OVERVIEW
Is A Relief Rally Finally Here?

The market is starting to heat up, and for good reason. Yesterday’s session was the best since November, driven by a very positive CPI report and combined with the cooler-than-expected PPI data, the market is starting to get its footing again and feel more comfortable with the macroeconomic picture moving forward especially with regards to interest rate cuts.

The headline Consumer Price Index (CPI) rose 0.4% in December, matching expectations, while energy prices accounted for over 40% of the increase. Gasoline, fuel oil, and propane all saw their biggest monthly gains of the year. However, core CPI—which excludes the more volatile food and energy categories—rose just 0.2%, coming in lower than the forecasted 0.3%. That’s the first monthly slowdown in core inflation since June, offering a glimmer of hope that the Federal Reserve’s tightening cycle has been working.

On a year-over-year basis, core inflation dipped to 3.2%, down from 3.3% in November, while all-items CPI ticked up to 2.9% from 2.7%. The softer inflation data is exactly what bulls were hoping for, and the markets are showing it. But while the rally feels promising, all eyes are now on today’s initial jobless claims and retail sales reports. We expect retail sales to show a slight slowdown, and we’re hoping for that sweet spot of solid growth without a significant re-acceleration that could pressure the Fed to hold rates higher for longer.

The goal is to achieve controlled inflation alongside a labor market that continues to show signs of cooling. This would give the Federal Reserve the confidence to reduce interest rates, which naturally boosts the equities market, without the risk of inflation resurging.

Nasdaq

The Nasdaq had an exceptionally strong session yesterday, with the QQQ gapping up into major overhead resistance and holding its ground impressively. The QQQ found support intraday at its 50-EMA and managed to push above its Point of Control (POC), closing the session above all its key EMAs for the first time on high relative volume since mid-December. This marks a significant show of strength for the tech-heavy index.

S&P Midcap 400

The midcaps had an impressive gap-up open yesterday, with the MDY pushing above all its key moving averages in premarket trading. While we did see an intraday fade lower toward the now-rising 50-EMA, the index managed to find some support at this level.

However, it’s worth noting that yesterday’s volume was relatively low, which doesn’t suggest strong or aggressive buying pressure just yet. Ideally, we’d like to see a few more days of consolidation above these EMAs to solidify this move and build a stronger base for continued upside momentum.

Russell 2000

The small caps had a session similar to the midcaps, but with a key difference: they gapped into overhead supply and the declining 50-EMA, where we saw a rejection. Despite this, the overall action remains constructive.

The focus now is on seeing more sideways consolidation, allowing the market to gain comfort trading above its 10- and 20-EMAs. This would set the stage for a potential breakout above the clear resistance that has been capping progress since November.

DAILY FOCUS
Today Could Be The Day

The market is beginning to show real signs of strength, with yesterday’s session laying a promising foundation. Major indices are holding above key moving averages, volume is starting to increase in some areas, and bullish momentum is building. While the environment remains cautious, today has the potential to offer actionable opportunities if you stay disciplined and ready.

Start by using weekly charts to pinpoint the strongest setups. These charts reveal the big-picture trends, helping you focus on stocks that are showing clear leadership and minimal overhead resistance. Look for names in leading sectors that are demonstrating strong relative strength, as these are often the first to break out when momentum shifts.

From there, turn to daily charts to refine your focus. Tight price action, constructive bases, and support near key levels like the 10- and 20-day EMAs are the setups you want to prioritize. After yesterday’s positive movement, there are likely several stocks consolidating near breakout zones. Keep an eye on volume—low volume during pullbacks signals healthy consolidation, while a spike on a breakout confirms strength.

When it’s time to execute, hourly and 5-minute charts will be your guide. Use these shorter timeframes to time your entries with precision, looking for intraday setups like tight consolidations or retests of key levels. Pay attention to early session strength today—this will indicate whether the market is ready to follow through on yesterday’s gains or if a pullback is more likely.

WATCHLIST
Semiconductor Frenzy

TSM: Taiwan Semiconductor Manufacturing Company Ltd.

• TSM is seeing a premarket rally driven by its earnings report. The company posted fourth-quarter earnings of $2.24 per share on sales of $26.88 billion, surpassing analyst expectations. Earnings grew 53% year-over-year, while sales rose 36%.

• We’re seeing TSM gap up, breaking above its multi-month base on high premarket volume. This is a noteworthy technical development, as historically, when stocks build such long bases, they often experience significant rallies higher. Today’s price action could be the catalyst needed to push the stock further, making this an interesting setup to watch for potential upside.