EB Daily Market Report - Brief Update - Tuesday, January 28, 2025
Our major indices have turned back higher today, but the strength has completely reversed back to aggressive growth sectors as the only 3 sectors higher are technology (XLK, +2.72%), communication services (XLC, +0.68%), and consumer discretionary (XLY, +0.26%). After losing 13% on Monday, semiconductors ($DJUSSC, +4.32%) have bounced back nicely, aiding the XLK. Software ($DJUSSW, +3.11%) saw a nice rally on Monday after early weakness. That's continued into today as we've seen big rallies in the group, including Elastic NV (ESTC, +11.06%), Cloudflare, Inc. (NET, +10.03%), and CrowdStrike Holdings (CRWD, +9.64%). Here's a chart showing a breakout on CRWD:
It's been an uphill battle for CRWD since the internet was turned off for a day back in July 2024, but the company finally rebounded to set a new all-time high today.
As I mentioned over the weekend, sentiment in the form of the 5-day SMA of the equity only put call ratio ($CPCE), issued an early warning of a potential top. I am watching to see if our rally extends back into all-time high territory. If it does, I want to make sure it's the aggressive areas leading the advance. Should the market grow more nervous and Wall Street begins finding comfort in defensive areas as new highs are reached, additional warning shots would be fired. Today's action seems nice, though. Here's a quick glance at the S&P 500 chart:
The S&P 500 has rapidly regained its footing, with new all-time highs very near. Beneath the S&P 500 price chart are growth vs. value ratios and they've really had a solid day today. So far, so good. But if we see the S&P 500 clear its recent price high, we want to see these growth vs. value ratios doing the same. If they don't, it could be problematic and lead to potentially rough waters (market) ahead.
I'm expecting the Fed meeting to come and go without any type of huge selloff. CPI data was quite tame since the last meeting and we've seen signs that the economy is ok, but not great. I believe that keeps pressure on the Fed to LOWER fed funds rates in the months ahead. We'll see what Fed Chief Powell has to say at 2pm ET tomorrow and go from there.
As I've said on many occasions, IF we grow more cautious at EarningsBeats.com and potentially move money to cash or more defensively, it's a short-term trading move. I see NOTHING from a long-term perspective that I'm worrying about currently. I just want to make that distinction - a potential short-term warning could be around the corner, but it's not a long-term problem, in my view.
Happy trading!
Tom