OVERVIEW
A Very Big Day For Equities

Yesterday's market session was a mixed bag, influenced heavily by the release of the Producer Price Index (PPI) data. The PPI is an important economic indicator that measures price changes at the wholesale level, reflecting the costs businesses face for goods and services. It often serves as an early signal for inflationary trends, as these costs can eventually pass down to consumers.

For December, the PPI rose 3.3% compared to the same month last year, slightly higher than November’s 3% reading but falling short of economists’ expectations. Month-over-month, the index increased by 0.2%, again below forecasts. While these results point to ongoing inflation, they suggest it may not be accelerating as quickly as previously feared—news that initially boosted market sentiment.

Markets, being forward-looking, reacted positively to this data early on. Major indices, including large-cap benchmarks like the S&P 500 and Dow Jones, as well as small-cap indices like the Russell 2000, pushed higher in premarket trading. This strength carried into the open, with stocks gapping up and extending their gains.

However, the optimism didn’t last. Sellers stepped in aggressively during the session, erasing the earlier gains. By the close, major indices had retraced their premarket gaps and ended the day flat, reflecting hesitation among investors.

As we look ahead to today, the focus shifts to the Consumer Price Index (CPI) report, widely regarded as the week’s most critical economic release. Scheduled for 8:30 a.m. ET, December’s CPI will provide insights into inflation at the consumer level, tracking changes in the prices of goods and services purchased by households. Economists are predicting a 0.3% month-over-month increase and a 2.9% rise year-over-year.

While the headline numbers are significant, it’s essential to remember that markets function as discounting mechanisms. This means they aim to price in future developments, not just react to present data. The equity markets are less concerned about whether a specific figure is hit and more focused on reducing uncertainty and achieving a higher degree of confidence in the trajectory of inflation and policy. When markets have clarity about future trends—be it inflation, economic growth, or Federal Reserve policy—they can more accurately price assets.

With the Federal Reserve’s next interest rate decision on the horizon, today’s CPI report will provide critical input into market expectations. If the inflation data supports a more predictable policy path, markets may stabilize or rally. However, if the report introduces uncertainty—either through unexpectedly high or low figures—it could lead to increased volatility as investors adjust their assumptions.

Ultimately, it’s not just about the numbers but the story they tell about the future. The more clarity markets can gain, the better they can align pricing with expected outcomes

Nasdaq

The Nasdaq is currently finding support at its weekly 20-EMA, a critical technical level. Additionally, it’s sitting near the bottom end of its last major high-demand zone, as highlighted by the visible range volume profile (VRVP). This zone ends around the significant psychological support level of $500. Historically, we often observe reversals at this weekly support level, making it an area worth monitoring closely.

However, context is essential here. The Nasdaq is heavily influenced by the performance of technology stocks, given that the QQQ ETF tracks large- and mega-cap tech names. At present, the technology sector is one of the weaker performers. This underperformance is driven by substantial profit-taking and a pronounced rotation into more resilient, less economically sensitive industry groups. These rotations suggest that investors are favoring stability over growth in the current market environment, adding pressure on the tech-heavy Nasdaq.

Yesterday’s session reinforced this weak technical picture. The Nasdaq faced a significant rejection at the point of control (POC), a key area of volume concentration. This rejection aligns with the declining 10- and 50-EMAs on the daily chart, as well as the weekly 10-EMA. Rejections at multiple key moving averages, especially on higher time frames, are a clear sign of weakness and imply that the market may struggle to gain upward momentum in the near term.

The combination of declining technical indicators, sector underperformance, and a rotation out of growth-oriented stocks continues to suggest caution.

S&P Midcap 400

The mid-cap sector, represented by the MDY ETF, delivered an impressive performance yesterday, significantly outshining the Nasdaq (QQQ). It was a high-volume green session, showcasing strong relative strength. The MDY gapped above its daily 10-EMA at the open and successfully retested this level intraday, confirming it as support. Additionally, the point of control (POC) acted as a demand zone, providing further evidence of bullish momentum—a very positive development.

Currently, the MDY finds itself within a low-volume cluster, which indicates limited overhead supply in this range. The next key resistance level lies at the declining 50-EMA on the daily chart, currently at $580.85. Notably, this level aligns with the declining weekly 10-EMA, further underscoring its importance as a potential pivot point.

We are closely monitoring the MDY here for signs of a breakout above this overhead resistance. A decisive move higher could open the door for continued strength in the mid-cap space, especially given the lighter volume profile above the current price. Today's session will be critical in determining whether the MDY can successfully test and surpass this key resistance zone.

Russell 2000

The small-cap sector also posted a positive session yesterday, albeit less pronounced than the mid-caps. That said, the Russell 2000 (IWM) displayed resilience, continuing its strong bounce off the rising 200-EMA observed on Monday. This key support level held firmly yesterday as well, with demand stepping in to defend an intraday gap fill, ultimately pushing the index to close near its daily highs. While it ended just below its point of control (POC) and the declining 10-EMA, the session still reflected constructive price action.

The focus now shifts to the overhead supply zone, which remains relatively dense in this range. For the Russell 2000 to build on this recent strength, the key objective will be to recover and close above the daily 10-EMA. A successful close above this level would signal improving momentum and potentially pave the way for a more sustained recovery.

DAILY FOCUS
Be Dynamic Today: Don’t Press Your Bias

The breakout efficacy rate remains relatively low, though it has improved slightly compared to the last few sessions. We've seen certain stocks showing breakouts that are beginning to take shape, with some showing strong momentum. However, it’s still too early to commit fully to increasing exposure or deploying cash. There’s a lot of uncertainty that still needs to be addressed.

Not only do we need to see how the market reacts to today's CPI data, but there’s also work left to be done in terms of regaining key technical levels in the major indices. We need confirmation that these levels will hold and that the broader market is truly shifting before we take on more risk.

Stay on your toes today, and continue to monitor the highest relative strength leaders in the market. These stocks are crucial to determining whether we’re seeing a meaningful shift in sentiment. We’ll be posting a complete list of the market leaders we’re tracking in Swingly Pro, highlighting those that are outperforming the broader market. These are the names we’ll watch closely for potential entries, particularly if we see a strong reaction in the markets following the CPI release.

WATCHLIST
Focus On These On A Strong Reaction

MRVL: Marvell Technology, Inc.

• MRVL is shaping up to be a potential leader in the semiconductor space, as it continues to show strong technical characteristics. The stock has now posted yet another higher low, consistently finding support on its rising daily 10- and 20-EMAs. This is a hallmark of a strong stock, one that is simply waiting for broader market conditions to improve before it can make a sharp move higher.

• The stock is currently undergoing a period of strong contraction, as the price action narrows along ascending support and descending resistance. This narrowing, combined with a notable decrease in volume, indicates that MRVL is experiencing a contraction in volatility—often a precursor to an explosive move, either up or down.

• Given the overall oversold conditions in the broader market, combined with MRVL's exceptional relative strength over the last few months, we anticipate this stock could emerge as a leader when the next bull cycle materializes. If the general market environment improves, MRVL has the potential to break out sharply, making it a top name to monitor closely in the semiconductor sector.

RDDT: Reddit, Inc.

• RDDT is positioning itself as one of the leading growth stocks in the market, showing promising signs of strength. Like MRVL, RDDT has found support and has reclaimed its daily 20-EMA, a significant technical level. The stock is now sandwiched between strong ascending support and descending resistance, with volatility contracting as the price action narrows. This type of setup is a strong indication of consolidation, often setting the stage for a breakout when the conditions are right.

• When comparing MRVL and RDDT, it’s clear what a relative strength-leading stock looks like. Both stocks are exhibiting similar chart patterns: declining volume and a narrowing price range. This is exactly the type of behavior to watch for in stocks with the potential to break higher when the broader market conditions improve.