OVERVIEW
Strength at the Surface, Cracks Beneath

🟥 Risk-Off: Markets remain at highs, but follow-through is fading fast. Breadth metrics like NH/NL and VSI are still holding up, yet real trading behavior is telling a different story.

Failed breakouts, erratic earnings reactions, and thinning volume across QQQ, MDY, and IWM are clear signs that trend traders are losing edge.

📊 Index Extension Is the Issue: SPY is up +32%, QQQ +41%, and RSP +25% in just 15 weeks- a near-parabolic run. But as prices stretch, relative volume continues to fall, especially in QQQ.

The higher we go without a reset, the lower the probability that new breakouts will stick. Leadership is crowded and extended — and we are now seeing signs of trend fatigue.

🏗️ Rotation Without Clarity: Defensive sectors are stabilizing. Tech is stretched. Industrials and real estate are performing well. Energy (XOP) is tightening, but still choppy.

Sector rotation is happening, but lacks the force and clarity we need to act. That leaves us in a phase where protection, not aggression, is key.

MARKET ANALYSIS
Something Is Brewing…

This week is one of the busiest stretches we’ve seen all year, and while headlines are flying, here’s what actually matters:

Trump announced a tariff agreement with the EU, dialing duties down to 15% after previously threatening 30%. While that sounds bullish, markets had mostly priced this in, and we didn’t see any explosive reaction — just a slight bid under global equities. Net impact? Muted. It removes some tension but isn’t a new upside catalyst.

📉 Rates + Fed Meeting: No Cut Yet, But September in Focus

The Fed wraps up its two-day meeting Wednesday. They’re not expected to cut rates this week- the Fed Funds target should remain at 4.25–4.5%- but the market will be laser-focused on the tone of Powell’s comments, especially regarding the September meeting.

Trump is publicly and aggressively calling for rate cuts. His push for easier policy combined with a softening inflation trend is increasing the odds that the Fed blinks in Q3. But for now, the Fed remains boxed in: inflation is still above target, and employment hasn’t fully broken.

Bottom line: If Powell sounds dovish, expect a final euphoric push. If not, stretched tech and growth stocks could face real headwinds.

📈 Earnings: Big Tech in the Spotlight

150+ S&P 500 companies report this week including Meta and Microsoft (Wednesday), Amazon and Apple (Thursday). These are the same stocks that have driven most of the index returns YTD.

The bar is sky high. Markets will be watching not just the numbers, but AI spending commentary. Hyperscaler investment narratives have to start converting to cash flow, or risk unwinding.

We’ve already seen names like GOOG and AMD fade strong results. If this week’s earnings can’t sustain upward momentum, the entire growth-heavy side of the market may cool off.

💡 Inflation + Jobs: Key Data Coming

Thursday brings PCE which is the Fed’s preferred inflation metric.

Expectations: 2.7% core, 2.5% headline.

Any upside surprise could delay rate cut hopes, while a downside miss could fuel more risk-on behavior, at least short term.

Friday’s Jobs Report is expected to show softening: +102K jobs and a slight uptick in unemployment to 4.2%. Again, the sweet spot is slightly soft, not recessionary. Too hot and the Fed stays tight; too cold and economic concerns start creeping into equities.

Bottom Line for Traders…

This is a heavyweight week, no question, but the real signal comes after the events, not from the headlines themselves.

What matters:

• Do earnings winners hold or fade?

• Does the market trend cleanly post-Fed, or revert to chop?

• Is capital actually rotating with conviction?

We don’t trade CPI prints or Powell speeches.
We trade setup quality and follow-through.

And right now, in an environment where the QQQ is +42% in 15 weeks and crowding is a real risk, the question is simple:

Is there still asymmetric edge? Or are we chasing risk into exhaustion?

Nasdaq

The QQQ continues to grind higher now up 42% in just 15 weeks but several internal red flags are starting to flash.

The first: declining relative volume over the past few weeks. While price has pushed vertically, participation is fading- a classic late-stage move.

That divergence becomes more concerning when paired with what our scans are showing: fewer actionable setups, and more leaders testing key moving averages and reacting weakly. That’s not a healthy environment for initiating new longs.

Remember: stocks lead indices, not the other way around. So when leadership starts chopping or stalling, it’s usually a precursor to broader cooling.

Earnings season might keep capital rotating within the index, so this isn’t about panic or liquidating portfolios. But for new long entries, we have to be clear:

You're not just betting that price goes up… you're betting on trend continuation that lasts days to weeks, giving you enough room to scale and compound.

After a +42% rally, that kind of follow-through becomes far less likely. Momentum trend trading requires asymmetry. Right now, it’s shrinking.

S&P 400 Midcap

While the MDY (S&P 400 Midcap) continues to edge higher, the choppiness is far more visible here than in the QQQ. This morning’s gap up looks promising, but it’s arriving after several weeks of messy consolidation, and without a meaningful surge in relative volume, it's unlikely we get the kind of clean, directional breakout traders are hoping for.

The Visible Range Volume Profile (VRVP) shows there's a significant overhead supply zone to chew through, meaning price could face resistance unless strong buying demand steps in.

Just like in large caps, we’re seeing fewer and fewer midcap stocks building clean bases or showing fresh leadership traits in our scans. That’s a major tell: this rally may be continuing, but the fuel is thinning. Momentum can carry us a bit further, but don’t mistake grinding price action for high-conviction trend.

Russell 2000

The IWM (Russell 2000) continues to coil tightly along its rising 10- and 20-day EMAs, holding right at its point of control (POC). But what stands out is the sharp decline in relative volume which typically acts as a precursor to a breakout or breakdown.

While short interest remains elevated and crowding risk is far lower here than in QQQ, the setup still lacks confirmation. Compression near POC with low volume can lead to explosive moves, but direction isn’t guaranteed.

Most importantly, we’re seeing a decline in actionable setups across small caps, and more worryingly, an uptick in failed breakouts- the opposite of what we observed 1–3 months ago when the trend was clean and leaders were charging ahead.

For now, this is a low-conviction zone that demands patience. Either we see a clear reset (pullback into support + rotation), or volume needs to come in with force to support a sustainable leg higher.

🧠 Mindset Check: Why Price Moves & Why It Might Not From Here

Markets only move for one reason: someone gets aggressive.

• Price goes up when buyers lift the ask

• Price goes down when sellers hit the bid

That’s it. Everything else — headlines, earnings, sentiment — filters into one thing: who is willing to cross the spread and act?

And that’s why understanding market structure, trader psychology, and crowding is more important now than ever.

Behind every candle is a decision:

• "I need to buy now — before it runs"

• "I have to sell — before it drops more"

• "I can’t miss this breakout"

• "This is a fakeout — get me out!"

And these decisions are made by imperfect humans (or algos built by imperfect humans), operating in a market built on inefficiencies.

🚨 Where Are We Now?

Right now, the QQQ is up +42% in just 15 weeks.

That’s a parabolic move. And while that’s great for early entries, it presents a serious challenge for swing traders looking for new risk:

• The best entries (pullbacks, breakouts from contraction) are long gone

• The most aggressive buyers have already acted

• The risk/reward for new trades is now compressed

In short: there’s no urgency left.

When a stock or index is extended far above key moving averages- like QQQ is now-it becomes harder and harder to find participants willing to aggressively lift the ask. Most funds are already positioned. Late buyers get cautious. And passive sellers start leaning in.

That’s why volume fades at highs. That’s why breakouts fail. And that’s why extended markets stall, churn, or correct.

🧠 What Is “Crowding”- And Why It Matters

Crowding happens when too many market participants are in the same trade, often at similar prices.

When a trade becomes crowded:

• Everyone owns the same thing

• There’s no one left to buy

• Any bad news triggers a rush for the exit

This is exactly what we’re seeing in QQQ and mega-cap tech. Everyone is overweight. The trade is consensus. And even positive earnings (e.g. GOOG) aren’t seeing strong follow-through.

📊 Market Microstructure Meets Psychology

Here’s how it plays out in real time:

• A breakout forms → traders anticipate upside

• The breakout triggers → buyers lift the ask

• Price accelerates → volume surges

• The crowd piles in → price extends too far

• New buyers hesitate → volume fades

• Sellers lean in → bids thin out

• Traps and failures increase → trend loses energy

At this stage of a move — like we’re seeing now in QQQ, SMH, XLK — each new long entry has lower expected value. The edge isn’t gone forever, but it’s gone for now.

🔑 What You Should Do As a Trader

As a swing trader, your job is not to chase. Your job is to wait for asymmetric opportunities or trades where your downside is capped and your upside is open-ended.

Right now, setups are thinning. Follow-through is weaker. And crowding risk is high.

That doesn’t mean short everything. But it does mean:

• Be more selective

• Raise your standards for entry

• Scale down size if taking trades

• Expect more chop and failed breakouts

• Track volume + price + context, not just chart patterns

🧠 Markets Are Inefficient- But Timing Still Matters

Markets are built on inefficiency, emotion, and constraint. But your job is not to exploit inefficiency every day. It’s to wait until the conditions favor decisive action.

The QQQ doesn’t need to crash- it just needs to stop offering good setups.

So ask yourself:

If the answer is unclear, you’re better off protecting capital than forcing exposure.

FOCUSED STOCK
QXO: Quiet Strength in Housing Names

Last week saw Real Estate (XLRE) and Homebuilders (XHB) break out — a theme we highlighted in prior reports as one to watch, especially if interest rate cut expectations gain traction.

QXO, a key supplier of roofing, waterproofing, and building products across the U.S., has been quietly building strength within this theme. It triggered a Stage 2 uptrend in May 2025 and has since offered a clean stair-step pattern of trend-pause-continuation.

Now, the stock is:

• Consolidating tightly just under its 200-day EMA

• Holding its point of control (POC) on declining volume- a healthy sign of digestion

• Showing rising relative strength vs SPY

If the strength in homebuilders and real estate persists and especially on the back of dovish Fed expectations, QXO is one to keep high on your watchlist.

FOCUSED GROUP
XOP: Oil & Gas Contracting

While broad market rotation continues, Energy and specifically Oil & Gas Exploration (XOP), is showing signs of coiling for a potential breakout.

We’ve seen a steady move in XOP since the April lows, but unlike Tech (XLK), which has trended in a near-straight line, XOP’s path has been choppier and less linear. Now, however, price is tightening meaningfully:

• Holding above its 50-day EMA

• Compressing tightly along the 10, 20, and 200-day EMAs

• Sitting right on its Volume Point of Control (POC)

This multi-EMA coil at a high-volume node often precedes powerful expansion.

📈 Why it matters: If extended Tech and Growth stocks begin to cool- as current breadth and volume patterns suggest- capital often rotates into lagging cyclical sectors like Energy. That makes XOP a prime candidate for leadership if we get a breakout confirmation.