OVERVIEW
Are The Bears Getting Extended?

U.S. stocks face another turbulent week as a crucial inflation report looms, potentially shaking markets already wary of economic slowdowns and trade policy uncertainties. Despite a Friday gain, the S&P 500 marked its worst week in six months, and the Nasdaq entered correction territory, down 10% from its December high. Investors are concerned about the impact of President Trump's fluctuating tariffs on Mexico, Canada, and China, alongside global economic disruptions like Germany's unexpected spending plans. While some see potential for more Federal Reserve rate cuts, a hotter-than-expected consumer price index (CPI) report on Wednesday could halt those hopes and leave inflation fears unresolved. With the Fed's next meeting approaching, a high CPI print would challenge expectations for policy easing. In addition, worries about "stagflation" — slowing growth coupled with rising inflation — are growing. Uncertainty surrounding U.S. trade policy, as well as political tensions in Washington, continue to fuel market volatility. The Cboe Volatility Index (VIX) has surged, signaling prolonged market unease.

Investors are laser-focused on one thing right now: protecting their capital amidst the massive uncertainty that has gripped the market. Over the past few weeks, we've witnessed all the classic signs that typically signal a major pullback or correction—not just a minor rotation, but a real concern about the overall health of the market. Major risk assets, including stocks and cryptocurrencies, have experienced sharp breakdowns, while the bond market has rallied. Safe-haven assets like Gold and Silver are seeing upward momentum, and even the US dollar has begun to lose strength.

We all know where the uncertainty is coming from, and there's no need to rehash the tariff talks—everyone has been bombarded with the same information. However, despite the media's constant focus on the market's downside, we're beginning to see early signs that we may be nearing a potential near-term bottom. The question remains: Are these signs strong enough to suggest that the worst may be over, or is this just a temporary reprieve in a larger downtrend?

Nasdaq

The Nasdaq continues to face significant challenges, having entered a steep and aggressive breakdown after initially breaking below its Point of Control (POC) and what was once a rising 50-day EMA. Since then, it has struggled but managed to test and even recover its 200-day EMA, a crucial level for maintaining its long-term bullish trend. A high-volume reversal occurred as the QQQ broke down from this level, but it found demand and managed to close Friday with some strength.

This recovery, while important, needs to be validated with sustained follow-through buying to confirm that the market is building a new base. Without this confirmation, the risk of further breakdown remains. The general trend remains very bearish, and as such, any technical analysis suggesting a reversal needs to be treated with caution. In this environment, even if we see signs of strength or potential reversals, they should be considered "guilty until proven innocent." A strong downtrend requires confirmation of a true reversal, which typically involves higher lows, sustained demand, and improvement in breadth. Until these conditions are met, it's important to remain cautious and not overcommit to any potential bullish setups.

S&P Midcap 400

The midcaps are performing much worse, which is unsurprising given that the QQQ tracks large-cap and mega-cap tech stocks, which, to some extent, are considered consumer staples due to the widespread use of their goods and services—companies like Microsoft (MSFT) and Nvidia (NVDA). Midcaps don't have the same luxury, as they are naturally more sensitive and volatile. While they have slowed down in their downtrend and had a positive day on Friday, their technical setup is significantly weaker.

Russell 2000

The small caps had their highest relative volume day, second only to the big reversal candle we saw earlier in the week. This is where we're starting to see signs that sellers may be getting exhausted, so let's break this down. The IWM has now seen two very high-volume green days, both of which occurred late in the session, when buyers stepped in to prevent a significant downfall. This could be a sign that shorts are starting to close some positions, which, of course, naturally props up the security.

We're not by any means in a "good" position for small caps right now, as they’ve been very badly beaten down, but what we really want to see is consolidation. Consolidation is the name of the game right now, as buyers need to slow down the seller aggression and allow the market to build a base before any further upside can materialize.

DAILY FOCUS
Being Patient Is A Superpower

We’ve seen a lot of repetition in the market recently—lots of volatility, frequent pullbacks, and seemingly endless uncertainty. But, as traders, we need to embrace these moments. This is just part of the game. It's a natural symptom of trading, and these times offer the greatest opportunity to sharpen our strategies and stay disciplined.

This week is crucial, with key economic data on deck: CPI (Consumer Price Index) and PPI (Producer Price Index). These reports will provide valuable insight into inflation trends, and their outcomes will directly impact the market's next moves. A favorable reading could lead to some relief and a possible short-term bounce, but if the numbers come in worse than expected, volatility will likely remain high, and we may see more downside pressure.

As we navigate this week, it’s important to remember that while the market feels repetitive and uncertain, it’s also providing us with opportunities to make calculated moves. Right now, we're in the midst of so many things the market dislikes that it almost seems comical—trade wars, a President actively reshaping the status quo, and an overall sense of investor unease about where to allocate capital. All of this is happening while we’re technically trending on the primary downtrend, as shown on the monthly charts.

This type of environment creates significant volatility, but also provides clear signs of where risk and reward can line up. Our goal, as always, is to align ourselves with the scenarios where the highest risk-to-reward situations present themselves. And right now, cash remains king. Sometimes, sitting on the sidelines and waiting for the right moment is the most powerful position we can take.

WATCHLIST
No Good Long Plays To Declare…