Markets are in a range while testing the highs, waiting to see what Trump has in store for his first 100 days in office.
As January comes to a close, it could be defined as a sideways trading range. Markets surged to new highs and wiped-out previous losses from December shortly after the Trump inauguration on January 20th. However, after making shallow new highs, the markets quickly gave up their gains following a significant gap down, driven by the realization that China’s AI developments might be more advanced than previously expected, giving U.S. AI technology companies a real run for their money.
So far, earnings season has been fairly strong, with no significant negative surprises as of yet. Furthermore, the Federal Reserve is expected to keep rates unchanged as they adopt a wait-and-see approach to the changes being implemented by the new Trump administration.
Trump’s First Executive Orders
The biggest news item has certainly been the over 300 executive orders put into place by the new administration. However, since these executive orders are all less than two weeks old, it’s still hard to assess their long-term effects on the markets and the broader economy. From the start of some deportations to many threats of tariffs, the new Trump administration must still be assessed by the markets and the Fed.
The $SPY
The chart above shows two technical patterns battling it out on the chart of the $SPY. There is a possible Bull Flag, which would indicate a breakout to the upside inside a wide trading range that would indicate a possible breakdown. So, the broader markets that the $SPY represents could go either way. Traders should be cautious until these technical patterns resolve themselves through time.
From a technical perspective, the markets are stuck in a sideways range that is wide and volatile. This suggests a potential distribution phase rather than accumulation. However, it’s hard to draw definitive conclusions since the range isn’t excessively wide or volatile. The best course of action for traders is to wait and see, measuring the highs and lows of the trading range. Please refer to our blog post on trading ranges for more details.
The $QQQ
The $QQQ, which represents the NASDAQ 100, is like the $SPY, but the bull flag is a little more clearly defined. The NASDAQ might also have a head and shoulder pattern indicated in purple.
Looking forward to February and beyond, we would advise traders to remain cautious. The market is moving in a sideways pattern, with fluctuations between market lows and highs, sometimes making shallow new highs and lows. This distribution pattern is best approached through day trading and swing trading. Additionally, since we are still in the earnings season, further earnings volatility should be expected. If this pattern turns out to be a distribution phase, the market could be in store for a correction.
So, trade wisely and focus on short- to intermediate-term trading opportunities to be prudent.
Written by Michael DiGioia, Director of Education
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