When good news is bad news.
What a dismal start to 2025. Last week, we were hoping the worst was over, but it wasn’t. After a good Monday, we were again slapped down mercilessly the rest of the week. Not fun.
Conventional wisdom (i.e. the investing websites) attributed it to the economic data and how it would affect the Fed’s decision on future interest rates. There were lots more jobs added (256k compared with 164k expected), the unemployment rate went down (to 4.1% from 4.2%), average hourly earnings growth went down (0.3% from 0.4%). All good news for the economy, one would think.
But was the market pleased? Absolutely not! Hence the dismal week. The S&P down 1.5% and the Nasdaq down 1.6%. It seems that the market doesn’t want a strong economy!
What Happens after Inauguration?
In view of the upcoming inauguration, I thought that it would be interesting to see what happened in previous years after a new president was sworn in.
2016 Presidential Election (Trump)
That was a pretty good year! The market climbed around 26% during the year, with a couple of minor blips but nothing serious.
2020 Presidential Election (Biden)
Initially the market climbed, then in September had a 5% dip (debt ceiling, Covid Delta, inflation, Fed). It shook that off only to drop again in January 2022. Many readers will remember that time, it was the start of the long and painful Biden bear market.
2024 Presidential Election (Trump)
What’s going to happen this year? No-one knows, of course, but I have filled in the Wall St Firm’s predictions for the end of 2025. Let’s hope it follows the 2017 stock market!
To the markets . . .
I am looking back with nostalgia to the Blog on 9th December:
A rather nice week on the market. No surprises, shocks or drama. Just a gentle rise. Lovely.
But things have changed. As we said above, last week was a dismal week. The financial press naturally blamed everything on the economic data, I think it was also affected by the California fires. While the obvious suspects, the insurers, fell the rest of the market dropped too as traders realised the extent of the fires and the cost of the rebuilding that would be required. I don’t think that this will change until the fires are under control. Today, 36,685 acres have been scorched, bigger than the 2017 (7,914) but not as large as the 2009 fires which burned 160,577 acres.
Compared with Australia, which has an average of 4-5 million acres burned each year and 290 million (the size of France) in a bad year like the 1974-5 bushfire season, it looks small – but of course the difference is that Australia is largely empty so there isn’t usually the terrible loss of life and homes we are seeing in LA.
To top off all the bad news, earnings season is upon us again, with the big financials reporting on Tuesday and Wednesday. Expect some volatility.
SPY Charts
It’s a nasty looking chart! The 10 day SMA has been going down since mid-December, but is still some way off a death cross. If it keeps going down at the same rate, then it will probably happen at the end of January around 570. But who knows?
We were hoping that support would hold at 585, but it dropped right through this level on Friday. It looks as though it may go down to test support at 565 – I really hope that it doesn’t, but the market does what it wants and takes absolutely no notice of our wishes!
On the weekly chart, SPY appears to have pierced the bottom of its trading channel, which is not a good sign.
I thought it might be good to get some perspective. Here is the S&P 500 for the last 95 years, on a log scale. You can see that it is not far above the long term trend. The 2 times (in the late sixties, and then in 1999) when it was above afterwards there was a period of sideways movement followed by a slump. My reading is that we are not there yet – but that’s just my opinion, and I am probably tempting fate!
SPYG Charts
The SPYG chart isn’t quite as dismal as the SPY chart. T seems to have been developing a Darvas box since late November, and has to make a new high above 91 or a new low below 87 before it breaks out of it.
The 10 Day SMA is not turning down as much as SPY, it is more of a slight downward slope.
On the long term chart we can see that it is still comfortably within its trading channel.
QQQ Charts
QQQ is a cross between SPYG and SPY. Not as dismal as SPY, but not as good as SPYG. It has dropped through what we hoped was going to be support at the previous high of 514 (early November) and is heading towards possible support at the previous high of 503 from July 2024. Fingers crossed that it holds.
And on the longer term chart we see that it is again right in the lower level of its trading channel.
VIX Chart (Volatility)
The VIX is up a bit but not significantly.
ITMeter
The week ahead . . .
As I mentioned earlier, we may be in for a rocky week. Not only do we have the start of the earnings season with several big banks set to report, but there are fresh inflation figures on Tuesday and Wednesday. To top it all off, a lot of Fed officials are talking this week, and people think that they will offer insights into monetary policy.
At least we can look forward to a bit of peace and quiet from them soon. From January 18th until 1 day after their meeting on January 28-29 there is a blackout period where they must refrain from any public comments.
I’d be in favor of the blackout period being extended – by a lot!
The futures
The futures are down, but not by as much as they were a few hours ago! It is still 8 hours to market open.
Well, it’s not much fun at the moment, but hang in there. Markets hate uncertainty and there is a lot of uncertainty. The bushfires, the daily surprises from the White House and the coming Inauguration are making for a bumpy ride. Hopefully things will become clearer soon, and we can have some sanity back! And remember:
Fingers crossed for a good week.
Heather
Q & A
I think I am up to date with all the questions – but if you haven’t received an answer could you please resubmit it below?
12 Responses
Hi Heather,
So glad you’re continuing with the blogs! I was curious as to what is your opinion on guaging market tops in the major indexes (spx/ ndx) based upon volume-price action, and observable signs on a stock chart that may suggest distribution? If noticable signs of distribution are occurring (ie, inability to make new highs for extended periods, and decreasing volume on upswings etc) do you in your own trading rationalize getting out of positions, even if a 10/200 out is not signaled?
Thanks!
Hi Bradley,
yes decided to continue the blog. I realized that is was good discipline for me to really look at the charts and figure out what they were telling me. If you have to explain things to someone else then your observations and understanding better be able to stand up to scrutiny.
Re predicting market tops – it is clear that volume increases when there is a dip – the bigger the dip the higher the volume (check out Feb-Mar 202 for an example), but I can’t see any signs of a high volume with a small increase or flat accurately predicting a market top.
I’ve checked OBV for signs of divergence, the Accumulation / distribution line, candlestick patterns etc – but I can’t find anything that can be relied on for predictive purposes. I get the theory, but I just can’t see it in practice.
In short, I would not, with any confidence, say that I can identify market tops – unless it is after the fact! Which is when, in my opinion, people make up these theories – but maybe I am just being skeptical. However, until the average Wall St guru can beat the index I’m not really going to take much notice of their theories!
So – I stick to the 10/200 signal – I know that I am never going to get out at the market top, but it will save me from being dragged down to the bottom!
Hope this helps
h
I think it was Rothschild that said “you can have the top 20% and the bottom 20%, I’ll take the 60 % in the middle”. Or something along that line. That is exactly what your strategy does. I’ll take that 60% too and be very happy with it.
HI Jim – I had heard that quote too – hopefully we miss out on the top 10% and the bottom 30%!
I checked with ChatGPT (my go-to for all things these days) and he said:
The quote, “You can have the top 20% and the bottom 20%, I’ll take the 60% in the middle,” is commonly attributed to Bernard Baruch, a renowned American financier and stock market speculator. Baruch’s investment philosophy emphasized focusing on the more predictable middle portion of market trends, avoiding the volatility often present at the beginning and end of price movements.
This approach aligns with the strategy of capturing the central, more stable segment of a market trend, thereby reducing exposure to the uncertainties associated with market extremes. By concentrating on the “60% in the middle,” investors aim to achieve more consistent returns while mitigating the risks inherent in attempting to time market peaks and troughs
I know it is annoying to miss the top 5% or 10% – but we have to be realistic. We can all be great traders in hindsight!
h
Long time trader of currencies , etc but a novice re options . Read first book starting Bear Market ITM now . I expect the next four years to be very tumultuous for financial markets . Washington likely in upheaval , unpredictable . Out of chaos comes opportunity though . There must be other things , time frames your proven technique works on ? Can`t imagine you waiting for the S&P to settle down . Most interested in what you have explored ? Thank you for all the time you`ve put into research and writing these books . Options making sense now
Robert
Hi Robert,
I have only really backtested on day data not shorter time periods.
But I’m not waiting for the S&P to settle down. While the bull signal is in force I am staying in.
I totally understand people being apprehensive, so my suggestion is that you put a percentage of your account into straight SPX or QQQ shares – being unleveraged you will not experience the same size of swings that leverage gives you. The percentage is what ever you are comfortable with.
I am hoping that when the fired are under control and the Inauguration has passed with no drama that things will settle down.
Hopefully!
h
Dear Heather and Randy,
Thank you for your weekly update and your wonderful responses. Cooking and Gardening sound so peaceful and joyful, similar to trading and investing of course. Please stay safe everyone and please pray for us people of Los Angeles.
Sincerely,
George Henry
Hi George – I’ve been waiting for the news that the fires are controlled – but it seems not yet, and the winds are picking up again.
Not good.
I’ve seen how fast bushfires can move expecially with eucalypts, the oil just makes them explode which is quite terrifying – and California seems to have a lot of eucalypts.
Lets hope they get it under control soon.
h
Hi Heather
I was thinking that long synthetic with a put protection would be less cash intensive and almost the same delta any advise would be welcome
Hi Raymond – I must be missing something – why would it be less cash intensive?
h
With Ai / robots in control will they be interested in the stock market?
1. I want a self driving car
2. A personal Ai robot named Sheila
That cooks cleans ( including windows ) and exercises so I don’t have to … and fishes.
R
Hey Randy!
Why go for a self-driving car??
A self-driving helicopter for me!
Although i like the cooking / cleaning / exercising – but can I swap fishing for gardening?
h