Daily Commentary: February 04, 2025

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The Market Is Transitioning

Posted by Pete Stolcers on February 04
www.oneoption.com

I believe the current period is similar to what we saw three years ago.

PRE-OPEN MARKET COMMENTS TUESDAY – Tariffs are dominating the headlines and they are going to cause uncertainty. All of the countries plan to retaliate and that was similar to what we saw during Trump’s first term. This will cause temporary market fluctuations, but the bigger picture is what concerns me more. 

Global economic growth has been slipping. The growth engine for the last three decades will do well just to tread water at zero percent growth. At worst, a credit crisis will unfold in China. 

In the US economic conditions remain stable, but on a real basis, Q4 GDP was barely in positive territory. The Fed has been steadfast in keeping interest rates right where they are. JOLTS will be released today, ADP will be released tomorrow, initial jobless claims will be released on Thursday and Friday we get the jobs report. Given the initial jobless claims number last week, Friday’s number might be OK. 

Bull markets die hard so it is very difficult to short. The way this all works is that eventually there will be a bad jobs report and a series of weak economic data points. The market will take notice and the selling pressure will increase gradually. No one will be particularly concerned because the Fed has plenty of room to ease. That will pacify investors and as economic conditions continue to deteriorate, the Fed will continue to cut rates. Eventually, economic growth doesn’t rebound even though interest rates have been cut. The stimulus isn’t working and the selling pressure increases. 

China and Europe have already reached this point. Their central banks have been cutting interest rates and growth has not improved. 

I believe our current price action is right where we were three years ago. The warning signs are there and the market is trading in a horizontal range after a big rally. When the Fed started to hike aggressively a few years ago, the market sold off in a choppy fashion. Right now, it’s going to take a series of weak economic reports for the market to roll over. When it does, stock valuations will become an issue because of earnings growth. 

It is difficult to swing trade because of the big moves within the range. The market is very news sensitive and that will continue this week. After the close, GOOG reports earnings. AMZN reports on Thursday. In addition to the employment data I mentioned, ISM Services will be release tomorrow. This is a very busy week. 

The market is in a bit of shock today because of all the tariff news. I believe the action will be relatively subdued. If the first move of the day is wimpy (up or down), I believe the best day trading window today will come when that move runs out of steam. I would fade that move. 

Support is at the 50-day MA and resistance is at the high from Monday.

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