Daily Analysis - Monday, 2/3/25
Once again, we wake up to a Monday selloff. With volatility increasing, opportunity abounds in the market if you can exploit it. Let's enjoy the ride!
Disclaimer
This publication and its authors are not licensed investment professionals. Nothing posted on The Shmuts blog should be construed as investment advice. Do your own research.
The Week Ahead
This week we have more Big Tech earnings with Alphabet, AMD, and Amazon set to report. We also have a lot of jobs data that will be closely watched. Buckle up!
Today - Monday - 2/3/25
9:45am EST - US S&P Manufacturing PMI Final (Expected: 50.1)
10:00am EST - US ISM Manufacturing PMI (Expected: 49.9
Tuesday - 2/4/25
10:00am EST - US JOLTS Job Openings (Expected: 8M)
10:00am EST - US Factory Orders MoM (Expected: -0.7%)
4:00pm EST - Alphabet Q4 2024 Earnings
4:15pm EST - AMD Q4 2024 Earnings
Wednesday - 2/5/25
8:15am EST - US ADP Employment Change (Expected: 150k)
8:30am EST - US Trade Balance (Expected: -96.75B)
9:45am EST - US S&P Services PMI Final (Expected: 52.8)
10:00am EST - US ISM Services PMI (Expected: 54.1)
Thursday - 2/6/25
8:30am EST - US Initial Jobless Claims (Expected: 212.5k)
4:00pm EST - Amazon Q4 2024 Earnings
Friday - 2/7/25
8:30am EST - US Unemployment Rate (Expected: 4.1%)
8:30am EST - US Nonfarm Payrolls (Expected: 170k)
8:30am EST - US Average Earnings YoY (Expected: 3.8%)
10:00am EST - University Michigan Sentiment Prelim (Expected: 72)
Prior Session Stats and Analysis - Friday, 1/31/25
Session Open: 21,774.00
Session High: 21,966.00
Session VAH: 21,962.50
Session POC: 21,918.50
Session VAL: 21,664.75
Session Low: 21,533.75
Session Close: 21,580.75
Session Settlement: 21,589.25
Session Range: 432.25 pts, 1729 ticks
OI Change (Prelim): -1,959 (NQ) / +77 (MNQ)
Prior Session Analysis
Friday’s session was a Neutral Extreme day to the downside. NQ lost business on Friday to the tune of -1,959 contracts.
Prior to the tariff announcement from the White House a little after 1pm EST, NQ had successfully clawed back all of the losses it sustained from the DeepSeek provoked selloff last Monday.
If anyone at a dinner party ever wants to argue with you that the markets are efficient, you need only point to the last week to prove they aren’t (besides the point that legends like Jim Simons and others have been proving the EMH wrong for decades). The DeepSeek news was out days before the market decided to react and sell off last week on Monday. Then throughout the remainder of the week, the market clawed back all of it’s losses on zero news to counter the DeepSeek news.
Then Friday, the White House announced tariffs on Canada, Mexico, and China. Why was the market shocked by this? Trump is following through on what he pledged to do during his campaign. The markets, unfortunately, decided to ignore that and instead bet that he would take a softer approach.
If you’ve been trading for any substantial length of time you will already know that this isn’t anything new, you’ve seen this pattern play out over and over. The market ignores what it’s being told, then overreacts when it can no longer ignore it. We saw the same thing happen with the Fed and interest rate cuts last year.
This inefficiency creates opportunity for us as traders. Without it we would all just be putting our money in an index fund and doing something else most likely not as rewarding or enjoyable. As a trader don’t ignore your gut when you see the market is ignoring something that seems obvious to you.
It goes without saying that it has been a rocky 2025 and we are only in the first trading day of February. All traders should be using a stop loss and paying close attention to the news whenever they have a position on. Volatility has returned to the market, it’s our job to protect our downside and take advantage of it.
Plan for Today - Monday, 2/3/25
At the time of this writing, NQ is down 370 points putting it well below Friday’s session low.
The overnight session opened with a gap down last night and has been mostly trending sideways and slightly up throughout the night. It is notable that it found support at the 21,000 level on three separate occasions during the session.
The question is what will it do when the NY session opens at 9:30am? Will it auction higher and attempt to close the gap or will the sell off gain further momentum? There is likely an equal chance of either one happening.
Right now we are in an emotion driven market and anything can happen at any time. The normal price action around levels will be a lower probability trade in this environment. This is because emotion is driving participants to make decisions rather than value. Due to that I will be adapting my trading approach for the foreseeable future to scalping. Market conditions change and as a trader, you must adapt with them. Not doing so is one of the biggest mistakes a trader can make.
My plan is to be patient, not have a bias, and wait for large momentum moves to happen. When they do, I plan to scalp the move and take as much profit as I can when opportunity presents itself, but not leave positions on long enough that I’m too exposed to volatile reversals where profitable positions turn into losing ones.
Good luck trading today. Remember: always use a stop loss and keep an eye on the news feed.
"Don’t trade for the thrill; trade for consistency and results." – Unknown