Daily Commentary: January 29, 2025

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Explosive Market Move Ahead!

Posted by Pete Stolcers on January 29
www.oneoption.com

Earnings and interest rates drive the market and today we are going to get a heavy dose of news on both fronts.

PRE-OPEN MARKET COMMENTS FED-DAY – The market has been trapped in a range for the last couple of months and it has been waiting for a catalyst. During market hours we will hear from the Fed. They are expected to pause and the market wants to hear that a rate cut is likely in March. Anything less will be a disappointment. Based on Fed Fund Futures contracts, the odds of that happening are 45%. After the close today META, MSFT and TSLA report earnings. Combined they represent 11% of the market capitalization for the S&P 500. Tomorrow, AAPL reports so you can add another 7% to that total. Tomorrow we will also get our first look at Q4 GDP. That will also have a significant impact. 

President Trump is still planning to impose 25% tariffs on Mexico and Canada (our two largest trading partners) and a 10% tariff on China starting in two days. This was confirmed in a press conference yesterday. China has banned exports of rare earth minerals to the US (used in chips) and they have cancelled $690B in imports from the US. They signed big contracts with Brazil (crops) and Qatar (oil). The battlelines are being drawn. Trump is also offering millions of government employees a “buyout” (severance package) and that will impact employment. I’m not making a statement that these policies are good or bad, just that there is a great deal of uncertainty and the market hates uncertainty.

A few days ago a Chinese company said that they have a new AI model that will change the landscape. I don’t know what that impact will be, but I do know that tech stock valuations are at levels we haven’t seen since 2000.

From my perspective, there is a great deal of uncertainty that and it is NOT priced into the market. VIX is near an all-time low and that is a sign that fear is low. The biggest market drops come when no one is expecting them (institutions are not hedged). 

I believe surprise favors the downside and that is supported by weak technicals the last two months. I will be looking for negative reactions during this news cycle. I am in cash and I am ready to strike if I get a breakdown below the 50-day MA. If I’m wrong and the market rallies, I’ve lost nothing. I view the upside as very limited. The macro issues I see brewing are going to take a very long time to resolve. I will day trade from the long side if I see a good set-up, but I will not hold those positions overnight. I am very comfortable swing trading from the short side, I just need to see that breakdown. 

This is Fed-Day so expect the action after the first hour to die down. The Fed reaction would need to feature two long M5 candles with little to no overlap both closing on the extreme to interest me. That pattern is rare. Any overlap and any long tails and wicks would be a sign of volatility and I will not trade before the press conference. Even then, trading the reaction is risky. Remember, we have major news after the close today and tomorrow will be busy as well. 

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

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