OVERVIEW
The Bears Are Not Done Yet

U.S. stocks closed mostly flat today, as attempts to recover from yesterday's sell-off fell short. Investors remain cautious, with the Federal Reserve's hawkish stance on interest rates continuing to weigh heavily on the market. Despite some positive economic data, the overall sentiment remains muted, as many are wary of the potential for higher rates to slow growth. Pre-market action saw the major indices gap down as much as 1.2%, reflecting ongoing uncertainty and investor hesitation.

The latest economic reports showed that the U.S. economy grew faster than expected in the third quarter, with an annualized growth rate of 3.1%, up from the previous estimate of 2.8%. Additionally, weekly unemployment claims dropped to 220,000, down from 242,000 the previous week. While this signals a healthy labor market, it also raises concerns about inflationary pressures, as a strong labor market can fuel wage growth and higher consumer prices. Despite the encouraging news, the market hasn’t responded positively, with the focus shifting to future inflation and interest rate policies and the entire picture on how the Fed will handle future rate hikes getting muddier.

Looking ahead, all eyes are on the release of the core Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred measure of inflation. The data is expected to show a 0.2% month-over-month increase for November, following a 0.3% rise in October. Year-over-year, core inflation is expected to reach 2.9%, slightly higher than the 2.8% gain seen in October. The PCE index is considered a critical indicator for the Fed's decision-making process, and any surprises in the data could significantly impact market expectations for future interest rate moves.

With inflation expected to remain above the Fed's 2% target, officials are likely to proceed with caution. Following the recent 25-basis-point rate cut, the central bank has signaled limited easing in 2025, as inflation pressures continue to persist. Traders will be closely watching for any signals that could suggest the Fed is leaning toward a more aggressive stance or that inflation is starting to cool. As the market continues to navigate this environment, volatility is expected to remain high, making it a crucial time for everyone to sit on their hands, protect their capital and wait for better times.

Nasdaq

The Nasdaq continued its major sell-off from Wednesday’s session, failing to hold above its daily 20-EMA. This wasn’t unexpected, and instead, we saw the QQQ break lower to its point of control at $512, where it encountered passive buying and aggressive selling. This selling pressure has now pushed the QQQ just above its daily 50-EMA at $507, where some demand is expected to step in, setting up a potential bounce today.

While this may seem like a good entry point if a bounce occurs, it’s important to be cautious. There’s still no clear bottom forming, and jumping into a potential bounce without confirmation could be a mistake. The best-case scenario would be to wait for some consolidation to show that buyers and sellers are stabilizing before considering a recovery. At this point, it's too early to call for a reversal.

S&P Midcap 400

The midcaps are in a challenging spot right now, as seen on the weekly chart of the MDY. Yesterday’s session saw the MDY break below its weekly 20-EMA, and it’s now struggling to hold its weekly point of control (POC) at $566, which is a particularly bad sign. This breakdown increases the likelihood that the MDY will continue lower, potentially even to the $540 level and its weekly 50-EMA, unless this zone attracts profit-taking from sellers and demand from buyers.

Looking at the visible range volume profile (VRVP), it’s clear that this POC level represents a critical area where demand could emerge. The behavior around this zone is crucial—if it fails to hold, the downtrend could deepen significantly.

Russell 2000

Small caps are in a similar position to the midcaps, moving in tandem with the MDY. They’ve also broken below their weekly 20-EMA and their point of control (POC) at $220. While there’s still some demand around the $216 level, which could offer a brief relief, the overall picture is becoming increasingly bearish. As the MDY analysis suggests, it's looking more and more likely that we are in a medium-term downtrend. This may take some time to play out, with a potential test of the rising 50-EMA at $212 before any meaningful relief or recovery takes hold.

DAILY FOCUS
This Sell-Off Is A Blessing

Market sell-offs and multi-week corrections can feel uncomfortable, but they often present some of the best trading opportunities. The stocks that perform the best during these periods are often the market leaders, and they start to form the clearest setups when the broader market is under pressure. This is when you can truly identify relative strength, as the strongest stocks tend to hold up better while others falter. In a rising market, it’s harder to spot these leaders because everything moves higher in sync, but during a correction, they stand out.

However, this is also the time when it's easy to get sloppy. With the market pulling back, it's tempting to lower your standards, but this is exactly when you need to be the most diligent. Your work now needs to be more focused than ever—carefully reviewing charts, staying disciplined, and not letting frustration cloud your judgment. Don’t rush into trades just because you’re eager for a rebound. Use this time to carefully analyze which stocks are holding up and where the true strength lies.

Take a look at your best and worst trades from the last cycle. What did your winning trades have in common? Were they stocks that showed resilience during market pullbacks? Did they have strong relative strength or unique characteristics that made them stand out? Reviewing your losers can reveal patterns to avoid in the future.

Instead of seeing the sell-off as a setback, view it as an opportunity to reassess your strategy. Analyze sectors and stocks that held up well or showed signs of strength while others dropped. Focus on those setups and be prepared for when the market turns. This is the time to refine your strategy, learn from previous mistakes, and build a game plan for the next phase of the market cycle. Keep your focus sharp—now more than ever, your diligence will pay off.

WATCHLIST
Two Relative Strength Leaders

PLTR: Palantir Technologies Inc.

• PLTR has been a market leader for months, and looking at its move since November earnings, it's clear just how powerful this stock has been. Right now, PLTR is showing relative strength as it holds above its daily 10 & 20-EMAs, forming a range while many other stocks struggle.

• While no one can predict whether PLTR will break down or continue higher, it’s exactly the kind of stock you want to keep on your watchlist. Pay attention to how it behaves in the coming days, especially as it holds its daily moving averages while almost everything else is selling off.

• Stocks that can maintain their 10 & 20-EMAs during a broader market pullback are the ones that typically lead when the market turns. Stay patient and observe—this could be a setup to watch closely for the next move. Use this framework for all of the other stocks you see in your daily scans.

EAT: Brinker International, Inc.

• EAT is another relative strength leader, with a very strong performance over the last few months. It has consistently found support on its 20-EMA, building higher lows and consolidating sideways within the $124-$136 range. This type of action shows that the stock is holding up well despite broader market pressure, which is a key sign of strength.

• The goal here is not to rush into new positions but to let the stock build out a flag. As you saw yesterday, EAT failed in its attempt to move higher, and that’s a reminder that it’s important to wait for confirmation before making a move. Instead of chasing, focus on letting the stock consolidate and form a clearer pattern.

• The only time to enter a position will be when the market as a whole, such as the QQQ, SPY, or other major indices, starts to form a bottom and build its own sideways consolidation range. Once the broader market shows signs of stability and strength, then you can look for stocks like EAT—or any other relative strength leader—that break higher. These stocks are the ones that have held up during the pullback and are most likely to lead the next move higher.