EB Weekly Market Report - Monday, February 3, 2025

Tom Bowley - February 03, 2025

ChartLists Updated

The following ChartLists were updated over the weekend:

Strong Earnings (SECL)
Strong Future Earnings (SFECL)
Raised Guidance (RGCL)
Bullish Trifecta (BTCL)
Seasonality - February (SEASCL)

These ChartLists are available to download into your StockCharts Extra or Pro account, if you have a StockCharts membership. Otherwise, we can send you an Excel file with the stocks included in these ChartLists in order to download them into other platforms. If you have any questions, please reach out to us at "[email protected]".

Important Note

I pointed out in last week's EB Weekly Market Report that I was growing nervous and that clouds were building on the horizon. Those clouds grew darker and moved closer after a series of blows to the stock market. First, there was DeepSeek to open things off on Monday as its potentially-cheaper cost of AI sent shockwaves through many AI stocks, including NVDA, CLS, ALAB, VST, and many others. Technology (XLK), as a whole, was rattled and the XLK represents 32.5% of the S&P 500. Then came the latest Fed meeting and Fed Chief Waffle himself, doing what he does best - waffling. They're not sure what to do, so they have essentially decided to do nothing, speaking as though the Fed has no clue what's going on. Yeah, Wall Street despises this uncertainty. Finally, President Trump announced tariffs around 1pm on Friday for Canada, Mexico, and China, to take effect on Tuesday. And selling kicked in into the close. I sent out a separate message on Friday, announcing that we were moving all of our stock portfolios to cash as of 2:34pm ET on Friday.

We'll keep you posted day by day on the market environment and what we might see. But the takeaway right now is that the short-term risks of being in the market outweigh the short-term risks of being in cash and missing out on a rally.

Weekly Market Recap

Major Indices

Sectors

Top 10 Industries Last Week

Bottom 10 Industries Last Week

Top 10 Stocks - S&P 500/NASDAQ 100

Bottom 10 Stocks - S&P 500/NASDAQ 100

Big Picture

I remain steadfastly bullish from a longer-term perspective. Any pullback or correction that I've been discussing of late is nothing more than short-term volatility that could result from market instability and several key technical, seasonal, and sentiment issues. There's a very real possibility that the stock market can put its head down and keep driving higher. This is definitely NOT a slam dunk to the downside. My talk of a possible decline is because of increased risks. There are no guarantees in the market.

Sustainability Ratios

Here's the latest look at our key intraday ratios as we follow where the money is traveling on an INTRADAY basis (ignoring gaps):

QQQ:SPY

We remain in a steady decline on both panels - absolute relative price action and intraday relative price action. These ratios do tend to fluctuate a lot, so don't read too much into them, but they do appear to add to the risk present in the market right now.

IWM:QQQ

Small caps have clearly lost some luster and it's at least in part due to the Fed and their constant worries about inflation and their lack of conviction that interest rates will be cut later in 2025. I fully expect that when the Fed sees enough tame inflation data and talks further about rate cuts, small caps will surge on a relative basis. But when might that happen? Great question.

XLY:XLP

Of these 3 ratios, I view the XLY:XLP the most important, simply because there's been very strong positive correlation between the direction of the XLY:XLP and the direction of the benchmark S&P 500 throughout history. Seeing the S&P 500 struggle to move higher, while the intraday XLY:XLP ratio turns definitively lower is not a great look. It certainly seems as though money is rotating throughout the day INTO consumer staples. That's a recipe for false breakouts.

Sentiment

5-day SMA ($CPCE)

Sentiment indicators are contrarian indicators. When they show extreme bullishness, we need to be a bit cautious and when they show extreme pessimism, it could be time to become much more aggressive. Major market bottoms are carved out when pessimism is at its absolute highest level.

We're not anywhere near the crazy bullishness that we saw at the end of 2021 and into early 2022. But neither has any other time in history. That was a unique period coming out of our first pandemic in 100 years, with stay-at-home folks feeling like the stock market was their very own printing press or ATM machine. We are, however, at a point in this sentiment reading where problems have begun in recent history. Seeing that 5-day SMA reading of the CPCE fall below 0.50 is worrisome at best. The timing of those readings in the past is quite clear.

253-day SMA ($CPCE)

A falling 253-day SMA of the CPCE is synonymous with an extended secular bull market rally and I believe that's EXACTLY what we're in. Yes, I'm much more cautious near-term, but I fully believe we remain in a secular bull market that's likely to live on for many more years. Remember, this move lower on the chart can move back higher for a bit to coincide with extended market weakness, should it occur, just like it did in mid-2024 when the Fed disappointed in late-July and early-August.

Growth vs. Value

Here's a quick reprint and glance of a chart that I provided in last week's report:

What's going on with large-cap growth stocks? They're falling apart vs. their large-cap value counterparts and that's not a good look in terms of Wall Street's risk appetite. When Wall Street says NO to risk, we can run into trouble.

Long-Term Trade Setup

Since beginning this Weekly Market Report in September 2023, I've discussed the long-term trade candidates below that I really like. Generally, these stocks have excellent long-term track records and many pay nice dividends that mostly grow every year. Only in very specific cases (exceptions) would I consider a long-term entry into a stock that has a poor or limited long-term track record and/or pays no dividends. Below is a quick recap of how I viewed their long-term technical conditions recently:

JPM - enjoying one of its best rallies in its long history
BA - a move through 183 or so could really kick start the stock
FFIV - new highs in place, but volume is tailing off with a negative divergence on weekly chart, may pause here
MA - looking for next all-time high breakout
GS - excellent uptrend in place
FDX - tested 20-month EMA, 310 area is critical resistance until broken
AAPL - has run into short-term selling, likely solid entry here
CHRW - consolidating after 50% move higher in 2024
JBHT - remains in lengthy consolidation period
STX - great start to 2025, needs to clear resistance in 110-115 area
HSY - brutal 25%+ drop over past 5-6 weeks, loves next few months historically
DIS - after 6 weeks of selling, resuming strength the past week
MSCI - continuing to trend higher, sights set on late-2021 and all-time high near 650
SBUX - building bullish short-term momentum
KRE - has received boost in 2025 as 10-year treasury yield ($TNX) topped and reversed
ED - been weak, but long-term support remains intact
AJG - one of most consistent and dependable uptrends off of pandemic low in 2020
NSC - late stage cup with handle pattern on monthly chart, will likely lead to a solid 2025
RHI - long-term price support is in 58-60 area, still looks solid as a long-term buy and hold
ADM - remains in 2-year downtrend, could potentially reach key support from 40-43
BG - continues to test key price support in the 75-80 range, monthly RSI at 40
CVS - awesome response as buyers have poured in off of recent 43-44 price support test
IPG - 3-year consolidation has stock in middle of its 15-month 26-32 price range
HRL - bound between price support at 27.50 and 20-month EMA resistance at 33.07
DE - broke out to new all-time highs recently, after its monthly PPO turned higher from near the zero line

Keep in mind that our Weekly Market Reports favor those who are more interested in the long-term market picture. Therefore, the list of stocks above are stocks that we believe are safer (but nothing is ever 100% safe) to own with the long-term in mind. Nearly everything else we do at EarningsBeats.com favors short-term momentum trading, so I wanted to provide an explanation of what we're doing with this list and why it's different.

Also, please keep in mind that I'm not a Registered Investment Advisor (and neither is EarningsBeats.com nor any of its employees) and am only providing (mostly) what I believe to be solid dividend-paying stocks for the long-term. Companies periodically go through adjustments, new competition, restructuring, management changes, etc. that can have detrimental long-term impacts. The stock price nor the dividend is ever guaranteed. I simply point out interesting stock candidates for longer-term investors. Do your own due diligence and please consult with your financial advisor before making any purchases or sales of securities.

Looking Ahead

Upcoming Earnings

Q4 earnings are in full gear and many of the biggest growth names have either just reported or are getting ready to. The following list of companies is NOT a list of all companies scheduled to report quarterly earnings, however, just key reports, so please be sure to check for earnings dates of any companies that you own. Any company in BOLD represents a stock in one of our portfolios and the amount in parenthesis represents the market capitalization of each company listed:

Monday: PLTR ($185 billion), NXPI ($54 billion)
Tuesday: GOOGL ($2.48 trillion), MRK ($250 billion), AMD ($193 billion), AMGN ($153 billion)
Wednesday: NVO ($383 billion), DIS ($205 billion), QCOM ($191 billion), UBER ($140 billion)
Thursday: AMZN ($2.47 trillion), LLY ($782 billion), FTNT ($77 billion), RBLX ($43 billion)
Friday: None

Key Economic Reports

Monday: January PMI manufacturing, January ISM manufacturing, December construction spending
Tuesday: December factory orders, December JOLTS
Wednesday: January ADP employment report, January ISM services
Thursday: Initial jobless claims, Q4 productivity & costs
Friday: January nonfarm payrolls, unemployment rate, & average hourly earnings, February consumer sentiment

Historical Data

I'm a true stock market historian. I am absolutely PASSIONATE about studying stock market history to provide us more clues about likely stock market direction and potential sectors/industries/stocks to trade. While I don't use history as a primary indicator, I'm always very aware of it as a secondary indicator. I love it when history lines up with my technical signals, providing me much more confidence to make particular trades.

Below you'll find the next two weeks of historical data and tendencies across the 3 key indices that I follow most closely:

S&P 500 (since 1950)

Feb 3: +36.54%
Feb 4: -18.82%
Feb 5: -36.61%
Feb 6: +33.23%
Feb 7: +11.83%
Feb 8: -36.33%
Feb 9: -45.50%
Feb 10: -1.93%
Feb 11: +0.16%
Feb 12: +46.27%
Feb 13: +44.42%
Feb 14: +11.65%
Feb 15: +58.41%
Feb 16: -21.36%

NASDAQ (since 1971)

Feb 3: +39.22%
Feb 4: -14.48%
Feb 5: -26.49%
Feb 6: +65.38%
Feb 7: -5.45%
Feb 8: +9.50%
Feb 9: -50.46%
Feb 10: +25.71%
Feb 11: +64.51%
Feb 12: +53.27%
Feb 13: +29.53%
Feb 14: +60.70%
Feb 15: +82.64%
Feb 16: -39.94%

Russell 2000 (since 1987)

Feb 3: +60.01%
Feb 4: -37.47%
Feb 5: -34.16%
Feb 6: +77.32%
Feb 7: +11.10%
Feb 8: +29.93%
Feb 9: -22.55%
Feb 10: -25.82%
Feb 11: +94.21%
Feb 12: +103.46%
Feb 13: +34.18%
Feb 14: +42.57%
Feb 15: +140.61%
Feb 16: +40.51%

The S&P 500 data dates back to 1950, while the NASDAQ and Russell 2000 information date back to 1971 and 1987, respectively.

Final Thoughts

Throughout the past several years, some of the stock markets worst moves have been after Fed Chief Jay Powell has opened his yap and contradicted something from his immediate past, leaving Wall Street confused. There's been an obvious lack of trust in the Fed, at least in my opinion, and that could continue to play a hand in very choppy stock market behavior during Q1 2025. Last week's rally to a new all-time high in the S&P 500 was nice, especially with strength seen in our aggressive sectors. However, what might Powell have to say this week? Here are the primary themes I'll be watching in the week ahead:

Volatility ($VIX). As I write this, the VIX is in that "warning zone" between 17-20. Any move on the VIX above 20 should be taken very seriously as impulsive selling has historically followed such moves. A sustained move back down below 17 and into the lower teens would be much better for those on the bullish side.
Earnings. We've already seen a large number of key earnings reports. Most of them have been solid, but the market reactions to those earnings haven't necessarily been as strong, providing us another dose of caution. The stock market's history is to move up into earnings (buy the rumor) and back down after earnings (sell the news). We have another week or two of earnings season, then the stormy season begins. Perhaps it already has.
Sustainability Ratios and Rotation. I'm watching rallies very closely. I have to say it's not comforting at all to see technology (XLK), which represents 32.5% of the S&P 500 and 51.3% of the NASDAQ 100, underperform very, very badly over the last two weeks. Do you realize that the XLK:$SPX ratio is nearly at a 52-week low? If that breaks and the VIX moves into the 20s, impulsive selling could rapidly intensify. I'm not saying it happens, just pointing out that the risks are increasing.
Jobs. Imagine what happens if the stock market doesn't get its "goldilocks" jobs report on Friday. We could see fireworks after this report.
January Effect. This is more of a longer-term impact, but it's important to note that January 25 performance placed it it Quadrant 2 (out of 4) in terms of January performances since 1950. This suggests that the balance of 2025 (February through December) is likely to be moderately bullish to bullish. Again, it's not something that we need to think about at this moment in time, but definitely keep this in mind. January performance on the S&P 500 has a long-term positive correlation with how this benchmark performs throughout the balance of the year.

Happy trading!

Tom