OVERVIEW
Letting The Emotions Cool

The major market averages pulled back on Tuesday as swing traders took a breather after the post-election rally. This dip was mostly profit-taking after some strong gains and a bit of cautious positioning ahead of a busy lineup of economic reports.

The main event on everyone’s radar? October’s Consumer Price Index (CPI) report, coming out Wednesday morning. This is a big one for getting a sense of how prices have moved and what inflation looks like. Add in Friday’s retail sales report and producer prices data, and you’ve got a week that could reveal a lot about the economy’s strength.

Even though the market may be less reactive this week after last week’s Fed rate cut and the election results, surprises in the data could still make waves. The current expectation is for a 0.2% CPI increase for October and a 2.6% rise year-over-year. These numbers aren’t just for the headlines—they’re critical for anticipating the Fed’s next moves on interest rates.

For us swing traders, staying on your toes is key this week. The market’s reaction will likely depend on how the data matches up with expectations, so be ready for opportunities whether the numbers align, surprise, or disappoint.

Earnings Season Coming To A Close

We’re now in the final stretch of the third-quarter 2024 earnings season, and the results have been stronger than many anticipated. Up to this point, 455 of the S&P 500 companies have shared their quarterly earnings, showing solid performance. Total earnings for these companies have risen by 7.1% year over year, supported by a 5.5% increase in revenues. Notably, 73.5% of these companies have surpassed earnings per share (EPS) estimates, while 61.5% have exceeded revenue forecasts.

These results indicate that, despite economic uncertainties, many businesses have managed to outperform expectations and deliver healthy growth. As we move through the last phase of earnings season, it will be interesting to see if the remaining companies continue this positive trend and how the market reacts to these stronger-than-expected results.

This also sets the stage for potential strong post-earnings drift (PED) opportunities, where stocks of companies that report better-than-expected results could see continued momentum in the days and weeks following their earnings release.

Nasdaq

The Nasdaq is taking a brief pause in its accelerated rally over the last few sessions, consolidating around the $512 level with heavy trading volume between $511 and $515, as seen in the visible range volume profile (VRVP).

Buyers are stepping in and defending on every intraday dip, which is a positive sign and indicates strong support to keep pushing the major tech stocks higher. Looking ahead, we anticipate a potential breakout for the QQQ above $516, likely in tandem with NVDA, which is also showing signs of a mini volatility contraction pattern (VCP) as it looks to break the $150 mark this week.

S&P Midcap 400

The midcaps are currently consolidating after filling their gap yesterday between $607 and $604. They’re now looking to base out here and trade sideways, which would be the ideal scenario to set the MDY up for a potential breakout higher in the coming sessions. When you see a "scary" red candle like this, always check the volume and zoom out. The volume during this decline was quite low, and given the gap that needed to be filled, this pullback was almost inevitable. It's better to get it over with sooner rather than later.

The demand remains strong, and we don’t expect significant downside in the MDY from here. Buyers are stepping in to defend the $600 level on an intraday basis, and it’s crucial that we continue to see this support today.

Russell 2000

The small caps and midcaps are showing nearly identical chart setups, with both experiencing a retracement yesterday to fill the unfilled gap in the IWM, although the IWM saw this happen on higher relative volume. We’re now seeing a strong level of demand build up around the $237 mark, as reflected on the VRVP. We anticipate further sideways consolidation here, ideally with this level continuing to be supported.

It appears we may be seeing the start of a bull flag formation on both the IWM and MDY. For those familiar with Kells' cycle of price action or Wyckoff logic, this is a classic example of healthy consolidation following a rally.

If you want to learn more about market theory and deepen your understanding of market structure, we have an entire module on this topic available for you to access at your convenience.

DAILY FOCUS
Some Patience Will Go A Long Way

As the market consolidates following its recent rallies, now is the time to evaluate key criteria to ensure you’re positioned for the next move. Patience is still essential, but it’s also crucial to stay vigilant and ready to act on the right opportunities as they emerge.

1. Identify Leading Sectors and Stock Themes

Focus on sectors that are outperforming the broader market. Technology, semiconductors, and growth stocks are showing strong relative strength and are likely to continue leading if the market breaks higher. Look for stocks within these themes that are holding up well during the current consolidation or are setting up for potential breakouts.

2. Evaluate Relative Strength

Look for stocks or sectors exhibiting the highest relative strength. This is particularly important during consolidation periods when some names will outperform while others lag. Use tools like relative strength indicators or sector performance charts to find which areas of the market are holding strong compared to the overall index. These are your leading candidates for entries when the market resumes its upward trend.

3. Wait for The Perfect Entry Points

Once you’ve identified stocks or sectors with relative strength, be patient for the right entry signals. Ideally, you want to enter stocks that are either breaking above key resistance levels or holding strong at support after a pullback. Pay close attention to volume—low-volume pullbacks often signal that there is little selling pressure, making them ideal opportunities for a rebound.

Stay aware of upcoming inflation data, as it can significantly influence market direction. Inflation readings can affect expectations for future interest rates, which in turn can impact growth stocks and overall market sentiment. Evaluate how the market reacts to the inflation data—if the response is positive, it may signal further strength in certain stocks. Conversely, a negative reaction may signal further consolidation or volatility ahead

While patience is key right now, it’s also important to be proactive in identifying high-relative-strength stocks and sectors. The market is taking a breather, but the conditions are being set for the next move. Use this time to carefully evaluate which stocks are leading, look for favorable entry points, and stay aware of external factors like inflation data that could impact market sentiment. When the market is ready to break higher, being prepared will allow you to capitalize on the opportunities that emerge.

WATCHLIST
Today’s Stocks To Focus On

CAVA: CAVA Group, Inc.

• CAVA shares are surging 17% after the fast-casual restaurant chain reported another double-digit rise in foot traffic. Given the strength of the stock, today’s setup, based on this earnings-driven episodic pivot (EP), is one to watch closely.

• Be cautious of a potential fade in premarket trading. To manage risk effectively, consider using a strategy like the 5-minute opening range high breakout, combined with hourly relative volume, to confirm your entry. This approach will help ensure you're getting in at a solid point as the stock continues its momentum.

RIVN: Rivian Automative, Inc.

• RIVN is making a move higher following news of its partnership with Volkswagen. With Tesla, a key competitor, showing strong performance, this new collaboration could be the catalyst RIVN needs to revitalize the stock.

• The electric vehicle market has been under pressure for some time, but over the past two months, RIVN has built an important sideways base. Now, in premarket trading, it’s pushing above $11.30 and its 50-EMA, which could signal the start of a new uptrend.

• If this level holds, particularly on a 5-minute opening range high (ORH) breakout, it could present a solid entry point as RIVN enters a potential Stage 2 uptrend. Keep an eye on this area for confirmation before jumping in.