OVERVIEW
Demand Is Slowly Gaining Momentum

Yesterday, the market was a bit choppy. We started off strong with several leading stocks breaking higher or testing their downward resistance levels, which was pretty impressive. However, as the day went on, we saw some loss of momentum, and the initial enthusiasm seemed to fade a bit.

That being said, it’s important to look past the noise. Despite the ups and downs, the market is still showing some strength. Equity strategists remain optimistic, believing the path higher for stocks is still on track.

Since the AI-driven sell-off from last Monday, the S&P 500 is actually up by about 0.3%. Even though there were some sharp drops, especially in pre-market trading, we have only actually seen a small dip—less than 1%— in the last few sessions

What’s key here is that we’re going through a noisy and turbulent period, but the main capitalization groups are finding support, continuing to consolidate, and even reclaiming key levels, all while fear is running high. It’s a bit of a rollercoaster, but there’s a lot of underlying strength keeping things in check.

S&P 500

Let’s take a look at both the equally weighted S&P 500 ETF (RSP) and the market-cap weighted SPY, as both have found support and are holding up, trading above their point of control (POC) on the weekly charts. The RSP is often a better gauge of how the majority of stocks in the broad market are acting since it treats all stocks equally, rather than giving more weight to the larger companies.

The RSP has managed to bounce off its rising 20-EMA on the weekly chart and just yesterday broke above its 10-EMA. This move came after we saw demand stepping in on a slight dip, which drove the index higher. While we're still in a sideways consolidation phase, we’re starting to see a series of higher lows form, which is a positive sign. It suggests that momentum may be improving, and while we might need more time to confirm this, the market is showing signs of strength.

The SPY is showing a similar trend to the RSP, but as expected, the market-cap weighted S&P 500 ETF is outperforming. This happens because bigger companies like META (which has had a big move higher recently) have a much larger impact on the direction of the SPY. Even so, we still see a strong recovery on the rising 20-EMA and 10-EMA on the weekly chart, similar to what we're seeing in the RSP.

Here’s the thing: whenever you feel pressured or confused about where the market is heading, it’s important to zoom out and take a wider lens. This is especially true in volatile periods like now, where it's easy to get caught up in the noise and start seeing false signals that might tempt you to enter the market. If you're not careful, you could easily get overloaded with false flags and make impulsive decisions.

Nasdaq

The Nasdaq has been stuck in a major sideways consolidation since mid-December, and we still need to see a bit more tightening before we can expect a breakout above the $528-$529 level, which has acted as a resistance point where we’ve been rejected multiple times.

That being said, yesterday’s session was actually quite positive. We saw the bounce on Monday at the ascending support level, which was respected. The QQQ also reclaimed its 10-EMA, 20-EMA, and POC level on the daily chart, signaling that buyers are stepping in. There’s clearly a battle taking place here to keep the QQQ in this multi-week base. While we're still in a range, the fact that buyers are stepping up and the QQQ is holding key levels is a good sign that it might be gearing up for a potential breakout once the consolidation phase tightens a bit more.

S&P Midcap 400

The midcaps have been stuck in a sideways trend as well, but they did respect their bounce off the rising support level. If you look closely, the relative volume on Monday was noticeably high, showing that buyers were aggressive and really fighting to defend that zone. On the flip side, seeing the market drift higher yesterday on low relative volume is a sign that sellers are losing momentum here.

The big focus today is to see if we can continue drifting higher, staying above the 10-EMA and 20-EMA on the daily chart. If that happens, we could start making a run toward the major overhead supply zone and the POC level at $599. That will be the real test—if we can break through and hold above that level, it could signal the next leg up.

Russell 2000

The small caps had a strong session yesterday, breaking above their EMAs on low relative volume after bouncing aggressively off their POC level and rising support.

That said, there’s a lot of overhead supply between $228-$230, which could make it tough to break through. We might need a few more days of consolidation before we really push through that zone. But so far, things are looking good.

The IWM, along with the QQQ and SPY, still have some work to do, and we’re definitely not out of the woods yet. However, the fact that key support levels are being respected on all three indices—especially with fear running high and the headlines being so dramatically bearish—is actually a very positive sign. It suggests that there’s underlying strength holding up the market, even in the face of uncertainty.

DAILY FOCUS
You Are A Risk Manager, First

As we navigate these turbulent times, we’re seeing strength across the board, with more stocks setting up than breaking down. This is the type of market action that hints at a potential markup in the near future. We are constantly reminded by Kristjan Kullamägi, who has been instrumental in our success, that “the best breakouts happen after multi-month pullbacks.” While the current environment is challenging, that principle rings true.

Right now, it’s easy to fall into the trap of wanting to chase every move, but the most important thing is to preserve your capital. It's easy to get caught in a drawdown in these market conditions, so we must remain focused on protecting our equity—both financial and mental. The reality is, you won’t make it through the tough periods if you’re mentally worn out or have taken too much risk in the wrong trades.

We are selective and calm in our approach. We're taking limited risk on each position, keeping risk-to-equity under 0.2% NAV. In a time of uncertainty, it’s crucial to keep the bigger picture in mind. The market trends higher over time, and though pullbacks happen, they are usually shorter in duration compared to the uptrends that follow.

WATCHLIST
These Could Breakout Today

RKLB: Rocket Lab USA, Inc.

• RKLB has been forming higher lows and has recently been consolidating tightly below its breakout level of $31. It’s also respecting its rising 10-EMA and 20-EMA on the daily timeframe, indicating potential for a move higher.

• RKLB has been a market leader over the last 3-6 months, especially in the past 1-2 months when the market has been under pressure. Despite the broader market struggles, RKLB has continuously built higher lows and shown strong relative strength.

• If we see a breakout above $31, that will be our entry point. But remember, you should always pay attention to the opening range high. Don’t just jump in because the stock breaks above its resistance level—this can lead to false breakouts. It’s usually best to wait for the stock to form a range on the 5-minute or even 15-minute timeframe before entering. This way, you’ll have a more reliable entry, minimizing the risk of getting caught in a fake move.

GRRR: Gorilla Technology Group Inc.

• GRRR is another momentum leader that has been building higher lows and showing a high relative strength (RS rating of 99). It’s now getting dangerously close to a breakout level around $15.50.

• As always, our entry criteria remain the same. We never enter a position just because the stock is approaching resistance. We wait for the opening range to form on high relative volume, which gives us the confirmation that the probability of the trade working out and seeing follow-through is high enough to justify opening a position.