OVERVIEW
The Worst Is Probably Behind Us

Yesterday, the market finally got a bit of relief as inflation data came in softer than expected. The Consumer Price Index (CPI) rose just 0.2% for the month, bringing the annual inflation rate to 2.8%—lower than the expected 2.9%. This is important because it pushes back against the idea of stagflation (where inflation stays high while growth slows), which has been a major concern lately.

A key takeaway here is that lower inflation gives the Federal Reserve more flexibility. If inflation had come in hotter, the Fed would have been under pressure to keep interest rates high for longer, even if the economy started to weaken. But with this lower-than-expected reading, the Fed has a little more room to act if growth slows.

That said, the big question now is the impact of tariffs. Will they push inflation back up, or will they hit economic growth harder? Right now, the bond market seems to think weaker growth is the bigger issue, as traders are pricing in three rate cuts this year—which means they expect the Fed to lower rates to support the economy.

On top of that, this morning’s Producer Price Index (PPI) report—which tracks inflation at the wholesale level—came in at 0% (compared to the expected 0.3% rise). This suggests that inflation pressure from businesses isn’t building, which is another good sign for keeping prices in check.

Bottom line? Inflation seems to be cooling for now, but with tariffs and global uncertainty still in play, we’re not out of the woods yet. The market is still in a fragile spot, and it’s too early to assume we’re in the clear.

Nasdaq

The Nasdaq, which is by far the most important index we track alongside the S&P 500, has now bounced for three consecutive days. However, it's currently stuck within a dense supply/demand zone between $467-$481, struggling to find firm footing.

This zone is critical because it represents an area where a significant amount of volume has been traded over time—meaning a lot of buying and selling activity has happened here. The key tool to visualize this is the Visible Range Volume Profile (VRVP), which you’ll often see plotted on the right side of a chart.

Why Does This Matter?

1. High-Volume Nodes (HVNs): These are price levels where a lot of transactions have taken place. When price enters these zones, it tends to slow down because buyers and sellers are actively engaging, creating choppy price action and potential reversals.

2. Low-Volume Nodes (LVNs): These are areas where little volume has been traded. When price moves into an LVN, it often moves quickly through since there is less resistance.

How This Applies Now

• The Nasdaq is currently in a high-volume zone, meaning supply (sellers) and demand (buyers) are battling it out.

• If it pushes above $481 and holds, that’s a sign buyers are taking control, and we could see a stronger move higher.

• But if sellers step in aggressively and the Nasdaq fails to break out, we could see another rollover to retest lower levels.

This is an inflection point, meaning we’re seeing a battle around the Point of Control (POC)—the price level where the most volume has historically been traded. So far, we are trending below this key level, but it’s being actively contested.

Typically, when prices drop into high-volume supply/demand zones, reversals or consolidations often occur. If you look to the right of the chart, you’ll notice that this POC level has historically acted as a turning point, most notably serving as strong support for the majority of the time. That’s why it remains such a critical zone.

We expect some choppiness here, which would be ideal as it could allow the QQQ to stabilize and consolidate. This would help slow down selling pressure, making it easier for the market to form a stronger base- ideally a double or triple bottom to reverse the trend direction.

S&P Midcap 400

The midcaps are also sitting right on their historical Point of Control (POC) level, as shown by the Visible Range Volume Profile (VRVP) above. This is exactly why we remain cautious—it’s simply too early to start aggressively going long.

As much as we’d like to say with confidence that shorts will start closing and buying pressure will increase, the reality is that we may just chop around these levels for a while. There’s no clear signal yet that momentum is shifting in favor of the bulls.

That said, one positive development is the declining volume we’ve seen in the MDY and QQQ over the last few sessions. This suggests that downside momentum is slowing, which is often a necessary step before a meaningful bottom can form.

Russell 2000

Small caps will likely be the last group to see any major follow-through to the upside, even if we do get a bounce. However, one thing worth noting is the Visible Range Volume Profile (VRVP) on the right, particularly the low-volume pocket between the current price (resting on the POC) and the low-volume cluster around $215—the level where IWM lost its daily 200-EMA.

A similar low-volume pocket is also visible on the MDY, which suggests that if we finally see some meaningful relief in the markets, small caps could recover lost ground quickly. These low-volume zones act as areas where price tends to move fast, as there isn’t much resistance to slow things down.

While it’s still too early to be aggressive, this setup tells us that if we get confirmation of strength, we could see an explosive move higher which may see a lot of small and microcap stocks which are very volatile, make some exciting breakouts.

DAILY FOCUS
Better To Be Out & Want In, Than In & Want Out

If you managed to defend yourself well during this sell-off and avoided significant drawdowns, that’s a huge win. Preserving capital when the market is weak puts you in a position of strength when real opportunities emerge. Remember—staying in the game is more important than forcing trades.

Right now, we’re seeing signs that the downtrend is slowing, with a long-standing demand level across all market caps being tested. That’s notable, but it’s still too early to assume a major reversal is in play. A lot of traders get caught trying to predict bottoms instead of letting the market confirm them. Don’t be that trader.

What you should be doing:
✅ Tracking relative strength daily—leaders are quietly emerging, resisting the broader decline.
✅ Focusing on stocks with strong setups—big breakouts happen after corrections, not during them.
✅ Avoiding unnecessary risks—there’s no need to rush into long exposure while momentum remains weak.

The key right now is controlled patience—watch, track, and wait. The best trades will come when the market is ready, not when you are impatient.

WATCHLIST
Focus On These On A Strong Reaction

LMND: Lemonade, Inc.

• Once again, LMND sits at the top of our focus list, as the stock is getting incredibly tight on declining volume—a classic setup that often precedes a big and aggressive move in either direction. It’s currently consolidating between overhead resistance and a strong support zone, creating a key inflection point.

• What stands out is LMND’s resilience despite broader market weakness. Even after its earnings gap down, the stock recovered well, showing strong relative strength. Given how well it has held up during this market downturn, a break lower seems less likely, but patience is key—we need the market to ease some of its downward pressure before committing to a move.

BABA: Alibaba Group Holdings Ltd.

• BABA remains one of the strongest names in the market and a clear leader within the China-related stocks, which continue to outperform. The stock is holding up extremely well on declining volume, forming a tight contraction on the daily chart after an explosive rally over the past two months.

• If China continues to show strength, BABA is a top candidate for further upside. However, if we start to see money rotating out of China and back into U.S. equities, BABA will likely struggle to maintain its momentum. Keep an eye on sector rotation—this will be a key factor in determining its next move.