metrics, and key insights to help refine your strategy and improve your results.

And so much more…

We don’t just give you the tools to succeed—we show you how to apply them in real-time. With consistent updates and actionable insights, you’ll have everything you need to make informed decisions, manage risk, and maximize returns.

To make things better, we also offer a complete one-month, risk-free guarantee. If you’re not satisfied with the insights, tools, or resources you receive, simply let us know within 30 days, and we’ll refund your membership—no questions asked.