OVERVIEW
Do You Trust Friday’s Bounce?

As we head into a holiday-shortened week, the markets seem to be taking a breather after a busy few weeks filled with major economic updates and central bank decisions. Investors are adjusting their expectations for the year ahead, especially with a new administration taking office in January.

Recent strong U.S. economic data has caused the Federal Reserve to rethink how many rate cuts might happen in 2025, dampening hopes for significant reductions. At the same time, uncertainty is growing as markets prepare for potential global tariffs under President-elect Donald Trump and grapple with the slow recovery of China’s economy.

Despite these challenges, there’s cautious optimism for the final stretch of the year. Historically, the last part of December is one of the best times for U.S. stocks. This so-called “Santa Claus rally” has, on average, added 1.3% to the S&P 500 during the final five trading days of the year and the first two trading days of January—a pattern that’s held for decades.

With the markets closing early on Christmas Eve and taking a full break on Christmas Day, trading activity is expected to be lighter this week. However, the second half of December has often brought positive momentum, especially in presidential election years, when the market has ended December higher 83% of the time. Investors are hoping this seasonal strength will help the markets finish 2024 on a positive note.

Nasdaq

The Nasdaq showed the strongest bounce attempt among the major indices, driven by a notable surge in megacap tech stocks. This move came with a significant spike in volume, pushing the QQQ above its point of control (POC) at $512 and bouncing off the rising 50-day EMA (exponential moving average). However, this strength was short-lived, as the QQQ faced rejection later in the session at the declining 10- and 20-day EMAs.

There’s a lot to unpack here. First, the high volume is worth noting. According to Wyckoff Logic Theory, a typical bull trap before another leg down (a markdown phase) would usually show a low-volume bounce. This bounce defied that expectation with a high-volume move. However, the high volume doesn’t tell the whole story, as the session’s close was not particularly strong. Seller aggression increased, preventing the QQQ from holding its quickest EMAs (10- and 20-day), which leans bearish.

Looking ahead, more confirmation is needed to determine if the market genuinely wants to move higher. Ideally, we’d see consolidation and a base-building phase here, with sideways movement that could set up a solid recovery. For now, it’s too early to call a clear direction, making the next week crucial for confirmation.

S&P Midcap 400

Midcaps are also attempting a bounce, with the MDY showing a surge in high volume. However, the move was rejected near a low-volume pocket on the visible range volume profile (VRVP) at $576—a critical level to watch. A break above this area could potentially push the MDY higher toward its now-declining 10-, 20-, and 50-day EMAs.

The recent bearish cross of the 10-day EMA below the 50-day EMA is a significant signal, confirming a medium-term downtrend. Historically, this is not a favorable setup for sustained upward movement.

Russell 2000

Small caps are in a similar position to midcaps, with the IWM showing a bearish 10-day EMA crossing below the 50-day EMA. All major moving averages are declining, highlighting continued downward pressure. On Friday, the IWM faced rejection at the $224 supply level, closing with fading momentum—a sign that sellers remain in control.

DAILY FOCUS
Trying To Time The Bottom Is A Fools Game

As Warren Buffett wisely said, "The stock market is a device for transferring money from the impatient to the patient." Successful traders understand that a significant part of trading—about 80%—is waiting. Waiting for the right setups, the right conditions, and the right confirmations.

It's tempting to try to call the bottom when the market feels oversold or shows signs of stabilizing. And while we may very well be nearing a short-term bottom, trying to predict that moment is both expensive and often a losing strategy. Instead of guessing, focus on what you can control: disciplined execution.

Avoid jumping into trades based on short-term movements. Just because there was a bounce on Friday doesn’t mean the selling is over. Look for sustained price action above key resistance levels, along with increased volume, which signals genuine buying interest. For example, a "follow-through day"—where the market closes higher on increased volume after a recent decline—can indicate the start of a new uptrend.

We always need to ensure we’re trading with the probability on our side. And we start by identifying a positive trend—something that is clearly lacking right now. From there, we focus on sectors or stocks that are outperforming the broader market. These leaders often lead the recovery, providing better risk-reward opportunities. Right now, however, nearly all of these groups are still pushing lower.

Our focus this week, and especially today, is to continually monitor market conditions and adjust our strategy as new information becomes available. Flexibility is key to navigating the ever-changing dynamics of the market. We’re watching to see how today unfolds and whether we see follow-through from Friday's action. But there’s no rush to jump in—we’ll wait for clearer signals.

Don’t waste your time and money trying to guess the bottom. Let others burn their capital chasing false starts while you wait patiently for the market to show its hand.

WATCHLIST
The Relative Strength Leaders

CRDO: Credo Technology Group Holding Ltd.

• CRDO stands out with some of the most impressive revenue growth, and when you add in its strong relative momentum, it's definitely catching our attention. The stock has shown resilience, bouncing along the 20-EMA while many others are aggressively breaking lower. It's currently building a short-term range along the daily 10-EMA, with descending resistance at around $70.50, making it one of the top names on our watchlist.

• However, we’re not looking to jump in immediately. We want to first see how the broader market performs, particularly how prior breakouts—like PLTR from Friday—play out. Once we get confirmation of follow-through on those names, we'll consider entering CRDO.

• Our entry criteria remain consistent: we're looking for a high-volume break above the descending resistance level, along with confirmation from the 5-minute opening range high (ORH). Only when both conditions are met will we consider making an entry.

RKLB: Rocket Lab USA, Inc.

• RKLB is another prior market leader that has been steadily building a strong base since mid-November, following a short-term top. Since then, the stock has been consolidating along the daily 10-EMA and 20-EMA, with higher lows forming. The key level to watch here is $26, which could serve as a significant breakout point.

• That said, given the market's potential to get choppy today, we might see both breakouts and fades. As always, it's crucial to exercise caution and remain patient. Keep a close eye on how things develop before making any moves.