OVERVIEW
A Major Rejection On All Key Indices

The US stock market faced another tough day yesterday as selling pressure once again overshadowed buying activity, dampening expectations for a swift recovery. Both the S&P 500 and Nasdaq saw their third consecutive losses, highlighting ongoing challenges.

During times like these, it's wise to maintain a steady approach and resist the urge to make hasty moves. While the market struggles in the short term, there are still compelling reasons to be optimistic. Growth stocks continue to lead the way, and earnings forecasts remain strong, making the US market an attractive place for long-term investors.

Nasdaq

The Nasdaq saw a significant rejection in yesterday’s session, raising concerns about how drawn out this pullback or correction could be. Before the market opened, we highlighted the importance of the QQQ's failure to hold above its daily 10-EMA on Friday. This was a critical signal, as the QQQ, driven by the strength of FAANG stocks—Facebook (META), Apple (AAPL), Amazon (AMZN), Nvidia (NVDA), and Google (GOOG)—had been leading the market higher.

However, yesterday’s price action told a different story. The QQQ gapped down below its daily 10-EMA and was sharply rejected at its Point of Control (POC) level, a significant resistance area. This rejection indicates that the pressure on the Nasdaq is building rather than easing. Now, the 50-EMA becomes the last line of defense, supported by the visible range volume profile (VRVP) and a major demand level around $512. If this level fails to hold, we risk seeing the QQQ enter a deeper drawdown, triggering a more significant bearish markdown.

S&P Midcap 400

The midcaps also faced a rejection on high relative volume, failing to break above their declining 10-EMA once again. While this isn't entirely surprising, especially with the MDY hovering just above the $563 support level, it signals that the index is on the brink of further downside. If the support fails to hold, we could see the midcaps break down even further, extending this correction for a longer period and increasing the overall market weakness.

Russell 2000

Small-cap stocks also struggled to demonstrate significant buying interest as they tested their declining 10-EMA. The IWM experienced the most notable gap-down open among the major indices, showing considerable weakness. The daily candle barely held on to the $218 support level, further indicating pressure in the small-cap space.

DAILY FOCUS
Patience Pays: Protect Your Principal Capital

Ever since the latest Fed meeting, where Chair Powell dialed back expectations of four rate cuts next year to just two, the market has been pummeled with relentless selling pressure across all sectors and capitalization groups. As long-only momentum traders, we must face the reality: this is not an environment where we can reasonably expect positive outcomes. The temptation to force trades is high—whether it’s trying to time a bottom or impulsively switching to short selling or day trading. But this reaction, though understandable, is a fast track to unnecessary losses.

Trading is already a monumental challenge when you’re laser-focused on mastering a single strategy. Trying to juggle multiple approaches only complicates the process and increases your risk of error. More importantly, why take on risk when your edge simply isn’t there? The ultimate goal of a successful trader is crystal clear: make money when the market aligns with your strategy and, just as crucially, don’t lose money when it doesn’t. Protecting your capital during unfavorable periods is just as significant as compounding it during favorable ones.

Losses and drawdowns are inevitable in trading. In fact, we’re often wrong, with a win rate of less than 45%. However, the key to success lies in the fact that when we’re right, we stand to make multiples more than we lose when we’re wrong. The goal isn’t to avoid losses entirely, but to manage them by not taking unnecessary risks. You don’t need big returns every month or to chase targets—just avoid the major losses and let the returns come when your edge is truly present. Protecting your capital during tough conditions is just as important as growing it during favorable ones, and in many ways, it is the essence of being a successful trader.

Let’s break down how even modest, steady returns can achieve exceptional results:

• January (+5%):
  $10,000 → $10,000 × 1.05 = $10,500

• February (-2%):
  $10,500 → $10,500 × 0.98 = $10,395

• March (+6%):
  $10,395 → $10,395 × 1.06 = $11,125.70 

• April (0%):
  $11,126 → $11,126 × 1.00 = $11,126

• May (+6%):
  $11,126 → $11,126 × 1.06 = $11,781.56 

• June (-1%):
  $11,782 → $11,782 × 0.99 = $11,663.18 

• July (+9%):
  $11,663 → $11,663 × 1.09 = $12,730.47 

• August (+3%):
  $12,730 → $12,730 × 1.03 = $12,993.90 

• September (+6%):
  $12,994 → $12,994 × 1.06 = $13,772.84 

• October (-2%):
  $13,773 → $13,773 × 0.98 = $13,493.46 

• November (+9%):
  $13,493 → $13,493 × 1.09 = $14,693.17 

• December (+1%):
  $14,693 → $14,693 × 1.01 = $14,840.93 

At the end of the year, your $10,000 has grown to $14,841, a return of +48.41%. To put that into perspective, that's a better annual performance than most hedge funds. 

This example shows that consistent, disciplined growth—despite occasional losses—leads to substantial annual gains. It’s about protecting your capital during unfavorable months and staying patient. When you wait for your edge to align, the returns will follow. You don’t need to chase monthly targets or take trades when the probabilities aren’t on your side. Think of it like a roulette table: the reason the house always wins in the long run is that they have a built-in edge. In roulette, for example, the house has a probability of winning around 51% due to the presence of the 0 (or 00, in American roulette), which ensures that the odds aren’t exactly even.

This small, seemingly insignificant edge over time means the casino is guaranteed to make money in the long run, even though individual players may win or lose in the short term. Similarly, in trading, the key to success is understanding probabilities and ensuring that, over time, the odds are stacked in your favor.

When you wait for your edge—your high-probability setups—you’re not trying to win every single trade, just as the house doesn't win every spin. But by consistently aligning with favorable probabilities and avoiding unnecessary risks, you can ensure that your edge compounds over time. In the long run, it's the small, consistent wins that add up, while minimizing the occasional losses that keep your capital intact.

Run your scans, maintain your watchlists, and stay engaged with the market, even if you’re not pulling the trigger. Use this period to refine your approach, study past trades, and ensure you’re ready to act decisively when the tide shifts in your favor.

Discipline and patience are your most valuable tools right now.

WATCHLIST
The Few Amongst The Many

SEI: Solaris Energy Infrastructure, Inc.

• SEI has been one of the strongest and most resilient stocks not only over the last two weeks, as the broader market has been hit hard, but also in early November, when SEI’s earnings report sparked a +142% rally in just four weeks, making it a momentum-leading name.

• Since then, the stock has experienced a very orderly pullback, finding support on its daily 20-EMA, pushing higher, and now trading above its daily 10-EMA. Currently, SEI is chopping sideways and consolidating while the rest of the tech sector and broader market continue to struggle.

• While we may see continued consolidation, the strong defense of the rising 20-EMA is something we need to track closely.

APP: Applovin Corporation

• APP has been a relative strength leader in the software and technology sector ever since the market began to shift in late November. During this period, when breadth started to deteriorate among large-cap tech names, APP stood out. While the capitalization-weighted QQQ continued to push higher, the rest of the large-cap tech stocks were under pressure, as evidenced by the equal-weighted QQQE breaking down. APP's resilience highlights its strength within the sector.

• The stock has been making a series of higher lows over the past week, and even further back, we’ve seen a contained and orderly sideways consolidation along the daily 10- and 20-EMAs, which have been defended quite well.

• While there’s no certainty whether APP will eventually break down and follow the broader trend, the current price action suggests that this relative strength leader likely wants to push higher.

• We won’t be looking to open new exposure in APP today, but it’s an example of the type of stock we will prioritize once the current selling pressure reaches its climax.