OVERVIEW
Volatility Awaits

The S&P 500 hit another record high on Tuesday after Federal Reserve Chair Jerome Powell cautioned about the risks of keeping interest rates too high for too long. The index nudged up by 0.07% to 5,576.98, marking its 36th record close this year. The Nasdaq also set a record, rising 0.14% to 18,429.29, while the Dow dipped slightly by 52.82 points to 39,291.97.

Powell hinted that the Fed might ease up on its restrictive stance, saying that keeping rates high could hurt economic growth and employment. He emphasized that good data on inflation would boost confidence that it's moving towards the 2% target.

We anticipate increased volatility in the coming days due to several important pieces of economic data being released. Powell will continue his testimony before Congress on Wednesday. This comes ahead of important inflation data, with the June consumer price index due on Thursday and the producer price index on Friday.

David Russell from TradeStation noted that Powell is becoming more aware of the weakening labor market and the progress made on inflation, which might lead to a more lenient policy later in the year.

Nvidia's shares rose by 2.5% after KeyBanc raised its price target, predicting a 40% increase from Monday’s close. However, the overall gains for the S&P 500 were limited, with McDonald's and Microsoft shares dropping by 0.8% and 1.4%, respectively.

Nasdaq

After five consecutive days of gains, the QQQ finally experienced a pullback, closing at $497.77 after reaching an intraday high of $500, just as we anticipated in yesterday's report. This pause in its upward momentum suggests a potential shift in market dynamics, with investors likely rotating into small and midcap stocks, which have underperformed in recent months.

This rotation could be driven by the recent positive developments in inflation data, which have increased market expectations for the Federal Reserve to begin cutting interest rates later this year. As inflation pressures ease, smaller and mid-sized companies, which are typically more sensitive to economic cycles, may see renewed interest and investment, potentially outperforming their larger counterparts in the near term.

S&P Midcap 400

The MDY broke out of its volatility contraction pattern, closing at $527.53, after opening just below its Point of Control (POC). With this breakout, we might now see MDY testing lower levels, particularly towards the daily 200-EMA, which could serve as its next support level. This potential move aligns with typical market behaviour following such patterns, where a retest of significant moving averages often occurs before establishing a new trend direction. We will be watching closely to see how MDY interacts with this key support, as it will be crucial in determining the ETF's next phase.

Russell 2000

The IWM closed in the red again at $201.4, finding support at the daily 10 EMA. This marks the fourth consecutive red day, with the ETF hovering around its Point of Control (POC), indicating strong support and the potential for a reversal. We'll be watching for any signs of renewed momentum that could trigger a breakout. Additionally, we are waiting to see how small caps react to the inflation data set to be released tomorrow, which could significantly influence market direction.

DAILY FOCUS
Sit tight and observe

We currently have no plans to increase our exposure and are monitoring how the market responds to the inflation and PPI data scheduled for release today and tomorrow.

Our focus is on observing whether recent breakout stocks like Nvidia, Tesla, AMD, and Meta sustain their upward momentum. The next few trading days are expected to be turbulent, and it will be interesting to see how the market reacts amidst these developments.

WATCHLIST
Keep An Eye On This

CVNA: Carvana Co

• Carvana Co. operates as an e-commerce platform for buying and selling used cars. They offer an online marketplace where customers can browse, finance, and purchase vehicles entirely online, with delivery options available.

• Carvana is currently forming a volatility contraction pattern,riding well above its 20-day and 50-day Exponential Moving Averages (EMA).

• The stock is finding support at the 10-day EMA, indicating a stable base for potential upward movement.

• We are closely monitoring Carvana for a possible breakout in the coming days as it navigates this pattern.

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