OVERVIEW
Is The Pullback Finally Coming To An End?

The market remains on a positive trajectory, despite some geopolitical risks that have surfaced recently. While tensions between the U.S. and Russia — including Putin's warning about a lowered nuclear threshold and Ukraine's missile strikes on the Russian border — initially created some pressure, the response has been relatively calm. There's been no panic, just a bit of digestion of the recent gains.

Yesterday, the market saw a strong bounce, with all major indices pushing higher. After a tough couple of weeks, the S&P 500 has bounced back, recovering from its drop last week that briefly erased its post-election gains. The index is still on track for potential growth in 2024, despite the volatility.

Looking ahead, US stock futures this morning are pushing higher as everyone is bucking down and waiting for Nvidia's earnings report which is set to come in in after hours today. Nvidia, which has surged 45% since its July low, is seen as a key player in the AI sector, and its guidance could shape market sentiment for days to come. The stock has been a major driver of growth, up nearly 200% this year and over 1100% in the last two years, setting new records since the election.

That said, the technology sector, and semiconductors in particular, have struggled to maintain momentum after their initial breakouts earlier in the cycle. A large chunk of this has happened largely due to the pre-election volatility which did cause some chop in the market.

So, what does all of this mean for today’s session?

Simply put, Nvidia's earnings are critical — if the stock disappoints tomorrow, it could have a significant negative impact on the overall market. This is especially important considering that both the SPY and QQQ are capitalization-weighted indices, meaning that the larger the market cap, the greater the influence these stocks have on the broader market. That being said, we're seeing strength on a broader level now compared to last year, when the market was driven by a select few stocks.

What's particularly encouraging is how the equity markets have managed to brush off the recent tensions between Russia and the U.S. This easily could have sparked panic, but instead, we saw a strong bounce yesterday. Even more telling is the fact that the volatility index (VIX) remains low, staying below the 20 mark — a sign that investor sentiment is relatively calm despite the geopolitical uncertainties.

Nasdaq

The Nasdaq had a strong day yesterday, showing signs of strength after finding support over the last three sessions. It formed a series of higher lows and managed to break above and hold its 20-EMA, which had previously acted as resistance. This shift is crucial, as the index is now positioning itself to potentially break above the overhead 10-EMA. If the QQQ can achieve this, it would signal the start of the next leg higher for tech stocks.

Notably, there’s a low-volume cluster just above the 10-EMA level around $505. This area is showing little resistance, with the next likely resistance zone coming at $512. If the market sees follow-through today, this could be a key level to watch as the tech sector attempts to build momentum.

S&P Midcap 400

The midcaps are performing well today, with a strong high-volume bounce. They managed to push through their descending 20-EMA and break above it. The high volume is encouraging, signaling that the move is driven by demand rather than sellers aggressively pushing the price down. The healthy green candlestick further reinforces this, indicating that buyers are stepping in to accumulate shares of the MDY.

The focus now remains on the declining 10-EMA. For a sustained recovery, we need to see more aggression from buyers to push past the $592 level. If this level is overcome, it could set the stage for a recovery run to the upside.

Russell 2000

The small caps, as always, are following the lead of their larger counterparts with a recovery day, bouncing back into their descending moving averages. While there is still an unfilled gap down to $224, the strength seen yesterday, if repeated today, could propel the IWM toward $236 — the next major supply zone overhead.

Given their greater average daily range percentage, small caps are likely to present the most volatile breakout if a market markup comes in this week. However, it's crucial to pay closer attention to industry group performance, rather than just capitalization group performance. This approach is often the most effective tool for positioning yourself in the right sub-market groups, where the best opportunities for growth can be found.

DAILY FOCUS
This Is Shaping Up For A Strong Recovery

The potentially strong earnings report from Nvidia tomorrow is no small piece of news. Not only will it reveal how institutional investors are positioning themselves for growth stocks, but it will also help determine if the market sentiment can flip back to bullish after the pullback following the Trump election. Nvidia's earnings could act as a catalyst for the broader market, providing clarity on whether the recent pause was simply a consolidation or the start of a longer-term bullish run.

Looking at the broader picture, today seems to be shaping up as a day where we’re positioning ourselves for recovery. We saw several breakouts yesterday, and some of these provided opportunities in leading themes. Our focus list is growing daily with potential opportunities. Specifically, gaining exposure to a potential Nvidia breakout before its earnings could seem tempting, especially after its breakout yesterday. However, buying into a stock right before it reports earnings — particularly one as consequential as Nvidia — is never a risk-free move. It's crucial to remember the importance of protecting our capital and being strategic about our exposure.

As swing traders, it’s vital to remain patient and disciplined as oru set-ups don’t present themselves everyday, even when the temptation for “quick gains” is strong. The market will offer us opportunities, but we must choose them wisely and not let short-term excitement cloud our judgment. Focus on the bigger picture, understand the risks, and make sure each move aligns with your long-term goals. By doing so, you'll not only protect your capital but set yourself up for consistent success in the long run.

WATCHLIST
Some Major Breakout Candidates

DDOG: Datadog, Inc.

• DDOG has been forming a multi-month base since late 2023, consistently failing to break past the $135 level on several attempts. Now, it’s back to testing this critical range once again.

• Whenever you see a multi-month base like this, these setups should become a priority. Breakouts above such a range often signal major shifts in trend, making them high-potential opportunities. The key to spotting these moves is identifying when the stock breaks through with high relative volume, confirming that demand is outweighing supply.

• We'll be keeping a close eye on DDOG for a potential breakout today, particularly if we see a surge in volume. This is a setup we’re watching closely, and if we see the right conditions, we’ll look for an entry. On top of the technical setup, DDOG has also shown solid fundamental growth, which only adds to the appeal of this trade.

CVNA: Carvana Co.

• CVNA has been one of the key stocks we’ve been watching closely over the last two weeks, as it finds itself in one of the leading themes — consumer discretionary — and is currently the top stock in the group.

• We’re seeing a perfect sideways consolidation along the rising 10-EMA, with declining volume, which indicates a potential build-up of strength. As the market begins to show signs of turning, this is one of the names we want to gain exposure to early on, especially if a breakout materializes.

• Heading into the Christmas period, where retail typically outperforms seasonally, CVNA stands out as a strong candidate for further upside. If the breakout happens, this could be a key stock to watch for the next leg higher.