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Stocks Slipping Pre-Market
Exposure Status: Moderate Risk
OVERVIEW
Major Disappointment From Big Tech
Meta and Microsoft, two major players in the tech sector, released disappointing earnings reports that have cast a shadow over the market this morning. Meta's stock fell by 3% after the company missed expectations for user growth and announced it would increase spending in 2025. While this might be an investment for future growth, it’s a short-term hit to profitability that has raised concerns among investors.
Meanwhile, Microsoft issued revenue guidance that fell short of what traders were hoping for, signaling slower growth in the months ahead. When tech giants like Meta and Microsoft show signs of struggle, it often points to broader challenges in the sector, which can influence market sentiment.
Adding to the cautious mood, the U.S. economy's third-quarter GDP growth came in at a 2.8% annualized rate, falling short of the anticipated 3.1%. Although this still indicates growth, the lower-than-expected rate suggests the economy may be cooling down, which can affect both business performance and consumer spending. Together, these economic signals are causing traders to tread carefully.
Today, we’re also looking at the Core PCE Index and monthly personal income and spending reports, which are set to shed light on inflation trends. The PCE is the Federal Reserve’s preferred inflation measure, and analysts are expecting a 0.2% increase for September.
This would push the year-over-year rate to 2.1%, still above the Fed’s 2% target. Since this is the final inflation report before the Fed's meeting next week, it could influence whether or not they adjust interest rates. Right now, traders are betting on a 96% chance of a quarter-point rate cut in November, which would aim to ease borrowing costs for businesses and consumers.
So, what does all of this mean for today’s session?
VIX Daily Chart
Right now, all eyes are on the upcoming earnings from major tech players, especially Amazon and Apple. This negative sentiment has been evident in the premarket reaction, where we’re seeing some strong pullbacks. On top of that, the Volatility Index (VIX)—often called the "fear index"—has spiked by 5.16% this morning, reflecting the increased uncertainty and caution among traders.
Nasdaq
QQQ VRVP Daily Chart
The Nasdaq has shown signs of strength recently, with three days of steady gains where the index initially opened higher, gapping above a key descending resistance level. This momentum was especially evident yesterday, as QQQ managed a higher-volume pullback down to its 10-day EMA, closing solidly above this level of support—a promising signal for bulls.
However, sentiment has shifted premarket today as disappointing earnings from Meta and Microsoft are weighing on the big tech sector. This pullback is pushing QQQ down to just above its rising 20-day EMA around $492, which is where the Nasdaq appears set to open the session.
This is not the strength we were hoping for, and with stocks like Nvidia down 1.5% premarket, it's likely to be a challenging day for the Nasdaq. While it’s too soon to call this a sell-off, we'll need to see how the session develops before drawing any conclusions. Meanwhile, all eyes will be on AAPL and AMZN, whose after-hours earnings could either reinforce the downtrend or provide a much-needed boost for the Nasdaq.
S&P Midcap 400
MDY VRVP Daily Chart
Midcaps showed strong promise in yesterday’s session, with what looked like a major breakout rally for the MDY, reaching up to $580 within the first hour. In yesterday’s report, we highlighted that the MDY was setting up for a breakout and anticipated a quick test of $584, given the high volume of sellers in that range, as shown on the visible range volume profile.
However, after the initial burst of buying, the momentum quickly faded, leading to a sharp retracement. By the session's close, the MDY was back to where it started, suggesting significant selling pressure and hinting at potential weakness ahead.
Currently, the MDY is resting around the 10- and 20-day EMAs, which are dense support areas. Holding these levels will be key for any renewed upside. For now, we’re cautiously optimistic as we wait to see if midcaps can stabilize and regain strength.
Russell 2000
IWM VRVP Daily Chart
Small caps had a nearly identical session to midcaps, with a promising breakout rally in the Russell 2000 after it found demand and broke above its point of control (POC), pushing into a low-volume cluster around $224. However, like the midcaps, this rally quickly lost steam, resulting in a sharp rejection.
The IWM, which tracks the Russell 2000, now sits in a slightly more vulnerable position. A breakdown below its current level, particularly through $220, would send it down toward $219, aligning with the 50-day EMA. This level is critical, as a drop below with no support would raise serious concerns for the future of small caps.
That said, we don’t foresee too much downside pressure in the near term, as the broader macro environment remains bullish for equities. Small caps, in particular, stand to benefit from anticipated rate cuts, as they tend to rely more on affordable borrowing to fuel growth.
DAILY FOCUS
Don’t Panic: Be Cautious & Manage Your Risk
We may be witnessing a shift in momentum as what initially seemed like a strong week for the broader market faces potential reversal. If we fail to see the necessary demand today to support the Nasdaq and the overall market, we could see a significant turnaround in sentiment.
Volatility is on the rise, with the VIX indicating increased uncertainty, and we’re beginning to observe more failed breakouts and episodic pivots forming—signs often associated with market weakness. In these times, it's crucial not to get swept up in negative biases. Instead, treat any stop-outs on your stocks as valuable data points.
Pay attention to which industry groups or stocks are holding up the best during this period of turbulence. Rather than reacting impulsively and liquidating your portfolio at the first sign of a market dip, allow your holdings to breathe. Monitor how they respond to tests of their respective daily 10- and 20-day EMAs.
Also, be mindful of your position sizing. If the market feels particularly shaky, consider scaling back on your trades. This way, you can still participate in the market without overexposing yourself. The key is to allow your current holdings to breathe. Instead of liquidating everything at the first sign of a dip, observe how they respond to support levels. If you have open profits and you feel uneasy, don’t be scared to close some partials into strength on a big winner.
Embrace the uncertainty as part of the game; every dip can present a new opportunity. By staying calm and sticking to your strategy, you’ll be better positioned to capitalize on the eventual market recovery. Take this time to refine your approach and build resilience. Remember, trading isn’t just about making money; it’s also about learning and growing through each experience.
WATCHLIST
Today’s Potential Play
CVNA: Carvana Co.
CVNA Daily Chart
CVNA stands out today as the only compelling setup for potential exposure. The stock recently posted a significant earnings beat and is now one of the few experiencing an earnings-based episodic pivot (EP), signaling strong momentum.
However, given the weak sentiment in the equities market today, there’s a risk that CVNA could get dragged down if broader weakness continues. If you choose to go long, exercise caution and be aware of this risk.
We’ll be monitoring the 5-minute opening range high (ORH) for a potential breakout, but our approach will involve a conservative position size—capping our exposure at a maximum of 0.25% of our account..
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This newsletter does not provide financial advice. It is intended solely for educational purposes and does not constitute investment advice or a recommendation to trade assets or make financial decisions. Please exercise caution and conduct your own research.
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