OVERVIEW
Key Levels Under Threat

Markets are under pressure this Friday as investors brace for the highly anticipated jobs report, a key piece of economic data that could shape the Federal Reserve’s next moves.

Treasury yields crept higher in early trading ahead of the report, which is due at 8:30 a.m. ET. Economists expect the U.S. economy to have added 155,000 jobs in December, down from 227,000 in November, while the unemployment rate is projected to hold steady at 4.2%.

A strong report could amplify fears that the Fed will delay cutting interest rates, while a weaker number might fuel optimism for easing monetary policy. Markets have been increasingly skeptical of significant rate cuts this year. According to CME Group data, investors currently anticipate one or two quarter-point cuts later in the year. However, the odds of a rate cut at the Fed’s January 30 meeting have fallen sharply, with a 95% probability the central bank will hold rates steady—up from 72% just a month ago.

The shift reflects growing concern about the challenges of bringing inflation back to the Fed’s 2% target. While the central bank has already lowered its key benchmark rate by a full percentage point since September, the final stretch of the inflation fight is expected to be the toughest.

Markets were jolted earlier this week by unexpectedly strong economic data, including the JOLTS job openings survey, which showed the labor market stabilizing after a summer slowdown. Meanwhile, the New York Stock Exchange and Nasdaq were closed Thursday in observance of a day of mourning for former President Jimmy Carter.

Adding to the bearish tone, many of the market’s strongest stocks have been under pressure. Quantum computing stocks like IonQ (IONQ) and Rigetti Computing (RGTI) slid earlier this week, alongside speculative names such as SoundHound AI (SOUN) and Oklo (OKLO). Even fundamentally solid stocks, including Palantir Technologies (PLTR), AppLovin (APP), Nvidia (NVDA), Planet Labs (PL), and Astera Labs (ALAB), faced declines and had failed breakout attempts as they failed to see the traction needed to sustain their uptrends.

Nasdaq

The Nasdaq, represented by the capitalization-weighted QQQ and the equal-weighted QQQE, remains trapped in multi-week-long trading ranges. Both indices are facing significant resistance at key technical levels, and examining the performance of these two ETFs offers valuable insights into the dichotomy between mega cap tech stocks and large-cap tech stocks—two of the strongest groups in the market overall.

On Wednesday, the QQQ retested its ascending support at the 50-day EMA following Tuesday’s sharp rejection at the critical $525 level. This rejection sent the index below its 10- and 20-day EMAs and its point of control (POC), with minimal demand to stabilize it. Similarly, the QQQE faced rejection at its declining 20- and 50-day EMAs and an overhead supply zone around $92, dropping below its 10-day EMA as a result.

These developments are clearly bearish in the short term. However, it’s worth noting that the ascending support level on both indices has been consistently respected during prior pullbacks. This offers a glimmer of hope that demand in these zones could act as a foundation for potential relief in the coming week.

The relative performance of the QQQ and QQQE highlights an important point: megacaps are holding up slightly better than their equal-weighted counterparts, as reflected in the QQQ’s modest outperformance of the QQQE. However, this margin is minimal, and both indices are facing significant pressure. This broad weakness signals a widespread deterioration across the U.S. equities market, affecting all capitalization and sector groups rather than being isolated to specific areas.

The key focus moving forward isn’t necessarily a breakout higher but rather continued demand and support at these crucial levels. If buyers step in and reinforce these zones, it could lay the groundwork for a relief rally. Until then, the market remains in a very vulnerable position.

S&P Midcap 400

The midcaps, represented by the MDY ETF, are sitting on a critical support zone that aligns with their point of control (POC) at $569. The POC represents the price level where the highest volume of trading activity has occurred, making it a significant area of interest for both buyers and sellers.

On Wednesday, the MDY failed to hold its 10-day EMA, as another wave of aggressive selling at the declining 20- and 50-day EMAs pushed the index lower. Despite this, the rising support level in the $562–$567 zone has been consistently respected, showing notable demand over the past two weeks.

Technically, this setup resembles a bear flag, which often precedes further downside. While this interpretation isn’t incorrect, the consistent buying interest at this demand zone cannot be overlooked. Should this zone fail to hold, the next likely target would be the 200-day EMA around $555, which could be tested on a sharp breakdown.

Russell 2000

The small caps, represented by the IWM ETF, are showing rising support at their point of control (POC) level around $221. On Wednesday, we saw the IWM dip below this key level, but fortunately, it managed to stage an intraday recovery, preventing a deeper breakdown toward the 200-day EMA.

The key zone to monitor now is the declining 10-day EMA. For the small caps to avoid further downside, we need to see stabilization and continued consolidation at this level. A sustained range at or above the POC would signal that buyers are still stepping in, even as the broader market faces pressure.

It’s no surprise that mid- and small caps are among the weakest sectors in the market right now. With the 10-year Treasury yield climbing, investors are shifting their focus from equities to bonds, which puts significant pressure on stocks—especially riskier ones like small and mid-cap stocks. As money moves out of equities and into safer assets, the volatility and selling pressure on these sectors are exacerbated.

DAILY FOCUS
Don’t Try To Outsmart The Market

The overwhelming negative pressure in the market right now cannot be ignored. We’ve seen it firsthand with the tester positions we placed last Friday and Monday in some of the strongest relative strength names—NVDA, PL, SN, and TAC. Despite showing potential, all of these stocks failed their breakout attempts. This is a powerful signal that buyers are still too passive, hesitant to commit risk capital because they don’t believe prices are ready to climb again.

To truly understand what’s happening, we need to dig into the psychology of market participants. When buyers are in control, they act because they perceive a stock’s price as undervalued. For example, if someone buys a stock at $10, it’s because they believe that $10 represents a bargain—whether for the short term or the long term. The buyer is essentially betting that someone else will come along later, willing to pay $11, $12, $13, or more. This belief is rooted in confidence—confidence in the stock’s potential and in the market’s ability to recognize and reward that value.

Right now, that confidence is missing. The failed breakouts we’ve seen are evidence that buyers aren’t convinced. They’re unwilling to place bets that prices will go higher because they don’t see others stepping in behind them to drive prices up. This creates a cycle of hesitancy, where even strong stocks can’t gain traction because the buying pressure simply isn’t there.

This psychological dynamic is reflected in the charts, which serve as a transcript of the conversation between buyers and sellers. Sellers currently have the upper hand, dominating this conversation as buyers take a step back. For traders, this is a clear message: the market isn’t ready to move higher yet, and any attempts to fight this reality will likely end in frustration or losses.

Instead of trying to outsmart the market, it’s essential to respect these signals. The tide will turn when buyers regain their conviction—when they believe again that stocks are cheap and undervalued at current levels and that others will agree, driving prices higher. Until then, patience is key.

Remember, the market isn’t just a collection of numbers and charts—it’s a reflection of human behavior, confidence, and emotion. Learn to read this psychological landscape, and you’ll have a significant edge in understanding when to step in and when to stay on the sidelines.

WATCHLIST
The Relative Strength Leaders

DOCS: Doximity, Inc.

• DOCS has proven to be one of the most resilient names in the technology sector, especially amid the major selling pressure we've seen over the past three weeks. While the broader market has been under heavy selling, DOCS has been quietly building a series of higher lows, signaling a contraction in both price and volume. This is a typical characteristic of a market leader preparing for a potential breakout once the selling pressure subsides.

• At this point, we’re closely monitoring DOCS—not for an immediate entry, but as a stock that could lead the way when the market eventually finds relief. Given its relative strength and ability to hold up during tough times, DOCS is likely to be one of the first stocks to break out when conditions improve.

• When that breakout does occur, it could serve as a preliminary indicator that the market is stabilizing, offering an opportunity to try a new set of small-risk tester positions. Until then, we'll continue to watch and wait for the right signals to emerge, with DOCS on our radar as a potential early leader in a market recovery.

RDDT: Reddit, Inc.

• RDDT has been an absolute powerhouse since its earnings-based episodic pivot (EP) back in late October. Since then, it has yet to close below the 20-day EMA on the daily chart, showcasing its strength and consistent upward momentum.

• Currently, RDDT is consolidating on reduced trading volume, finding support at its 10- and 20-day EMAs. This type of consolidation is typical of a stock that’s taking a breather while preparing for its next move. Similar to DOCS, we’re not looking to make a trade in RDDT just yet. However, if it continues to hold these levels and maintain its resilience, it could very well emerge as a market leader in the next bull cycle.