OVERVIEW
When Certainty Becomes Risk: The Fed's Big Decision

Tomorrow, the Federal Reserve is expected to announce a 25 basis point rate cut at the conclusion of its final meeting of the year. With a 97.1% chance already priced in, this move is essentially a foregone conclusion. If confirmed, the target rate will drop to a range of 4.25–4.5%.

This high level of certainty, however, opens the door to significant market reactions. Because the cut has already been priced in, any deviation—such as a more hawkish tone from the Fed—could catch investors off guard and rattle the markets. That said, a rate cut could also serve as the spark needed for another leg higher, especially for lagging areas like small- and mid-cap stocks that have been struggling to gain momentum.

The backdrop for this decision is strong. Inflation in November edged up to 2.7% but stayed in line with expectations, and the labor market remains robust, with 227,000 jobs added last month despite disruptions from hurricanes and strikes. This combination of steady inflation and solid employment has fueled optimism in risk assets.

Yesterday, the Nasdaq (QQQ) hit another record high, driven by Big Tech, while Bitcoin reached a new all-time high. This rally also lifted crypto-related stocks like MicroStrategy (MSTR), Coinbase (COIN), and the GBTC ETF—though many of these gains faded by the close. Still, the Nasdaq finished up 1.2%, highlighting strength in tech as investors position ahead of tomorrow’s announcement.

Nasdaq

The capital-weighted Nasdaq (QQQ) is putting on an explosive show, with large- and mega-cap tech names driving the index to fresh all-time highs. After breaking decisively above $532 on very high relative volume, the QQQ printed a strong, full green daily candle—a clear sign of aggressive outperformance by the market’s heavyweights.

Unsurprisingly, the mega-cap tech sector remains the strongest part of the market. Four of the "Magnificent Seven" stocks were on track for record closes as of Monday afternoon. Alphabet (GOOGL, GOOG) and Tesla (TSLA) both surged over 5%, while Amazon (AMZN) also climbed to new highs. Apple (AAPL) hit an intraday all-time high and appeared poised to close at a record as well.

A healthy, sustainable rally requires broader participation across small- and mid-cap stocks and definatly across other sectors, rather than relying heavily on a handful of names. If this narrow leadership persists, it could signal underlying fragility in the market, making it more vulnerable to pullbacks.

That said, with the Federal Reserve's decision on a rate cut tomorrow, there’s hope that this could provide the catalyst needed to ignite momentum in the lagging areas of the market. Until then, the dominance of mega-cap tech remains the defining feature of this rally—but it’s worth watching closely for signs of greater breadth in the coming days.

S&P Midcap 400

The mid-cap segment continues to face significant challenges, with the MDY ETF showing dramatic underperformance. After finding resistance at $602—its point of control (POC)—on very high relative volume, the ETF was rejected, and its daily 20-SMA and 20-EMA continue to decline. Yesterday, the MDY briefly tested these levels intraday before selling pressure took over, resulting in a 1% drop as buyers failed to step in and defend these key levels.

This continues to be an area we are looking to avoid new exposure in at least until we see more consolidation and a base finally get built.

Russell 2000

The small caps are showing similar signs of weakness, despite the seemingly positive green candle. The IWM opened lower at $232, then surged to $236, only to reverse and move lower as sellers stepped in. This rejection occurred right at the 10- and 20-EMA crossover, signaling resistance at the $236 level. As a result, the Russell 2000 ended the day in a sideways consolidation pattern.

That said, the IWM is holding above its rising daily 50-EMA, which is a crucial support level. This suggests that the 50-EMA may be the next key test, offering a potential base for future upside. The strong demand zone around $230, as indicated by the visible range volume profile (VRVP), further supports this idea. If the IWM can hold above these levels, it could set the stage for a stronger move higher in the future.

DAILY FOCUS
Is The Reward Worth The Risk?

With the Federal Reserve's crucial interest rate decision tomorrow, now is not the time to be taking on new naked exposure. The significance of tomorrow's meeting and the potential market impact of the rate decision are simply too high. Until we have clarity on the Fed’s move, the risk outweighs the reward.

Yesterday, we saw several breakouts attempted, but many ultimately failed, highlighting the uncertainty and volatility in the market right now. Given the potential for a market-moving decision tomorrow, it’s better to focus on protecting your principal capital and locking in any open profits you have from strong positions you’ve already established.

The key right now is to stay patient. You’ve likely built up some solid positions by this point—there’s no need to expose yourself to unnecessary risk when the market is in a holding pattern ahead of the Fed’s announcement. Protect what you've gained and wait for the dust to settle before making any new moves.

WATCHLIST
Most Exciting Set-Ups Going Into Tomorrow

RSI: Rush Street Interactive, Inc.

• RSI has certainly caught our attention and will be a key stock on our focus list, both from a technical and fundamental perspective. The online gaming company has demonstrated impressive growth, with +30% quarter-over-quarter revenue growth, along with strong relative and absolute momentum over the past several months. RSI’s price rallied from $11 to $15 in just two weeks, showcasing its powerful upward movement.

• Additionally, RSI operates in the commercial services sector, one of the top-performing sectors in the market right now, reflecting strong relative strength.

• We’ll be closely monitoring how the $14.07 level behaves, as this could provide important insight into its near-term direction. However, given the upcoming Fed decision tomorrow, we don’t expect to open any new positions in RSI until we have more clarity post-meeting. Patience is key—let’s see how the market reacts first.

GEV: GE Vernova Inc.

• GEV is another key name on our focus list, and it’s been consolidating in a sideways pattern since mid-November. During this period, the stock has been trading along its 10- and 20-EMAs, forming higher lows and showing strong buyer support. Notably, yesterday, GEV tested the ascending support level at $330 and held up well, signaling potential for further upside.

• We’re keeping a close eye on GEV for a potential breakout this week, especially if the stock responds positively to the Fed’s rate cut decision tomorrow. If we see a favorable reaction, GEV could be well-positioned for a strong move higher. We’ll wait for confirmation but are optimistic about its setup.