OVERVIEW
Friday’s Strength Continues Pre-Market

Last Friday’s session marked a significant shift in market behavior, with a surge in buying activity that hinted at a potential turning point for equities. The rally was broad-based, signaling renewed investor confidence after weeks of cautious trading. This morning, futures are building on Friday’s strong gains, with a notable boost from technology and semiconductor stocks. Companies like Nvidia and Marvell Technologies are leading the charge in pre-market trading, reflecting robust interest in high-growth sectors.

While the market’s recent gains offer a glimpse of renewed investor confidence, they come against a backdrop of economic uncertainty. Several key developments could shift sentiment in the coming days, with the December jobs report, scheduled for release this Friday, taking center stage. As one of the final pieces of critical data before the Federal Reserve’s meeting later this month, the report is expected to provide valuable insights into the state of the labor market and influence the Fed’s approach to interest rates.

Early signs suggest that hiring is slowing, unemployment is creeping higher, and job opportunities are becoming scarcer. A weakening labor market typically pressures the Federal Reserve to consider reducing interest rates as a means of stimulating economic growth. Historically, when job creation slows, the Fed intervenes to create more favorable conditions for businesses and consumers to borrow and invest.

This issue is particularly significant as President-Elect Donald Trump has emphasized his commitment to addressing economic challenges, including the unsustainable 123% debt-to-GDP ratio. Trump has vowed to “grow” the economy out of this debt burden, aligning with policies that could prioritize pro-growth measures, such as infrastructure spending and tax reforms, to ignite economic expansion.

Adding to the complexity, Treasury yields continue to climb. The 10-year yield is approaching 4.6%, its highest level in months. Elevated yields often increase borrowing costs and weigh on equities, particularly in sectors sensitive to interest rate changes. This dynamic creates a challenging environment for stocks to sustain their upward momentum despite recent strength.

Nasdaq

The Nasdaq, tracked by the QQQ ETF, showed remarkable resilience last week, finding strong support at its rising 50-day exponential moving average (EMA) on Thursday. This zone also coincided with the point of control (POC), a high-demand area where significant buying activity emerged. The influx of demand helped push QQQ above the POC level, propelling it into a critical area of overhead supply at the declining 10-day and 20-day EMAs. This is further supported by the high number of breakouts in the large and mega cap technology stocks which are fuelling this QQQ premarket rally.

For the Nasdaq to confirm a breakout and initiate a recovery rally toward its all-time highs, it needs to see strong follow-through and expansion above this resistance zone. If this week maintains the strength seen so far, a sustained breakout could pave the way for a significant recovery, potentially reaching previous highs within the next two weeks.

S&P Midcap 400

The midcap sector continues to consolidate along its point of control (POC), a critical zone of support that has held firm for the past 10 sessions. Pre-market action today suggests a potential breakout forming, with the declining 10-day exponential moving average (EMA) already being tested and breached.

While the declining 20-day and 50-day EMAs remain as overhead resistance, the visible range volume profile indicates a low-volume pocket that is already being filled. This suggests the potential for some short-term selling pressure and volatility as the breakout progresses. Despite these challenges, Friday’s session marked a significant shift in market behavior. The MDY ETF, representing midcaps, demonstrated resilience with an intraday retracement that found strong support at the POC level, ultimately closing the day above the declining 10-day EMA—a level that has served as support over the past two weeks.

With most of the recent selling pressure seemingly behind us, this breakout could gain traction, especially if market conditions remain favorable in the days ahead.

Russell 2000

Small caps are mirroring the performance of midcaps (MDY) but are slightly ahead in their recovery. The Russell 2000 index has overtaken its 10-day exponential moving average (EMA) by a larger margin, signaling stronger upward momentum. The technical setup remains similar to that of midcaps, with a low-volume pocket on the visible range volume profile (VRVP) currently being filled.

The declining 20-day and 50-day EMAs are now being tested, creating a critical resistance zone that could trigger some profit-taking in the short term. However, the fact that this zone is being tested at all marks a significant shift in market behavior compared to the month-long sell-off we’ve seen.

This newfound strength suggests that small caps are beginning to regain their footing, and continued progress through these resistance levels could signal the start of a broader recovery in the sector.

DAILY FOCUS
The Optimal Time To Go Long

As the market begins to pull out of a deep pullback, now is the ideal time to position yourself for the next phase of growth. Instead of looking at the broader market as a whole, focus on stocks that have shown the highest relative strength during the recent downturn. These are the names that have held their key moving averages—like the 10-day, 20-day, or 50-day EMAs—better than others and have demonstrated resilience while others have faltered.

When the market begins to recover, it’s often the stocks that have outperformed during the pullback that lead the way higher. These stocks have already shown their strength and are more likely to continue their momentum once the broader market picks up.

Markets, like waves, move in cycles. They experience uptrends, corrections, and consolidations, constantly shifting between periods of strength and weakness. What we’ve seen over the past month is likely just the current wave’s pullback — the natural ebb before the tide turns. It’s during these moments of hesitation and uncertainty that the best opportunities often lie, as the market starts to turn from a downtrend to a potential uptrend.

When you're entering near the bottom of a pullback, you're setting yourself up for a strong risk-to-reward ratio. If the market continues to show signs of strength, you’ll be in position to catch the early stages of a recovery or even the start of a full-blown bull market. The key is recognizing when the market is shifting from exhaustion to opportunity, and right now, we may be witnessing just that.

WATCHLIST
Today’s Breakout Watch

PL: Planet Labs PBC

• PL has formed an impressive multi-week base, with a significant contraction in both price range and volume—exactly what you want to see before a major move. These characteristics typically signal that the stock has been consolidating and is now poised for a breakout.

• Today, we’re targeting an entry on PL, assuming it continues to show strength when the market opens. To confirm our entry, we will use the 5-minute opening range high as our trigger. This approach allows us to enter the stock with confirmation that momentum is on our side.

• Another factor in PL’s favor is its positioning in the leading sector—technology. Stocks in this sector have shown strong relative strength, and PL is well-positioned to benefit from any upside in the broader market.

MSTR: MicroStrategy Incorporated

• MSTR is shaping up to be one of the most promising trades right now, with a strong high-volume breakout on Friday that reversed the stock's direction. This move took out nearly all of the declining moving averages on the daily chart, marking a significant shift in character after the steep decline it had been experiencing.

• On the weekly chart, we can see how well the pullback to the 20-day exponential moving average (EMA) was respected, with demand stepping in on high volume to support the stock. This indicates that buyers are still active and willing to hold the stock at this level.

• If MSTR can break above its 20-EMA today on the daily chart, it will confirm the strength and set up a solid entry opportunity. We will be closely monitoring the stock for this breakout, positioning ourselves to enter if the momentum continues to build.