MARKET
Equities Holding Their Breath

This week marks a full month since President Trump introduced a 90-day suspension on his proposed “reciprocal” tariffs—targeting every major trade partner except China. That pause has acted as a tailwind for equities, particularly in high-growth sectors like technology, cybersecurity, aerospace & defense, and crypto-related equities, all of which have seen notable breakouts in recent weeks.

However, uncertainty still lingers. While markets have priced in optimism around potential trade resolutions, the actual structure of these deals remains unclear.

On Monday, Treasury Secretary Scott Bessent reinforced that the U.S. is “very close” to finalizing multiple trade agreements, echoing President Trump’s weekend comments that deals “could very well” be reached this week. This continues to bolster short-term confidence in risk assets.

But it’s not without its risks.

Any delays or missteps could lead to temporary supply-chain disruptions, modest downward pressure on GDP, and even a brief, shallow recession. The risk here is less about a full economic breakdown and more about forcing the Fed into a tighter corner, particularly as inflation remains sticky and the central bank’s flexibility on rates is already limited.

That said, we don’t view this as a structural or long-lasting threat. In today’s global economy, interdependence is the rule, not the exception—and this raises the probability that some level of compromise will be found sooner rather than later.

The key takeaway: market confidence has been steadily increasing, but as traders we should still be prepared for sharp swings tied to any updates or surprises around the trade negotiations, and not leaving anything to chance.

Nasdaq

The Nasdaq has now spent three full sessions comfortably holding above its point of control (POC), a key volume-weighted price level. While we did see a minor pullback yesterday, it occurred on low relative volume and found buyers stepping in near the rising 200-day EMA—a healthy technical reaction that reinforces the strength of this uptrend.

It’s no surprise that we’re seeing a pause here. The index is clearly short-term extended, with over 86% of Nasdaq constituents currently trading above their 20-day EMAs—a very strong breadth reading by any measure. But here’s the nuance many traders miss: when participation is already this broad, it’s not the ideal time to start initiating new longs. The move has already happened. As traders, the goal is to identify setups before this kind of universal participation shows up.

Now, with the FOMC rate decision due tomorrow, we expect further slowdown in participation and possibly increased intraday chop. Even though the market is overwhelmingly pricing in no change in rates, the real risk lies in how Powell frames the outlook—and no one wants to place large bets ahead of a potential volatility trigger.

Until we get that decision, this pause is not only expected but welcomed. It allows the strongest stocks to digest gains and set up again for continuation, and gives us clearer visibility on whether this rally has legs beyond short-term enthusiasm.

S&P Midcap 400

The midcap segment is taking a well-deserved pause after an impressive 11 straight days of green candles, with the MDY (midcap ETF) holding firmly above its 50-day EMA. This sustained rally has already positioned midcaps as a strong performer, and while the current digestion phase is expected, it is by no means a sign of weakness. In fact, the way midcap stocks have been consolidating recently, setting up and forming tight contractions, is a clear sign of healthy, structured price action—not something you’d typically see during a low-volume rally or a bear market.

Given the overall market conditions and historical context heading into the FOMC rate decision, we anticipate very little movement for the rest of today and most of tomorrow. As has been the case in prior FOMC weeks, the pre-rate decision period tends to be marked by choppy action and lower participation, as traders remain on the sidelines awaiting the clarity that comes post-decision.

Russell 2000

The small-cap segment (IWM) is currently showing the greatest relative weakness in the market. This is clearly visible with the Point of Control (POC) level failing to break above, while both large caps and midcaps have successfully held that same level. Relative volume on the IWM has already declined, which isn't necessarily a bad sign—especially considering the recent retracement. A low relative volume pullback is actually more constructive than a high-volume rejection, which often signals further weakness.

That said, we expect the IWM to test its rising 10-EMA around $195 either today or intraday tomorrow, leading up to the FOMC meeting. This level will likely act as key support if the pullback continues, but there’s still potential for further weakness before the rate decision.

DAILY FOCUS
Don’t Try to Outsmart a Loaded Dice

The Fed’s rate decision tomorrow is a near-lock—97% odds say no change. That’s not the story. The real volatility always lives in the interpretation: Powell’s tone, his wording, the market’s mood. These are the wildcards.

Traders get in trouble when they try to anticipate not just the event, but the reaction to the event. That’s like betting on a coin toss and then trying to front-run how the crowd will feel about heads.

Sector Sensitivity: It’s Not One Market

Not all sectors digest Fed day in the same way, and understanding how different areas of the market respond is a major edge. Growth stocks, particularly high-valuation tech and speculative names, are the most rate-sensitive. These names tend to move sharply on even minor changes in tone from Powell. A slightly more hawkish-than-expected comment can cause aggressive selling, while a dovish lean often sparks a fast upside move. Stocks like PLTR, NVDA, and the broader ARKK-style complex are prime examples—they overreact, in both directions.

Gold and miners (GLD, GDX) tend to react not to the rate decision itself, but to what it means for the dollar and real interest rates. If Powell implies a softer stance or the dollar fades, these names usually catch a strong bid. GDX already showing strength into the meeting is a tell that the market may be leaning dovish. On the other side, financials (like XLF or regional banks) care more about the shape of the yield curve than just the base rate. If the curve steepens—long-term rates rise relative to short-term—banks often outperform. But if Powell triggers a flattening or inversion, expect underperformance in this group.

Tomorrow’s Fed decision is already priced in. With a 97% probability of no change, the event itself is not the market’s concern. The real variable — the only real variable — is interpretation. What Powell says, how he says it, the subtext, the tone, the pauses. That’s what moves markets, not the actual policy action.

Trying to anticipate that second-order reaction is where traders lose edge. It's not about outsmarting the Fed — it’s about outwaiting the reaction. We aren’t paid to guess the coin toss and guess how everyone else will feel about the outcome. We’re paid to recognize the moment of dislocation and step in when price confirms.

There’s real edge in knowing when not to act. Tomorrow is one of those days. If you're already positioned, protect what you have. If you’re flat, stay patient. This game is about moving after the emotion, not during it.

Let the noise happen. Your job is to listen for the signal after.

WATCHLIST
This Is The Trade To Watch

XPEV: XPeng Inc.

• XPEV has been showing impressive accumulation since its April lows, forming a series of higher lows and a narrowing price range, coupled with declining volume. This aligns with China's current strength in the market, and given XPEV's past momentum leadership in early 2025, it’s now at the top of our list for potential exposure.

• This ability to rotate with the market requires flexibility and awareness of where the market's energy is shifting, much like how we see China gaining strength in 2025. Rather than being tied to one set of stocks, successful traders are constantly evaluating new setups in strong sectors and moving their capital into those areas with the best risk/reward profiles.