OVERVIEW
Small & Midcaps Are Starting To Shine

Yesterday was quite eventful. Our analysis has been spot on with the divergence between big tech stocks and riskier growth companies unfolding just as we predicted. The Nasdaq took a hit last week, which is notable considering its recent leadership. Meanwhile, the S&P 400 and Russell 2000, which represent smaller, more speculative stocks, are gaining ground in 2024.

While it may take some time for small and midcaps to surpass the Nasdaq, this should definitely excite you. Many of the most dynamic and volatile stocks have been in a slump for the past six months, and now we're seeing money flowing back into growth sectors.

What does this mean?

We are seeing Nvidia and other megacaps selling off and profits being rotated into speculative names. It's actually a strong indicator of confidence in the equity market's resilience. Institutional investors wouldn't be putting money into riskier market segments unless they were confident that macroeconomic conditions, like interest rates and inflation, were stabilising.

Nasdaq

TThe QQQ broke below its daily 10-EMA yesterday with significant volume, exactly as we anticipated in yesterday’s report. We were expecting to see more buying interest around the 10-EMA level, but unfortunately, that didn't materialize.

Looking ahead, we expect the QQQ to try to regain ground above $476 and hold this level. However, a lot hinges on Nvidia, which is currently trading below its 20-EMA, exerting downward pressure on the QQQ.

For now, we recommend avoiding major large-cap tech stocks until the Nasdaq stabilizes. Instead, focus on small and midcaps. Yesterday, Tesla attempted a breakout, as did Meta, but both failed. This cautious approach is why we opted not to trade them.

S&P Midcap 400

The midcaps are showing strength with two consecutive days of strong green volume and a breakout above a small volatility contraction pattern (VCP). There's also an attempt to break above a broader descending channel that has persisted for about a month now.

MDY is comfortably trading above its point of control (POC), which is a really positive sign. We even saw demand stepping in intraday to prevent a drop below it, which is quite encouraging.

These are clear signals of a market rotation that we should definitely capitalize on. We picked up shares of Affirm yesterday, and we're actively keeping an eye out for other midcap stocks to enter positions in.

Russell 2000

The small caps are also showing strong performance compared to the QQQ, although they're trailing behind the MDY, which is clearly leading the charge with greater relative volume yesterday.

Yesterday, the IWM tested its declining 20-EMA and 50-EMA but was rejected, though it managed to hold above its 10-EMA. Currently, small caps are still below their point of control (POC) at $205 and are on the verge of breaking above their descending channel from mid-May highs.

There's genuine potential for the IWM to break out and rally over the next week, especially if buyers continue to show demand and if all economic data this week turns out positive.

DAILY FOCUS
Stalk The Growth Names

The market is definitely rotating, and it's crucial to rotate with it. If you've been stopped out of Nvidia, SMCI, or similar names, it's a clear signal that money isn't flowing where it used to.

Let's curate a list of the top growth names in the small and midcap space that have demonstrated high relative strength over the past few months. We'll focus on evaluating those with the biggest and most solid bases that can provide a low-risk entry point.

Today, and like yesterday, we're taking a risk-on approach. We'll be closely monitoring all the standout names in the small and midcap sectors.

WATCHLIST
Ones To Focus On

ROOT: Root, Inc

• We spoke about ROOT yesterday and the plan for today is the same- look for an entry if ROOT breaks above it’s descending channel on high volume.

• The stock has exceptional revenue growth and previously ran +500% from it’s earnings episodic pivot.

• This stock can easily double your account if you play it right- don’t miss out.

WGS: GeneDx Holdings Corp

• GeneDx is a bit different from our usual focus because it doesn't necessarily boast robust revenue growth, but it has recently achieved profitability.

• Despite this, GeneDx stands out as one of the strongest momentum plays with exceptional relative strength, consistently topping our momentum scans.

• It's worth keeping a close watch on GeneDx as it consolidates within this tight range. Given its track record, it has the potential to replicate the significant gains it saw post-earnings about a month ago, potentially surging another +100%.

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