OVERVIEW
Oil Prices Plummet: Green Light For Stocks?

The S&P 500 soared to record highs on Thursday, buoyed by a mix of market optimism and President Donald Trump’s recent comments. During a virtual address at the World Economic Forum, Trump called for immediate interest rate cuts and urged Saudi Arabia to lower oil prices, sparking sharp market movements. Short-term Treasury yields dropped by -5% over the past week, while crude oil saw a steep retracement of -8.2% during the same period.

At first glance, falling oil prices might suggest a bullish scenario for equities. Historically, lower oil prices reduce costs for businesses and leave consumers with more disposable income, which can support corporate earnings and drive stock prices higher. Similarly, the inverse relationship between Treasury yields and stock prices often supports equity markets when yields decline. However, the relationship between oil and equities is far more nuanced.

It’s a common practice to correlate shifts in major commodity prices, like crude oil, with the performance of stock market indices such as the S&P 500 (SPY). Conventional wisdom suggests that rising oil prices increase business costs, particularly in manufacturing and transportation, while higher gasoline expenses cut into consumer spending. Conversely, falling oil prices should alleviate these pressures, benefiting sectors reliant on transportation and industrial production.

But the reality is more complex. Research conducted by Andrea Pescatori, an economist at the IMF, tested this theory in 2008 by analyzing the correlation between oil prices and the S&P 500. The findings revealed no statistically significant relationship, with variables occasionally moving in the same direction but lacking a consistent pattern. Pescatori’s research underscores that oil’s influence on equities varies widely and depends on the broader economic context.

One reason for this weak correlation is the diversity of industries within the U.S. economy. While high oil prices can stimulate job creation and investment in the energy sector—especially in unconventional oil production like shale—those same prices increase costs for transportation, manufacturing, and consumers. On the other hand, low oil prices can hurt domestic oil companies and reduce activity in oil-dependent regions, even as they provide relief to industries where fuel costs are a primary concern.

Recent history demonstrates how volatile oil’s impact on the economy can be. During the economic slowdown in the spring of 2020, oil prices collapsed to 20-year lows despite historic production cuts by OPEC and its allies. This decline highlighted oil’s dual nature: while it benefits certain sectors, it can simultaneously harm others, particularly in an economy where the U.S. has become a major oil producer.

So, what does this all mean for us?

As momentum traders who focus on US equities , it’s critical to recognize the bigger picture: we’re in a longer-term environment of declining interest rates, which naturally supports rising asset prices, especially equities. Stocks represent ownership in businesses, and businesses generate value over time for their investors. Lower interest rates amplify this dynamic by making equities more attractive relative to other asset classes, such as bonds.

When interest rates decline, borrowing costs for businesses decrease, allowing companies to reinvest in growth, expand operations, and improve profitability. This environment fuels optimism, driving up stock valuations. From an investor’s perspective, the discounted value of future earnings becomes more appealing in a low-rate environment, leading to higher demand for equities.

This relationship underpins our approach as swing traders. For instance, we focus on identifying stocks with accelerating earnings or revenue growth because these businesses are positioned to deliver the most value in a pro-growth environment. Declining rates create a tailwind for these companies, as their ability to outperform becomes even more pronounced when capital is cheap and liquidity is abundant.

It’s important to note that declining rates don’t just benefit individual companies—they provide a boost to the overall market. When capital is cheap, consumer spending often rises, and businesses invest more aggressively, creating a cycle of economic growth that drives stock prices higher. This is why equity markets tend to trend upward during extended periods of falling interest rates.

Trump’s recent actions are undoubtedly boosting market sentiment, which plays a significant role in driving asset prices higher. However, the real catalyst lies in his aggressive stance on growing the U.S. economy to address the unsustainable debt-to-GDP ratio. This focus on economic expansion, rather than declining oil prices, is what will likely continue fueling rising equity prices.

Nasdaq

The Nasdaq took a breather in yesterday’s session, with the QQQ experiencing an inside day following Wednesday’s fade. This raised some concerns about a potential short-term consolidation or pullback as profit-taking sets in. After an explosive week that saw large-cap tech stocks tracked by the QQQ rise over 7%, some digestion is expected as moving averages catch up.

Despite this pause, overall sentiment remains unchanged. A large gap from Wednesday’s open remains unfilled, but yesterday’s intraday bounce off Wednesday’s lows suggests strong demand, making an immediate gap fill less likely—though still possible. Importantly, the QQQ has broken out of its December slump and remains in a clear uptrend.

Large-cap tech continues to outperform, bolstered by a $500 billion U.S. investment to ramp up domestic AI systems. This substantial capital inflow has provided a significant tailwind for the sector, further driving its recent momentum.

S&P Midcap 400

The midcaps are in a short-term consolidation around the critical $600 level, a key supply/demand zone and psychological benchmark. This choppy, sideways action is a healthy phase, allowing the market to absorb recent gains, reset overbought conditions, and establish a stronger foundation for further upward momentum. It also reflects a temporary balance between buyers and sellers, which often leads to a decisive move in either direction.

Given the overall bullish sentiment and the technical setup on the MDY—recently breaking above key moving averages and its point of control (POC)—the likelihood favors a continuation higher to test all-time highs rather than a breakdown lower.

Russell 2000

The small caps are also consolidating, with yesterday’s bounce off the rising daily 10-EMA signaling demand and aligning with the MDY's current consolidation phase. Given that the IWM and MDY often move in tandem, this confluence strengthens the case for bullish continuation.

The key resistance level to watch is $230, highlighted by a dense VRVP pocket. A breakout above this level could trigger a sharp move higher toward the $234–$236 range, potentially occurring within the next few sessions. While it’s more likely to happen early next week rather than today, this setup points to a strong probability of upside momentum soon.

DAILY FOCUS
What Do The Market Leaders Tell You?

It’s one thing to look at the indices for a top-down perspective on market performance, but it’s an entirely different—and often more insightful—approach to take a bottom-up view by running daily scans and evaluating the performance of the individual stocks driving those indices higher. This granular approach provides a clearer picture of where true strength lies and reveals the underlying health of the market.

Right now, we’re seeing broad-based expansion across multiple sectors, which is an encouraging sign for sustained momentum. Market leaders are stepping up, with key stocks breaking out or showing strong relative strength, and this is exactly the type of action we want to see when indices are consolidating near recent highs. This kind of participation from individual names not only confirms the trends in the major indices but also helps us identify potential opportunities before they become obvious to the broader market.

We’re actively seeking long exposure in the top-performing stocks with strong relative strength, particularly those that have built multi-week long bases and are poised to break higher. However, it’s important to note that we’re not looking to force any trades; we’re waiting for the right opportunities to present themselves, in line with our disciplined approach to momentum swing trading.

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WATCHLIST
Two Explosive Multi-Week Bases

TIGR: UP Fintech Holding Limited

• TIGR is one of the standout names in the finance sector, which is currently one of the leading groups we're tracking for several key reasons. Firstly, its multi-month consolidation along the weekly 10-EMA and 20-EMA has been impressive, with clear signs of demand stepping in during the retracement below the 20-EMA several weeks ago. Now, TIGR is just shy of breaking out at the $7.08 level, and pre-market action is already showing signs of strength, with the stock pushing higher.

• Another compelling factor for TIGR is its high Average Daily Range (ADR) of 5.27%, marking it as a momentum-leading name. Stocks with such a high ADR tend to make explosive 50-100% moves over a short period, especially when they break out from significant multi-month bases with price and volume contracting nicely. This makes TIGR a prime candidate for those looking to capture swift and sizable gains, especially given the solid technical setup.

WGS: GeneDx Holdings Corp.

• WGS is another leading multi-month base breakout that we're tracking closely, and it’s positioned in the healthcare sector, which has also been performing well. After an explosive +700% rally throughout 2024, WGS is now experiencing a healthy consolidation and reset, making it one of the key stocks on our radar.

• The stock’s ability to pull back and consolidate so linearly after such a huge move is a strong sign of potential continuation and institutional support, and we’re closely watching for the next breakout to capitalize on this momentum.