OVERVIEW
Confidence Is Back In The Market

Yesterday’s market session was a rollercoaster, starting with a surge of buyer aggression that sent major indices and leading stocks breaking out on high relative volume. However, as the day progressed, sentiment shifted, with sellers stepping in aggressively, pulling prices lower across several groups.

This heightened volatility stems from a persistent group of sellers pushing back against the prevailing bullish trend. Despite this resistance, the overall market sentiment remains optimistic, buoyed by recent developments in both policy and market leadership.

Trump’s Executive Actions and AI Push

President Trump’s return to office has already led to significant policy shifts impacting energy, trade, and regulations. Notably, his latest initiative to establish the U.S. as a global leader in artificial intelligence brought a major tailwind to the technology sector. This $500 billion private-sector investment plan, combined with a rollback of Biden-era safety measures, sparked renewed interest in tech stocks.

This push coincided with NVIDIA’s breakout yesterday, as the company surged to new highs on increased volume. NVIDIA, a key player in the AI sector, reflected growing investor enthusiasm for technology names expected to benefit from these policy changes.

Additional Highlights of Trump’s Executive Actions:

• Energy Policy:

  • Declared a national energy emergency to ramp up production.

  • Withdrew from the Paris Climate Accords and froze new regulations.

  • Signed the "Unleashing American Energy" order to expand exploration on federal lands and waters.

  • Vowed to combat inflation by increasing energy output with a "drill, baby, drill" approach.

• Tariffs and Trade:

  • Stressed the importance of tariffs, hinting at 25% duties on Mexico and Canada starting February 1.

  • Maintained negotiations on tariffs with China.

As these developments unfold, the market remains at an inflection point. Confidence is returning, particularly in technology and energy sectors, but we should remain cautious amid ongoing volatility driven by opposing market forces. With so many executive orders coming in, it can turn choppy soon.

Nasdaq

Yesterday’s market session closely resembled Friday’s, with the Nasdaq experiencing another intraday fade as it filled a premarket gap. This type of action can cause minor losses for traders who enter too early, as was the case with our new position in NVIDIA (NVDA) which we had to try twice. Despite this, the Nasdaq’s overall performance was very positive. Demand stepped in during the intraday pullback at the $520 level, which has shifted from resistance to support. This change signals that buyers are firmly in control and that the QQQ is primed to move higher.

This morning, we’re seeing a similar gap-up open, so it’s crucial to remain cautious. Watch for a potential fade before considering new positions to avoid unnecessary losses. Staying patient and waiting for confirmation remains essential in this environment; we will continue to use our 5-min opening range breakout and hold tactic.

S&P Midcap 400

The midcaps had an impressive breakout yesterday, showing significant strength with no resistance or intraday fade to fill the premarket gap. Instead, we saw a high-volume move above the overhead supply around the $600 level—a key area we anticipated might cause issues for the MDY but didn’t.

With this breakout, midcaps are now firmly in major uptrend territory. All the key moving averages on the daily chart have freshly turned upward, signaling strong bullish momentum. The focus now is on watching this positive trend continue.

Russell 2000

Small caps also delivered a strong breakout yesterday, moving decisively above their key overhead resistance at $229. Sellers showed minimal effort to defend this level, allowing small caps to break out of the multi-week range and sideways action seen since mid-December.

The key focus now is whether this breakout can hold and sustain higher levels. For both small and midcaps, consolidation around these new highs would provide the strongest confirmation of what appears to be a significant shift in buyer confidence and aggression.

DAILY FOCUS
Ride The Trend: Bullish Momentum Is Surging

Right now, we're fully risk-on and our confidence is high. The efficacy rate of breakouts has been strong, particularly in stocks transitioning into Stage 2 uptrends. This high rate of success in breakouts boosts our conviction, and we’re aligning our focus with stocks showing clear momentum.

However, we’re only looking for exposure to stocks with multi-week-long bases that have demonstrated high relative momentum, both within their industry groups and against the broader market. This list is derived from our daily scans, but more importantly, it’s the result of actively building a focus list over the past few months, especially while the market was pulling back. By carefully tracking and identifying these names, we’ve positioned ourselves to ride the next wave of bullish momentum.

We’re focused on quality setups with strong relative strength, knowing that these stocks have the potential to continue their move higher. The trend is in our favor, and we’re making sure our exposure is targeted and strategic.

WATCHLIST
Today’s Highest Probability Setup

INOD: Innodata Inc.

• Among the names we're closely watching, INOD (Innodata, Inc.) is high on our list due to both its technical setup and the fundamental story behind it.

• INOD, a data engineering company specializing in artificial intelligence software and services, is in a strong position. It’s benefiting from the broader AI sector momentum, especially following the surge in stocks like NVIDIA (NVDA) and other semiconductor names. Additionally, the company's bullish outlook aligns with the aggressive pro-AI stance recently pushed forward by President Trump. This pro-AI push is fueling the market’s interest in AI-focused companies like INOD.

• From a fundamental perspective, INOD's strong annual revenue growth only strengthens our conviction. When fundamentally strong stocks begin to form multi-month bases like INOD, it’s a signal that they could be ready for significant moves. This setup, combined with the narrowing of price action and increasing volume, is a classic indication that volatility has contracted and a big move is likely brewing.