Daily Commentary: January 23, 2025

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The Rally Needs Fuel

Posted by Pete Stolcers on January 23
www.oneoption.com

Resistance at the all-time high is stiff and buyers are not aggressive.

PRE-OPEN MARKET COMMENTS THURSDAY – Yesterday the market was within striking distance of the all-time high, but the SPY didn’t quite get there. That is the benchmark I use because it is continuous relative to /ES futures which have quarterly expirations. The volume during this bounce has been dismal and the price action the last few months has been very choppy. We’ve seen many dips and every breakout has been challenged on the way up. This is a sign that the rally is tiring.

The FOMC Statement next week will have a big impact. Currently the odds (based on Fed Funds futures) of the Fed pausing are 99.5%. They took a more hawkish stance during the last meeting citing inflation concerns and uncertainty around fiscal policies (Trump). The market had been expecting four rate cuts this year and the Fed signaled that two are likely. We have not seen any signs of domestic economic weakness… yet. I believe that we will be seeing this soon.

Almost 11% of consumers are paying the minimum on credit cards and this is the highest level since 2012. Credit card delinquencies (30 days past due) hit 3.52%. That is an increase from 3.21% a month ago and the trend has been moving higher steadily. When we reach 4% it is a warning sign based on my observations. New home inventories are at levels not seen since 2007 and car lots are overflowing with inventory. This is going to impact the labor market.

Global economic conditions and credit conditions are a huge concern.

Stock valuations are very rich and the last time forward P/Es were this high was in 2000. It is going to take some gangbuster numbers to excite investors this earnings season. AI has been a gigantic cash drain for mega cap tech giants and it might be quite a while before these investments bear fruit.

I’m not a fear monger and I’m not a “perma bear”. If anything, I am more of a “perma bull”. I take no pleasure casting a dark cloud over the market as it tries to make an all-time high. Some of you will snicker at my bearishness as the market tests the high and you will ignore my warning. That’s cool. Good luck.

I’ve been doing this for decades and I’ve seen many people come and go, but very few who have lasted as long as I have. My research is thorough. A big storm is brewing. Go to cash. Whatever little upside we have left, trade small size and keep your trade duration very short-term.

The follow through yesterday was meager and the volume was light. This morning we are likely to test the open from yesterday and if it fails easily, some of the gap will fill. If that happens in the first 30 minutes, I would favor the short side. Major earnings releases and the FOMC next week will keep traders sidelined and we are likely to see light volume today.

Support is the 50-day MA and resistance is the all-time high.

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