The Shakedown 2-1-25

Tricky week from the opening print. We opened this week with a huge gap down, about 3% in the SPY and QQQ due to a chinese company named Deep Seek allegedly creating a Language Learning Model similar to Chat GPT for pennies on the dollar. We don't know what's true and what's false regarding this story, so I am going to let the market's price action dictate my opinion.

Seeing this gap down Monday, I went to cash and haven't done much since. The market was able to bounce back in a major way with both the S&P and Nasdaq closing it's 3% Monday gap downs by the end of the week. That is only half the story though, as Trump's tariffs took center stage mid week. Late Thursday we found out 25% tariffs would be placed on Mexico and Canada February 1st causing a late day sell off. Friday morning, the market recovered and began to run higher on news the tariffs would be held off until March. Around noon Friday, Trump reported the "March" story was fake, the February tariffs were real, and the Nasdaq sold off 2% in the final 3 hours of the day. Welcome to Trump's stock market.

Saturday as I'm typing this, Trump solidified 25% import tariffs from Mexico and Canada (10% on Canadian Energy) and a 10% additional tariff on China. This is around 1/3 of all imported goods. The research I saw that if these tariffs were to hypothetically remain in place for one year, they would increase the CPI by 0.54 percentage points which would not allow the Fed to cut rates like the market wants. While we are going to experience the negative side effect of Trump's Tariff related moves first, this does set us up for the future positive catalysts of countries making deals and tariffs being removed.

We had a Fed meeting this week where the Fed decided to keep rates at current levels and the market responded well. We notably ripped higher when Powell said, "We don't need inflation at 2% to cut rates." We know now the market badly wants rate cuts above all else so all economic data that points to rate cuts will be good for the market and economic data that points to no rate cuts will be bad for the market.

Heading into the week I am the most hands-off I have been in some time. I've said this a few times lately, but to reiterate -- I have so much confidence in my setups and my strategy that when they align, I know I can make my account do somersaults in a short amount of time. Because I have this confidence in myself and my strategy, this allows me to be hands off when I don't see my setups there, and I don't have a lot of confidence in the market's next move. In years past under these circumstances, I may force 'B' or 'C' setups feeling the need to be involved in the market's every move. Experience has taught me to kill it when I'm confident and to do very little when I'm cautious.

With over 1000 companies reporting earnings next week, there will be tons of setups down the road. I am not worried about heading into next week with very few setups on tap.

Let's checkout some charts.

This is what I'm thinking for SPY the next few weeks -- continued weakness in the early half of February. Sell off to the bottom end of the macro trendline, find support and turn higher. If we test these all time highs again, it will be a 3rd attempt to take them out, which is a high probability event.

This would be an ideal scenario for me in the QQQ. The weekly chart below is quite in tact and does not suggest the trend is done. If/when we are able to take out this week's/Friday's high in the QQQ, it would be a massive market breakout now after 3 failed attempts. With the way we closed Friday, I would think that is week's away. I am anticipating the beginning of this week to be met with the selling we saw Friday afternoon. Very patient to start the week, but if we hold Monday's lows on a selloff next week, that is the spot where I may look to get long.

Economic Data This Week

Upcoming Earnings

Another massive week of earnings on tap. PLTR, PYPL, SPOT, PFE, REGN, PEP, MRK, RACE, EL, SNAP, GOOGL, AMD, CMG, ENPH, UBER, DIS, QCOM, ARM, SYM, VKTX, PI, ALGN, LLY, AMZN, RBLX, PTON, COP, NET, ELF, MCHP, AFRM some of the big reports next week.

Earnings Watchlist

Some warnings signs I'm seeing out of the market:

We all put Stan Weinstein's "Stage Analysis" to great use over the last two years when we were crushing stocks that shifted from the stage 1 base phase to the stage 2 breakout phase. (HOOD, RBLX, TOST, BROS, TWLO, LMND, AAOI to name a few) I am openly worried MSFT and NVDA could both be in "Stage 3 Distribution" phases before Stage 4 Downtrends.

The key component of going from a Stage 2 Breakout into a Stage 3 Distribution phase is the 30 week moving average transitioning from support to resistance, which I've mapped out on both charts below.

I am basing this analysis SOLELY ON THE CHARTS. This is not my opinion or where I think NVDA is going next week, these are the current market dynamics that are being thrown at us. I hope I am wrong and this is all a fakeout move that we later call a "Wall of Worry."

But again, we have to trade the market in front of us, not the one we want.

A reminder that these names are so important based on their broad market weighting. The two of them combine for 16.6% of the entire QQQ.

MSFT and NVDA are both in hot water with the way they closed last week. Let's hope we see some more constructive action out of these behemoths this week, otherwise we may see their weakness spill to more of tech.

To be clear, they have not triggered the downside moves or stage 4 declines yet but they're in dangerous jeopardy of doing so.

Onto some less negative charts

I was going to put ADP or RKLB as the trade of the week as they're the best looking setups heading into the week for me. But, I don't want to post a breakout setup when I think we see continued broad market weakness Monday. I will send out a trade of the week mid-week if market settles and presents some tight risk opportunities. Action is too wide and loose right now.

1000+ Earnings this week, February is sure to be busy!

The Shakedown 2-1-25

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