Daily Analysis - Tuesday, 1/28/25
Fear ruled the market yesterday. Will cooler heads prevail today?
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
Today - Tuesday - 1/28/25
8:30am EST - US Durable Goods (Expected: 0.5%)
10:00am EST - US CB Consumer Confidence (Expected: 105.6)
Wednesday - 1/29/25
2:00pm EST - US Interest Rate Decision (Expected: 4.5%)
2:00pm EST - FOMC Rate Statement
2:30pm EST - FOMC Press Conference w/ Powell
4:05pm EST - Meta Q4 2024 Earnings
4:05pm EST - Tesla Q4 2024 Earnings
4:05pm EST - Microsoft Q2 2025 Earnings
4:10pm EST - IBM Q4 2024 Earnings
Thursday - 1/30/25
8:30am EST - US Initial Jobless Claims (Expected: 225k)
8:30am EST - US GDP QoQ Advance (Expected: 2.7%)
8:30am EST - US GDP Price Index (Expected: 2.5%)
8:30am EST - US Continued Jobless Claims (Expected: 1.91M)
4:00pm EST - Intel Q4 2024 Earnings
4:30pm EST - Apple Q1 2025 Earnings
Friday - 1/31/25
8:30am EST - US PCE Price Index YoY (Expected: 2.5%)
8:30am EST - US PCE Price Index MoM (Expected: 0.3%)
8:30am EST - US Core PCE Price Index YoY (Expected: 2.8%)
8:30am EST - US Core PCE Price Index MoM (Expected: 0.2%)
8:30am EST - US Consumer Spending MoM (Expected: 0.5%)
9:45am EST - US Chicago PMI (Expected: 40)
Prior Session Stats and Analysis - Monday, 1/27/25
Session Open: 21,123.50
Session High: 21,418.50
Session VAH: 21,280.00
Session POC: 21,254.00
Session VAL: 21,139.00
Session Low: 21,095.00
Session Close: 21,258.00
Session Settlement: 21,258.50
Session Range: 323.5 pts, 1294 ticks
OI Change (Prelim): +16,756 (NQ) / +20,082 (MNQ)
Prior Session Analysis
Yesterday’s session was a Normal day, which is typically the exception, not the norm. We saw a wide initial balance but did see a little bit of range extension on each side of the IB. Some would argue this could be classified as a Neutral day due to the range extension on each side; I believe that nothing is ever cut and dry in the market, and because of the wide IB and only slight extension, I classify it more as a Normal day than Neutral.
In my trading plan yesterday, I called out that it was possible we saw the most significant move in the overnight session. There could be a sideways rest day after such a large move, and that’s precisely what we ended up with.
There was an attempt by buyers off the open to close some of the gap off the open. Sellers stepped in above 21,375 to set the upper extreme for the day. Buyers later stepped in below 21,130 to set the lower extreme for the day. Participants in both other timeframes were active in the session yesterday.
I took no trades yesterday. Based on my plan yesterday, I was looking for momentum moves in either direction, which never materialized. For me, it’s better to preserve capital and live to fight another day than to enter positions in the hope of a breakout and getting chopped to death, which is what would have happened.
Two facts that stand out to me about yesterday’s session:
Price never came close to retesting the 21,000 level, which I discussed in yesterday’s analysis, after the strong rejection in the overnight session. Buyers stepped in well above it to reject lower prices during the regular session.
NQ saw a substantial amount of new business come in yesterday, with +16,756 contracts added to NQ and +20,082 contracts added to MNQ. That is the largest amount of new business to come into the NQ in a session since Dec 16th. Interpretation of this is up to the trader; it could be buyers positioning for a bounce back up or sellers getting in for another leg further down.
Plan for Today - Tuesday, 1/28/25
At the time of this writing, overnight inventory is slightly long, trading above 21,300, which puts it in range and in balance with yesterday’s session.
On Dec 18th, we saw a substantial selloff following the FOMC announcement about fewer rate cuts in 2025. Two days later, on Dec 20th, we saw a massive 600-point short squeeze. Yesterday’s move down, in my opinion, was a fear-based reaction to the DeepSeek news. As emotions calm down and more details emerge around the announcement, participants may auction NQ back up to a fairer value. Any move back up could trigger shorts to close, and a short squeeze could ensue.
Positioning for a short squeeze after an emotional overreaction by the market is one of my favorite trades. This is the most tantalizing trade for me at the moment, but it may require patience.
One of the reasons I think this could happen is the claim that DeepSeek was able to develop its r1 model at a cost of only $6 million. Chinese companies don’t have the best track record of honesty in their claims, and the street is heavily scrutinizing this cost number. If it is found that it is not true, that would change the value proposition by the street around the investment Big Tech has made in AI, which could fuel a rally in price. I will be keeping a close eye on any developments in this area.
As a trader, be on the lookout for a short squeeze to develop; it can present a tremendous opportunity if you have the confidence to enter long while it’s developing. The challenge is recognizing it accurately and not getting caught in a fake rally.
There is a significant gap above the current price structure, starting at approximately 21,420 and extending up to approximately 21,840. This 420-point gap could provide strong resistance to price auctioning upwards unless a catalyst to change sentiment emerges; for example, what I mentioned above about the $6mil cost claim by DeepSeek turning out to be false.
With FOMC and Big Tech earnings tomorrow and more Big Tech earnings on Thursday, I don’t know if risk-on appetite will exist today to rally significantly. Anything can happen, as always, but I think it’s more likely if a serious attempt to close the gap above occurs, it will happen once these next two days of big news are behind us.
Current expectations are at a 99.5% chance the Fed will keep rates the same tomorrow. This is already priced into the market. Powell’s press conference at 2:30pm will be the most significant risk for the event; any hawkish or dovish comments by Powell will move the market. His comments on inflation expectations will also be critical.
That said, I believe the Big Tech earnings present the most significant risk. Equities are priced for perfection, and they have to be perfect. Analysts will also be focused on what companies like META, MSFT, APPL, and TSLA have to say about the DeepSeek news.
I am not feeling heavily motivated to trade today. Assuming we open in-balance this morning, my plan today is to be patient and keep a close eye on the news. Given the potential resistance of the gap above, any auction up in price will either need to correlate with a catalyst for me to take it seriously or have clear indicators of a short squeeze. In the event of price auctioning down, I will keep an eye on the 21,000 level once again to see if buyers step in as support. I feel like NQ is boxed in right now. We need a strong catalyst to rally back up through the gap above, and below, 21,000 has been such strong support going back to November that I would feel less confident about taking a short below it.
Discretion is the better part of valor, and sometimes, it’s best to sit on the sidelines and wait it out; I may end up doing just that today.
"The big money is not in the buying or the selling, but in the waiting." – Charlie Munger