OVERVIEW
A Short-Term Bottom?

The markets are buzzing this Tuesday morning as traders prepare for a crucial week of economic data. First up, the Producer Price Index (PPI) drops today at 8:30 a.m. ET, followed by the Consumer Price Index (CPI) tomorrow. These two inflation reports are like the compass for where the economy—and the Federal Reserve—might be headed next.

If you’re wondering what these reports actually mean, here’s the quick breakdown:

• PPI (Producer Price Index) measures wholesale inflation, or how much suppliers are charging businesses for goods and services. It’s like a sneak peek at where prices for consumers could go, since rising costs for businesses often trickle down.

• CPI (Consumer Price Index), on the other hand, looks at the prices regular people are paying for everyday goods like groceries, gas, and rent. It’s the ultimate measure of how inflation is hitting your wallet.

Why does this matter? Because inflation has been the Fed’s main focus. If these reports show inflation cooling off, it could signal that the Fed’s aggressive rate hikes are working and might ease the pressure to raise rates further. But if inflation comes in hotter than expected, markets might brace for more rate hikes—and that’s where things get tricky.

Right now, we’re in a phase where good news on the macroeconomic front is actually spooking the equity market. Here’s why: strong economic data—like high job growth or resilient consumer spending—might sound great on the surface, but it also means inflation could stick around longer. That gives the Fed more room to keep raising interest rates to cool things down. And higher rates make borrowing more expensive for everyone, from businesses looking to expand to everyday people with credit cards or mortgages.

Long term, strong economic fundamentals are a good thing. They point to growth, higher earnings, and a lower risk of a recession. But short term? They can keep the market on edge, as investors worry about the Fed tightening too much and slowing things down.

Nasdaq

The Nasdaq bore the brunt of yesterday’s market sell-off, which isn’t all that surprising given the intense selling pressure we’ve seen, not just across equities as a whole but particularly in large-cap tech stocks. Heavyweights like Apple and Nvidia, which together make up nearly $7 trillion in market value, continued to slide aggressively. Their pullback is dragging down the Nasdaq 100 (QQQ), a capitalization-weighted index heavily influenced by these giants, inching it closer to its rising 200-day EMA.

Interestingly, the QQQ found some footing during yesterday’s session, bouncing off the $500 mark—a key psychological and technical support level. This price aligns with the weekly 20-EMA, a spot the QQQ has tested and rebounded from multiple times in the past. While this level could act as a near-term bottom, trying to time the exact bottom in this kind of market isn’t a strategy we recommend.

With so many high-impact economic reports on deck this week, including key inflation data, the potential for increased volatility and unpredictable market moves is high.

S&P Midcap 400

Midcaps also attempted a recovery yesterday, but the low relative volume of the bounce doesn’t inspire much confidence. The Point of Control (POC)—a key price level where the most trading activity has occurred—and the declining 10-EMA remain untested, leaving the MDY (S&P MidCap ETF) vulnerable to a sharper reversal.

This setup suggests two possibilities for today’s session: a sharp sell-off at the open or an intraday test of the overhead supply levels near the POC and 10-EMA. Until these resistance levels are meaningfully tested and cleared, the midcaps’ rebound looks more like a pause in the downtrend than a sustainable recovery.

Russell 2000

Small caps are feeling the pressure too, showing a more pronounced downside extension compared to midcaps. However, the Russell 2000 has now officially tested its 200-EMA and managed to hold support at that level. This opens the door for some much-needed consolidation, which could lay the groundwork for a recovery if the index begins to respect this support and enter a phase of sideways digestion.

That said, it’s way too early to break out the confetti. A single bounce off the 200-EMA doesn’t guarantee a sustained recovery, especially in this volatile environment. For now, the focus should remain on whether small caps can establish a stable base here. Without clear signs of strength or stability, staying cautious is the name of the game.

DAILY FOCUS
A Trader Or A Gambler?

In trading, we don’t rely on luck—we rely on strategy. The difference between a trader and a gambler is the approach. A trader works with probabilities and makes decisions based on informed analysis, while a gambler hopes for the best, often without a plan. As traders, our goal is to put the odds in our favor by aligning with the market’s structure and understanding where risk and reward meet.

Today, we’re taking a risk-off approach. With the PPI report looming, our primary focus is to observe how key technical support levels on the major indices like QQQ, SPY, IWM, and MDY react. Are we going to see a surge of buyer aggression, with these levels holding strong? Or will the support fail, signaling a potential breakdown?

This is where the difference between a trader and a gambler becomes clear. We’re not making rash decisions or hoping for a miracle. We’re waiting for the market to show us its hand, and only then will we act. Our approach isn’t about chasing every move—it’s about waiting for the right setup and executing with precision.

1. Plan with Precision: Set clear expectations. Know where the key levels are, what the market needs to do to trigger your interest, and where your stop and target points are. A plan isn’t just a guideline—it’s your framework for managing risk and opportunity.

2. Patience is Power: Good traders know that sitting on the sidelines isn’t a failure—it’s part of the process. Today, we’re observing. The market is going to test whether the current support holds or breaks. Let it play out. This patience can lead to clearer setups, rather than jumping in based on hope.

3. Execute When Conditions Align: Once we see the market showing strength or weakness at key levels, we’re ready to act. But it’s only after we’ve seen what we need to see. This isn’t about getting in just because the market is moving—it’s about aligning with its rhythm when the odds are in our favor.

4. Review and Refine: After the trade, we review the outcome. Was it in line with our plan? Did we stick to our rules? This is where growth happens—refining our strategies and learning from every move, whether it’s a win or a loss.

WATCHLIST
Keep A Close Eye On These Leaders

SEI: Solaris Energy Infrastructure, Inc.

• SEI has been one of the strongest performers in the market lately, especially in the tech sector, where most stocks have struggled. What sets SEI apart is its strong correlation to the oil and energy sector, which is currently one of the top-performing industry groups. While technology stocks typically face headwinds in such a market environment, SEI’s ties to energy have given it a solid boost, allowing it to outperform many of its peers.

• We’re closely monitoring the 20-EMA on the daily chart. Yesterday, it acted as support, and if this level continues to hold, SEI could be positioning itself for a potential breakout. If we see high relative volume and a strong move off this level, it would make SEI the number one stock on our radar for a breakout trade.

MSTR: MicroStrategy Incorporated

• MSTR, the strongest and most well-known Bitcoin-related stock, has been building a series of higher lows since its breakdown below the 20-EMA in December. This price action suggests that, while the stock initially sold off, it has started to stabilize and potentially set the stage for a reversal.

• However, there are still key resistance levels to clear. The major overhead supply zones, as well as the 10, 20, and 50-EMA, all need to be reclaimed before we can confidently say the trend has turned. Despite this, we’re noticing a contraction in volatility, which could indicate a potential buildup for a breakout.

• It’s important not to overlook MSTR, given its role as the leader in Bitcoin-related stocks. As a prior market leader, it’s never a good idea to ignore the potential for a strong move, especially if the technical conditions improve.