OVERVIEW
Another Lackluster Session: Sellers In Control

Stocks started the new year with a turbulent first trading session, opening with promise but fading as the day progressed—a characteristic move in bearish market environments. The persistent climb in the 10-year Treasury yield (US10Y), holding strong near recent highs, continues to weigh heavily on equities, keeping the pressure on risk assets.

The market has been in a pullback phase for several weeks, and signs of meaningful life remain absent. Yesterday’s session was riddled with false breakouts—a hallmark of these volatile and treacherous periods. This environment underscores the value of staying on the sidelines, as cash often proves to be the safest position when the market lacks clarity and follow-through.

This is an important topic, so we’ll spend some time unpacking it. Let’s take Rush Street Interactive (RSI) as an example. RSI has been one of the strongest names in the consumer services sector and a leading relative momentum stock over the past few months. From a purely technical perspective, traders would have noticed a characteristic contraction in volatility over the last month. RSI had been forming a tight range, marked by decreasing price movement, a narrowing trading range, and declining volume.

For many technical traders, yesterday’s high relative volume breakout above the declining resistance would have appeared to be an ideal setup to open exposure. However, this breakout turned into a fake-out, catching traders off guard and leading to losses.

A similar scenario played out yesterday with AMBA, a semiconductor stock and another leader in a strong relative strength sector. Like RSI, AMBA exhibited a characteristic contraction in price action and volume, eventually breaking above its descending resistance level. However, unlike RSI, AMBA’s breakout occurred on low relative volume—a clear red flag that traders should not ignore.

Why did these breakouts fail? The reality is that in a trending, more speculative market, both of these setups likely would have seen follow-through. However, as William O’Neil emphasizes in his CANSLIM methodology, the “M” stands for market direction, and situational awareness is a critical—yet often underrated—asset for any trader. This means evaluating whether a trade has a high probability of success given the current market conditions.

In a market environment where the broader trend is pushing lower, fear is elevated, and bond prices are climbing, the likelihood of individual stocks defying the trend and breaking higher is significantly reduced, even for the strongest names. While a handful of stocks may still manage to push higher, the majority will not. As traders, our goal should always be to align ourselves with trades where the odds are in our favor—not against us.

Nasdaq

The Nasdaq extended its weakness yesterday, breaking below its daily 50-EMA—a critical level we highlighted in yesterday's report as pivotal for any near-term recovery hopes. However, when we shift to a broader perspective and examine the weekly chart for QQQ, a more optimistic picture emerges. The index found support at its weekly 10-EMA, with demand stepping in to prevent a deeper breakdown.

This is a key level to watch, as it increases the likelihood of a potential bounce or even a reversal. Should QQQ hold the $510 demand zone and start showing strength, it could create a more favorable environment for breakouts to succeed. Unlike the failed moves in RSI and AMBA, a supportive bounce here may align with broader market dynamics, providing a foundation for follow-through on leading names.

S&P Midcap 400

Midcaps have continued to hold their Point of Control (POC) level, trading steadily within this zone and displaying the kind of healthy consolidation necessary for potential relief and a shift back to the upside.

To see meaningful progress, the declining 10-EMA must stop acting as resistance. Once MDY decisively overtakes and holds above this level, it could set the stage for a sustained rally. This technical development would signal improving conditions and increased strength within the midcap space.

Russell 2000

Small caps are showing a similar technical pattern. The 10-EMA continues to act as resistance, but price action is being narrowly confined between this resistance level and the Point of Control (POC), which is providing support. This consolidation between the two levels could indicate that a breakout or breakdown is imminent, and once the price breaks free from this range, it will reveal the next direction for small-cap stocks.

DAILY FOCUS
Stay Sharp: Leave Your Bias At The Door

We may very well be approaching the end of this major distribution phase, and it's possible that we’ll start seeing stocks make moves higher. Today is crucial. For the bulls, we need to see the POC levels on both MDY and IWM continue to hold, with buyers stepping in aggressively to defend them. In the large tech sector, the QQQ looks poised for a potential bounce. If buyers can maintain support at both the weekly 10-EMA and the daily 50-EMA—two key demand zones—we could see some breakouts begin to gain traction. However, whether these breakouts will follow through or ultimately fail is still uncertain.

We’ll be watching closely today and won’t hesitate to take quarter-risk positions with small position sizing to test the waters if we start seeing follow-through. Of course, we’ll need to see our typical opening range high hold (on the 5-minute chart) and a breakout candle with high relative volume on the 60-minute chart for any trigger to enter even a small test position.

WATCHLIST
Today’s Breakout To Watch

NVDA: NVIDIA Corporation

• NVDA is one of the key names we’re watching today, largely due to the impressive multi-month flag it has formed on the daily timeframe. The stock has contracted on its 10, 20, and 50-day EMAs, building a series of higher lows and approaching its breakout level above $140. This setup suggests potential for a strong move if it can clear that resistance.

• This aligns with the broader picture of the QQQ, the capitalization-weighted tech ETF, which is sitting at historical demand levels. These two factors—NVDA’s technical setup and the QQQ’s support—are key signs that we could start seeing upward momentum, especially in the largest tech stocks. If NVDA can break higher, it could be a catalyst for the sector.