OVERVIEW
Fed Rate Decision: Where Do We Stand Now?

The Federal Reserve decided to hold interest rates steady at 4.25% to 4.5%, but its projections still include two rate cuts in 2025. At the same time, policymakers revised their economic outlook, now expecting higher inflation and slower economic growth next year.

On the surface, this combination of factors—weaker growth but rising inflation—should make rate cuts a more complicated decision. Yet, the Fed did not change its rate-cut expectations, which raises questions about how confident they actually are in their projections.

Powell’s attempt to explain this was far from reassuring. He essentially implied that because growth is expected to slow but inflation is expected to rise, these factors cancel each other out, leaving the Fed's rate-cut forecast unchanged. However, this explanation feels more like a way to justify the decision rather than a firm conviction about what’s ahead.

What stands out the most is Powell’s own uncertainty. He repeatedly emphasized that the Fed’s forecasts are highly uncertain, signaling that even policymakers don’t have a clear grip on the direction of the economy. This lack of conviction leaves room for doubt—if their economic outlook is shifting, but their policy stance isn’t, how reliable are these projections?

For markets, this means less clarity and more uncertainty. Investors were hoping for a more decisive stance from the Fed, but instead, Powell’s cautious and somewhat ambiguous approach has left traders guessing about what’s next.

Nasdaq

The Nasdaq, which represents large and mega-cap technology stocks, is still struggling to gain meaningful traction. While it initially reacted positively to the Fed’s comments, that strength quickly faded as the index retraced lower, once again failing to hold above its declining 10-EMA. Notably, this pullback occurred on relatively low volume, indicating a lack of strong buying interest.

On the surface, this sideways consolidation can be seen as a constructive pause, giving the market time to reset and absorb recent moves. However, the combination of low volume, repeated rejections at resistance, and lingering overhead supply raises concerns. Instead of being a healthy base, this pattern bears resemblance to a bear flag or bearish pennant formation, both of which typically resolve to the downside. For the Nasdaq to turn the corner, we need to see a clear break above resistance levels on strong volume.

S&P Midcap 400

Midcaps are also at risk of forming a bearish setup, but unlike the Nasdaq, it’s still too early to say with certainty. The key difference is that MDY (the midcap ETF) has yet to show the same level of contraction seen in the QQQ. Instead, MDY has simply drifted higher on relatively low volume following Friday’s bounce.

That said, yesterday’s strong green day was notable—it produced an above-average move that successfully reclaimed the declining 10-EMA. This is a positive development, but it’s not enough on its own. The next test will be whether MDY can hold this level and start forming a more constructive base rather than rolling over.

The real focus should now be on how leading midcap stocks perform. If high-quality names within the group start to show strength and sustained breakouts, it could signal that midcaps are building momentum. On the other hand, if this move fizzles out quickly, it may confirm that the bounce was simply a temporary relief rally within a broader downtrend.

Russell 2000

Small caps, tracked by IWM, have also shown relative strength, moving in line with midcaps and even outperforming the Nasdaq (QQQ) in recent sessions. Like MDY, IWM managed to reclaim its 10-EMA, breaking out of a brief one-day contraction. However, it is now struggling at its 20-EMA, which is acting as resistance.

This is still a step in the right direction, but it’s important to recognize that small and midcaps were among the hardest-hit areas during the recent market weakness. Given how heavily they were sold off, it’s not surprising to see a relief rally lead in these areas, as they had the most short-covering pressure.

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DAILY FOCUS
The Worst Is Likely Behind Us

From a pure price-action standpoint, we still have a lot of work to do before calling this a clean reversal. The risk of choppy trading or a deeper pullback remains high, but unless this truly turns into a major bear market, downtrends don’t last forever—at some point, markets find their footing.

Here’s what needs to happen before any real upside momentum can develop:

• Compression & Higher Lows – A strong market turn usually starts with tight price action and a clear series of higher lows. Right now, we are still lacking the necessary constructive tightening across leading stocks. If bases continue to develop without undercutting key levels, that’s the first sign of strength.

• Expansion in Volume on Upside Moves – Relief rallies without conviction are meaningless. Any true shift in trend needs a clear surge in volume when stocks push higher. The lack of sustained buying volume has been a problem, and until we see a shift, upside moves remain suspect.

• Decisive Breakouts Holding Above Resistance – The best confirmation comes when leaders clear resistance with strength and don’t immediately fade back below. Failed breakouts indicate weak demand and an unhealthy market. Watch for setups where price pushes through a key level and then holds or grinds higher instead of getting rejected.

• Sector Rotation & Leadership Clarity – A strong market doesn’t just bounce; it forms new leadership. Right now, pockets of strength exist, but we haven’t yet seen sustained rotations into high-quality stocks. If we start seeing clear sector rotation with sustained strength in high-beta names, it’s a sign that institutions are stepping in.

• Breakdown in Safe-Haven Assets – Another key signal to watch is whether traditional defensive plays like gold, bonds, and commodities as a whole start breaking down. When markets transition from risk-off to risk-on, capital tends to rotate out of safe-haven assets and into growth stocks and cyclicals. If we start seeing weakness in these defensive areas, it could confirm a broader shift in sentiment.

There's no need to rush or try to be the first in. Let the setups come to you—patience is key. Even more important is approaching each market session without bias. If we start to see leading stocks breaking out with strength, it may be worth testing the waters with half-sized exposure. Remember, it’s the leading stocks that drive the indices higher, not the other way around.

WATCHLIST
Focus On These On A Strong Reaction

PLTR: Palantir Technologies Inc.

• PLTR remains one of the strongest names in the market and is by far the leading cybersecurity stock. Over the past few weeks, it has been forming a tight contraction pattern, trading in a narrow range just below its declining 10-day and 20-day EMAs. This type of price action often signals a buildup of energy before a potential big move.

• It’s hard to ignore such a strong setup in a high-quality name. However, given the weak overall market, we’d likely need to see more resilience from equities as a whole before getting aggressive with exposure.

• That said, if the market starts to firm up and PLTR clears its range, this could be a name worth taking a shot at. Keeping it on watch for now.

MSTR: MicroStrategy Incorporated

• MSTR has emerged as a market leader within the Bitcoin space, showing relative strength despite recent weakness in the broader cryptocurrency theme. The stock has been forming higher lows and is currently contracting just below the key $310 breakout level, which also aligns with the declining 50-day EMA.

• One key technical factor to note is how the rising 200-day EMA has acted as strong support, reinforcing the idea that MSTR is trying to base out after a multi-month correction.

• The big question now is whether the broader market can gain traction. If it does, MSTR—given its high volatility and historical tendency for explosive moves—could enter a major Stage 2 rally.