OVERVIEW
The Tech Giants Are Waking Up

Today, all eyes are on Fed Chairman Jerome Powell, who is set to speak later in New York. Wall Street is eager to hear if growing expectations for a December rate cut will hold up. With the Fed signaling support for more easing ahead of their final meeting of the year, there’s a nearly 74% chance the central bank will cut rates by 25 basis points at the December 18th meeting—up from 66% just a week ago.

While Powell’s speech will be important, it’s not our main focus today. What we’re really paying attention to is the rotation in market leadership. Over the past few months, small- and mid-cap stocks have been at the forefront, but now, large-cap tech giants are taking center stage. This shift is driving the capitalization-weighted S&P 500 (SPY) higher, and it’s crucial to track which sectors are pushing the market’s moves.

Recently, we’ve seen strength in sectors such as Industrials (XLI), Utilities (XLU), and Financials (XLF), which have been leading the market. However, these sectors are now starting to show signs of weakness, with Utilities in particular taking a significant hit. This shift is noteworthy as these defensive sectors were previously seen as market leaders.

Meanwhile, Technology stocks appear to be attracting major buying interest. The XLK has seen a notable pre-market breakout above $236, a critical supply level that had been acting as resistance. This breakout follows a strong move earlier in the week, when XLK broke out on high relative volume—a signal of growing momentum. With these developments, the XLK is now in a sustained uptrend, potentially heading into its third consecutive session of upward movement.

Nasdaq

The Nasdaq is confirming this rotation, having seen a significant breakout in late November above its Point of Control (POC) at $505. Prior to this, the QQQ had been stuck in a sideways range for several weeks. The breakout above its descending resistance level and into overhead supply was initially tested on Monday, with the real confirmation coming yesterday.

What’s particularly impressive is how easily the QQQ broke through the overhead supply zone between $510 and $515. This smooth move higher suggests strong buying momentum, and now the QQQ is pushing firmly toward all-time highs. This further solidifies the shift in market leadership and indicates that the tech-heavy Nasdaq will continue to lead the charge in the coming sessions.

S&P Midcap 400

The recent behavior in the QQQ stands in contrast to what we've seen over the last two weeks. While the QQQ has been consolidating and underperforming, the MDY (MidCap ETF) has been on the rise, with a significant breakout in mid-November that propelled mid-cap stocks to all-time highs, pushing the MDY firmly above $600 for the first time.

However, the MDY is now experiencing some profit-taking at these elevated levels, which is completely normal after such an explosive move. This pullback is healthy, and we are seeing the MDY finding support at the rising 10-EMA, with buyers stepping back in yesterday to hold the mid-caps up. This price action suggests that the mid-cap sector remains strong, and any pullbacks could present buying opportunities for those looking to enter or add positions in this segment.

While the mid-caps (MDY) have shown strong performance, they are clearly not the focus in the immediate short term. The QQQ, driven by large-cap technology stocks, is currently the sector with the most potential for immediate strength and should be your main priority.

Russell 2000

The small caps are exhibiting similar behavior to the mid-caps, having outperformed since mid-November. Currently, they are experiencing a healthy and linear pullback to their rising 10-EMA following some profit-taking at these new relative highs.

The Visible Range Volume Profile (VRVP) on the Russell 2000 shows a low-volume pocket down to $238, which will likely need to be tested before the small caps can rebound higher. There is clear support between the 10-EMA and 20-EMA ($239-$236), which increases the likelihood that we won’t see a deep pullback. Instead, we are likely to see a short-term consolidation here before another leg higher. The broader macro climate aligns with this, with seasonal strength in the equities market heading into the new year, and the current environment of lowering interest rates providing additional tailwinds for growth.

DAILY FOCUS
When Sectors Rotate, So Should Your Focus

As we head into today’s session, it’s clear that large-cap tech stocks are leading the charge. The rotation away from smaller stocks has made room for momentum in tech, and this is where the market’s energy is currently focused. However, as always, it's crucial to manage your risk.

The market is volatile, and fakeouts and failed breakouts are part of the game. Just because a stock breaks a key level doesn’t mean it’s guaranteed to keep moving in the right direction. Be prepared for the possibility of reversals, and never overcommit capital to any single trade. It’s critical to expect your trades to fail, which helps you approach each position with caution and a clear risk-management plan in place.

Today also brings Fed Chairman Jerome Powell’s speech this afternoon, which could spark some volatility. While it’s unlikely Powell will say anything to scare the market off, short-term fluctuations are possible. Use this as an opportunity to remain disciplined and focus on your risk parameters. Tighten your stops where necessary and avoid getting caught up in the noise.

With large-cap tech showing strength, this is where your focus should be, but always remember that markets can be unpredictable. Stay agile, manage your risk carefully, and never assume a trade is a sure thing. The market can and will test your resolve—be ready for it.

WATCHLIST
Major Breakouts To Watch Today

NVDA: NVIDIA Corporation

• Today, NVIDIA (NVDA) is firmly on our radar, showing strong technicals as it continues to build a multi-week base since October. The stock has recently broken above its 10-EMA and 20-EMA, after finding solid support on its rising 50-EMA, signaling potential for further upside.

• However, as with any breakout, it’s important to be cautious and not rush into trades. If NVDA opens with a gap, remember that gaps tend to get filled, and it’s crucial to let the market show its true direction before entering. Use the 5-minute opening range to confirm a breakout before committing capital. Sitting out the first 5 minutes allows the stock to establish its real momentum, and this extra patience can help avoid chasing a trade prematurely.

• Don’t force a trade just because you think NVDA "should" go up. Let price action dictate your entry points and volume confirm the entry, and trust the setup rather than your assumptions.

PSTG: Pure Storage, Inc

• Pure Storage (PSTG) reported very strong Q3 earnings for the quarter ending October 2024, with revenue reaching $831.07 million, an 8.9% increase year-over-year. This topped the Zacks Consensus Estimate of $814.77 million by 2%, highlighting impressive top-line performance. The EPS came in at $0.50, matching the year-ago quarter and surpassing estimates by 16.28% (with a consensus estimate of $0.43).

  Breaking it down further:

  • Product revenue: $454.74 million, slightly beating the $439.56 million estimate (+0.3% YoY).

  • Subscription services revenue: $376.34 million, exceeding the $375.38 million estimate (+21.6% YoY).

  • Non-GAAP Gross profit: Both subscription services and product exceeded expectations, reflecting healthy margins.

• On the technical side, PSTG’s chart setup looks promising, with a long-standing period of sideways trading over the last year. The recent earnings report appears to mark a bullish pivot, signaling a shift in market sentiment towards the stock. Additionally, as part of the tech sector, which is currently leading the market, PSTG could see continued momentum. For today, we’ll be focusing on a 5-minute opening range high (ORH) breakout as a potential entry point.