OVERVIEW
All Risk Assets Continue To Break Down

Right now, there’s no need to overanalyze. Every day, we’re bombarded with headlines about Trump’s tariffs, inflation fears, and potential interest rate implications—but as momentum traders, we don’t need to predict economic policy. We focus on what actually matters: price and volume.

At the moment, uncertainty is the dominant theme. The market is struggling to price in the potential impact of tariffs—whether that means higher producer costs trickling down to consumers, leading to inflation, or simply a broad lack of clarity causing institutional players to de-risk and move capital out of equities. The result? Heavy selling pressure across the board.

One of the clearest signs of this risk-off sentiment is the absolute bloodbath in crypto. Bitcoin (BTCUSD), which we track as a leading gauge of risk appetite, has now erased over $500 billion in market cap. When speculative assets like crypto are getting crushed, it’s a strong signal that investors are moving away from risk and prioritizing protection.

Nasdaq

The Nasdaq (QQQ) has been struggling for months, failing to make any meaningful progress ever since that major weekly reversal candle in mid-December. That moment—when QQQ tested its rising 10-week EMA—marked the beginning of a steady momentum fade, and we’ve been seeing signs of exhaustion ever since.

One of the biggest red flags? Declining volume. Volume is the single most important indicator for assessing trend strength and conviction, and since late January, we’ve seen a steady drop in participation. Even though QQQ managed to break out briefly to all-time highs, the lack of volume made that move unsustainable, leading to the sharp reversal last week—a move that traders across the board felt.

Right now, QQQ is trading below its 10-week EMA and Point of Control (POC)—key indicators that suggest sellers are taking control. If the current downward momentum persists (which seems likely, given the high number of breakdowns across individual stocks), the next key support level to watch is the rising 20-week EMA around $513. A continued move lower toward that level would mark another potential -1.22% decline from current prices.

S&P Midcap 400

The MDY (S&P 400 MidCap ETF) is flashing clear warning signs as a potential Head and Shoulders pattern begins to take shape. While this formation hasn’t fully developed yet, the price action suggests that momentum is weakening, and the broader market conditions make further downside likely.

Right now, MDY is sitting right at its weekly Point of Control (POC)—a key level where the most volume has traded historically. This is a make-or-break zone. If MDY bounces strongly off this level, we could see a potential recovery. However, given the widespread selling pressure across equities, the more probable scenario is a failure to hold—which would confirm a breakdown and likely trigger a multi-week markdown.

One major factor working against MDY right now is that mid and small-cap stocks are typically the first areas where investors reduce exposure during risk-off environments. These stocks tend to be more volatile and highly sensitive to changes in sentiment, making them a natural place for institutional players to pull capital from when uncertainty rises.

Right now, we are seeing exactly that—capital flowing out of risk assets, particularly in the mid and small-cap space, reinforcing the likelihood that MDY could break lower if selling pressure persists. If MDY loses its POC, it could open the door for a much larger move down, potentially testing its 20-week EMA or even deeper support levels.

That said, our job isn’t to predict what will happen next—it’s to analyze what’s in front of us. As long-only traders, we don’t look for short setups, even if this may be shaping up as a textbook short entry for those who do. Instead, we focus on identifying conditions that support our edge, and right now, the market is simply not in our favor.

Russell 2000

The small-cap sector is exhibiting a similar reversal pattern, though in an even more exaggerated stage compared to mid-caps. Unlike MDY, where the Point of Control (POC) is still holding, IWM (Russell 2000 ETF) has already lost its POC and is now testing a crucial support level—the rising 50-week EMA.

We are at a standstill in small caps, with virtually zero progress made since August 2024. The last time IWM tested this level in early January, it held and led to a short-term bounce. However, given the broader market weakness, whether we see another bounce this time is a much bigger question.

A key concern right now is the visible range volume profile (VRVP), which shows a notably low volume cluster between the rising 50-week EMA and $208. When price enters these low-volume zones, it can lead to fast, sharp moves in either direction. If IWM fails to hold this level, we could be looking at a potential -3.74% decline down to $208, where the next significant demand zone appears.

With mid and small caps being the first areas where institutions cut exposure during risk-off environments, the selling pressure we’re seeing is a direct reflection of deteriorating sentiment. If buyers don’t step in soon, the path of least resistance remains to the downside.

DAILY FOCUS
How Well Do You Know Your Process?

"A great trader is not defined by how much they make in good conditions, but by how little they lose in bad ones." – Steven Goldstein, Mastering the Mental Game of Trading

Most traders focus on finding the next trade, but the ones who truly succeed focus on executing their process flawlessly. Your biggest edge isn’t in market predictions—it’s in your ability to adhere to the system you’ve built.

But here’s the real question: Do you actually know your system inside and out?

Know the Math Behind Your System

Let’s take our system as an example:

• Even in the best conditions, we operate with a 30-40% win rate

• We remain profitable because our average risk/reward (R/R) is very high

• Even in an ideal climate, the probability of experiencing 10 consecutive losses in a row in a 100 trade period is 69%

• We will, with 100% certainty, experience at least 6 consecutive losses in a row at some point.

So if you're second-guessing your system after a losing streak, ask yourself: Did you plan for it? Did you expect it? Or are you letting emotions take control?

Evaluate Your Performance—Go Through Your Journal

If you keep a trading journal (which you should), now is the time to go back and assess your execution. Here are some critical questions to ask yourself:

✅ How could you have reduced your average R-loss? Did you cut losing trades at the right time, or did you let them run further against you?

✅ How could you have profited more on your winners? Did you trail stops too tightly? Did you take profits too early out of fear?

✅ How could you have increased your win rate? Did all of your trades meet your entry criteria, or did you take subpar setups just to be active?

✅ Are you tracking your trades properly? If you don’t have hard data on your execution, how do you know what’s working and what’s not?

✅ How long do you typically stay in cash during tough market conditions? Do you have a predefined rule for when to step back, or do you find yourself forcing trades just to stay active? Successful traders know that sitting on the sidelines is a position too—are you respecting your system’s signals, or are you trying to fight the market?

Ask yourself:

• Are the major indices (SPY, QQQ, RSP, IWM) in clear distribution? If capital is flowing out of equities, is there any real edge in taking new positions?

• Are individual stocks failing to follow through on breakouts? If setups aren’t working, is that a sign that conditions aren’t favorable?

• Is volume confirming price action? Are you seeing real buying interest, or is every bounce on weak volume, indicating a lack of conviction?

• How long have you historically stayed in cash during rough climates? Are you tracking this in your journal and recognizing patterns?

A real trading system isn’t about guessing—it’s about understanding your probabilities, refining your execution, and staying disciplined. We understand the frustration that comes with market pullbacks and choppy conditions. As traders, we thrive on momentum, clear trends, and high-probability setups—but when the market isn’t cooperating, it can feel like we’re just sitting on the sidelines, waiting for something to happen.

If you can’t answer these questions with confidence, you’re not trading a process—you’re just hoping for the best. Know your numbers. Know your system. Execute with precision.

WATCHLIST
Build Your Playbook While Others Panic

Right now, with the market in a clear risk-off environment, the best move isn’t to force trades—it’s to observe, prepare, and refine your strategy. When markets are choppy or in a deeper correction, capital preservation is just as important as capital growth. This is when smart traders step back, study price action, and build a watchlist for when conditions improve.

What to Scan For:

✅ Relative Strength: Which stocks are holding up despite the selling? These are the names that could lead the next move higher.
✅ Key Support Levels: Where are the strongest names finding demand? Watching how stocks react at major support zones can give insight into future setups.
✅ Sector Rotation: The best trades often emerge when capital starts flowing back into risk assets. Which sectors are showing early signs of accumulation?
✅ Volume Clues: Are there stocks seeing big buyers quietly stepping in? Institutions often accumulate during market weakness before the next rally.

Want to see exactly how we’re preparing for the next big move? 🚀

Join us as we break down the stocks we’re tracking, refine our strategy, and navigate the market together. Plus, get access to our weekly live sessions, where we analyze conditions in real-time and discuss actionable insights.

This is the time to refine your edge, review past trades, and sharpen your execution—so when the next opportunity comes, you're ready to act with confidence. Stay patient, stay sharp, and let the market come to you.