OVERVIEW
A Big Week Of Economic Data

Powell and the Fed are starting to run out of reasons to keep interest rates as high as they have been. The slowing of the labor market and the disinflationary results from recent data reports have been significant.

On Friday, the June jobs report came out, revealing that the US economy added more jobs than expected last month. However, the details showed signs of a slowing labor market. The unemployment rate rose to 4.1%, the highest since November 2021, and job gains for April and May were revised down by 111,000, indicating that the labor market’s strength wasn’t as solid as initially thought.

Several economists now believe that the Federal Reserve might cut interest rates in September. Nancy Vanden Houten, the lead US economist at Oxford Economics, noted that the June jobs report showed more signs of a cooling labor market, with weaker-than-expected job growth, rising unemployment, and slowing earnings growth. She predicts the Fed will cut rates in September and continue to do so at every meeting thereafter.

Neil Dutta, head of economics at Renaissance Macro, also thinks the report strengthens expectations of a September rate cut. He mentioned that cooling economic conditions alter the Fed’s trade-offs and suggested that Powell should use July to prepare for a September cut.

As of Friday, investors were pricing in a roughly 75% chance that the Fed will cut rates by its September meeting, up from a 64% chance the previous week, according to the CME's FedWatch Tool.

Powell is set to give his semiannual testimony on Capitol Hill this week, so investors will be closely listening for any hints about future policy moves ahead of the July 30-31 meeting.

While the slowing job market adds to the case for Fed rate cuts, inflation is still a crucial factor. In May, inflation readings showed prices increasing at their slowest pace this year. Powell remarked last week that these readings suggest we are moving back towards a disinflationary trend.

The first test for whether this trend will continue comes on Thursday morning with the June CPI report. Wall Street economists expect headline inflation to have risen just 3.1% annually in June, down from the 3.3% rise in May. May’s data was the slowest year-over-year inflation reading since July 2022. Prices are expected to rise 0.1% month-over-month, a slight increase from the flat reading in May.

For core inflation, which excludes food and energy prices, CPI is forecasted to rise 3.4% over the past year in June, unchanged from May. Monthly core price increases are expected to be around 0.2%.

Stephen Juneau, a US economist at Bank of America, wrote in a research note that he expects the June CPI report to boost confidence following the positive May report.

Stay alert, traders, as these developments will significantly influence market movements in the coming weeks.

Nasdaq

The QQQ has been on a tear, with four consecutive days of strong buying pressure and minimal selling. The Nasdaq broke above a significant psychological resistance level at $490 and is now closing in on $500.

The strength of the large and mega-cap technology stocks is truly impressive. Any pullbacks in these stocks have been extremely short-lived.

As we approach $500, we might see some sideways action, especially since the QQQ is currently extended above its daily and weekly 10-EMA. Despite this, the overall action remains incredibly bullish.

There are a few large cap technology stocks like NVDA & SMCI that look ready for a breakout and are likely going to follow the action of ARM, META & AMD that have all absolutely rocketed in the last two sessions.

We will go into further detail as we discuss the watchlist for the day.

S&P Midcap 400

The midcaps continue to disappoint, with Friday seeing the MDY selling off below all its key daily EMAs and barely holding onto its point of control (POC) at $528, all on very heavy selling pressure.

We've been discussing for a while how mid and small caps have been struggling, and given how oversold they are, we were expecting some sort of push higher. This expectation remains, especially with the increased bullish sentiment in the overall equities market. However, the charts tell a different story.

We really need to see the MDY get some positive movement today. A bounce is crucial. If the MDY fails to bounce and retests its falling daily EMAs, we suspect another significant leg lower, down to the daily 200-EMA around $515, could be the next likely point of support—something we definitely don’t want to see.

Russell 2000

The small caps are showing some resilience compared to the midcaps. The multi-month bull-flag or volatility contraction pattern (VCP) is much more evident in the IWM, which has been making a series of higher lows on ever-lower volume. While Friday’s session wasn’t perfect, we did see a doji/hammer candle, indicating that buyers stepped in at the ascending support line to maintain the pennant formation.

For today, we’re looking for more of the same positive action. We would expect to see the POC and falling daily EMAs get tested at $202.

DAILY FOCUS
Rationally Optimistic

The large and mega-cap tech stocks have almost all broken out, with only Nvidia and Super Micro Computer left to form their next leg higher. While the number of setups isn't overwhelming and recent breakout success hasn't been stellar, it's not as dire as the performance of major indices like the MDY and IWM might suggest.

Interestingly, several small and mid-cap stocks like ROOT, SEZL, and INSG are holding up well and have seen significant gains in the last week or so. Additionally, we've seen strong performances from AMD, META, and TSLA, which have driven the QQQ to all-time highs again. Ideally, we’d like to see more setups, especially in the speculative parts of the market, but the improving macro conditions suggest a next leg higher could be imminent.

This week will be telling. We're optimistic that the QQQ's upward push and better macro conditions, assuming a positive reaction to the inflation data this week, could lead the MDY and IWM to complete their multi-month flag contractions and start moving higher.

We're also encouraged by the fact that some of the small and mid-cap stocks we hold have been performing well. Given the market's cyclical nature, the current oversold conditions and poor market breadth have a lot of room for improvement. After a prolonged down cycle in breadth participation, we're likely due for an upswing in the short to medium term.

WATCHLIST
The Ones For Today

NVDA: NVIDIA Corporation

• Nvidia, the AI darling, is getting ready for another leg higher. On Friday, it made an attempt to push above its range, and it had a very strong green day just before that.

• We absolutely love this stock—no surprises there—and we believe Nvidia is poised to push higher today, or if not today, then tomorrow.

  We're looking for a high-volume break above $127 to enter NVDA with heavy size. This is the single strongest stock in the US market, boasting high double-digit revenue growth and triple-digit earnings per share (EPS) growth.

• This is all in a company worth more than the United Kingdom and has grown over $2.5T in market cap in just two years.

GCT: GigaCloud Technology Inc

• We're continuing to keep a close eye on GCT, as we've been doing for the past few days, and we're impressed with how the stock has been performing since its significant green push last week.

• The fundamental growth prospects of the company are impressive, and the massive multi-month (almost year-long) base that the stock has been forming is one of the most compelling setups we've seen in any growth stock.

• These large stage 1 bases represent some of the lowest-risk, highest-reward opportunities available. Once GCT breaks out above the descending resistance level that has been holding it back, it has the potential to double or triple in a matter of weeks. This is especially plausible given how severely beaten down growth stocks have been over the past few months.

• Keep a close watch on GCT for the breakout signal—it could be a game-changer for this stock and for your account.

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