Daily Commentary: January 31, 2025

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Where’s the Volume?

Posted by Pete Stolcers on January 31
www.oneoption.com

Major headlines this week fail to excite buyers or sellers.

PRE-OPEN MARKET COMMENTS FRIDAY – This week had the potential to fuel a major move and we should be trying to catch our breath after a week of volatility. The news has not produced a move and the market looks poised to gradually float higher on no volume. I’m still waiting for something I can sink my teeth into and a major “window” for price movement just passed us by.

The Fed is “happy” with interest rates and they are likely to stay in a holding pattern until June. I believe they will only be motivated by a drop in economic activity or a decline in employment. Q4 GDP came in at 2.3% and that was light (2.7% expected). On a real basis (inflation adjusted), GDP barely grew. The ECB cut interest rates by 25 basis points yesterday even though they are seeing signs of inflation. They plan additional rate cuts because they are trying to stimulate economic growth. On a nominal basis, EU GDP in Q4 declined. On a real basis (inflation adjusted) it was down more than 2%.

A week from today the jobs report is going to be released. Based on planned layoffs I thought that initial jobless claims would start to rise, but they came in at a very strong 207K yesterday. That bodes well for next week’s unemployment report and we are less likely to see a big drop in jobs.

When we do see economic contraction, the blow will be softened because the Fed does have room to cut rates. The market will weather the bad news initially. It won’t crack down until economic conditions continue to slip even after the Fed eases. The PBOC and ECB have been cutting rates and conditions continue to slip. Eventually, the market will drop if this continues.

Mega cap tech earnings have been OK. Even with lofty valuations, these stocks were able to move slightly higher in aggregate after reporting. AAPL reported yesterday after the close and the stock is above the 50-day MA this morning.

Tomorrow a 25% tariff will be placed on Canada and Mexico. Those are our two largest trading partners and those are hefty penalties. The market is ignoring this. It either believes that it won’t happen or that it won’t have a material impact. Trump is also planning to impose a 10% tariff on China, but it is not official yet. It could happen at any moment.

I am longer-term bearish, but short-term neutral. The catalysts that I thought could spark selling this week have vaporized. From a swing standpoint, I in cash. I’ve found a couple of isolated trades, but I am just waiting for movement and volume.

From a day trading standpoint, I would NOT chase this open. We have to make sure the gap is going to hold. After a bid check this morning where most of the gap holds, you can try some longs. We don’t want to see any long red candles during that process. Yesterday I told you not to chase that move up to resistance. The market rolled over and after that swift round of selling, we had an opportunity to try longs. That’s how I would approach today. Don’t buy until support has been tested and confirmed. If the market starts the day with a wimpy rally that stalls, I would be looking for an opportunity to short.

After a week of big news, the market is right where it closed last Friday. This is a low probability environment. Trim your size and your trade count. There will be an initial move today. If it is higher, wait for it to stall and look for an opportunity to fade it. If the first move is lower into the gap, wait for it to find support and then look to buy. I feel that fading the first move this morning could be the best window we will have.

Support is at the high from Thursday and resistance is the all-time high.

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