Market whispers - Let the real 2025 games begin!
Markets: Beachman's latest read on the markets
Lights, camera, action...starting on Jan 21st.
Thus, far we have been watching trailers (tweets) in the theater before the main show (actually governing). 100+ executive orders will be inked…we wonder what is coming out of that pandora’s box. I hope Trump has some Tiger balm on hand…I bought some in Bangkok.
Right after the election results in Nov 2024, markets priced in early expectations predicated on the new pro-business, pro-crypto administration. That initial euphoria has since burned off…but less fearful (not entirely bullish) sentiment is slowly creeping back in. But it may not be entirely what it seems…more on this later.
Over the long weekend, crypto speculation has been on fire…to say it mildly. New total-garbage meme coins have launched, been bought and sold…creating new millionaires and adding to the net worth of a few “already” billionaires. Some of this “betting” could leak into the stock market too, keeping them buoyant for a few days after the Trump swearing in...until we get more Q4 earnings reports and 2025 outlooks.
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Table of contents
Overall market conditions
Beachman’s portfolio stance
Important dates
Market signals
Bottomline
Overall market conditions
Trend: Bearish
Risk level: Medium
Investor sentiment: Less Fearful
Beachman’s portfolio stance
Mostly long.
Some shorts in place (See current trades at Beachman’s Salty Trades).
Cash ready to buy the dip.
Important dates
Jan 29th - US Feds interest rate decision and press conference.
Feb 21st - Monthly options expiration. About $350B in volume. 2.5x bullish CALL options versus bearish PUT options.
For short term trade ideas, check out Beachman’s Salty Trades.
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Market signals
SP500 in still a SELL signal. However with less bearish market sentiment, the index is threatening to go into BUY mode on Tuesday. The options markets, which have a major impact on the SP500, have shifted into a narrower & lower trading range as we can see from the CALL resistance and PUT support levels. On the downside, there is risk of going lower to 5,600 or the 200dma.
Looking at internals, we got additional clues:
Most of the market move higher into last week’s close was due to investors bidding up Mag7 stocks. Are they looking for safety in less risky stocks?
Traders put on more bearish PUT positions. Are these hedges against future downside?
Hedge funds bought more VIX CALL options. They anticipate higher market volatility over the next 1-2 months?
In totality, these are not signs of a strong bull market.
Nasdaq is in the same situation and made a similar sentiment & trading range shift. If it cannot hold 500, then it could get pulled to 475 or the 200dma.
Small caps will likely stay subdued as long at LT interest rates are elevated (see below). We are mulling a short term reversal Beachman Salty Trade using these indicators and metrics.
Remember, we said last week that the US$ (DXY) and 10-year interest rates are key to future market direction?
The US$ index DXY chart looks strongly bullish with no sign of relenting anytime soon. If DXY crosses above $110, then markets will catch a cold. A stronger US$ reduces the earnings power of companies doing business internationally. We will hear about this on upcoming Q4 earnings calls.
US 10-year interest rate chart is also on a march higher with 5.00% being the upside resistance level to watch. Analysts use this interest rate to estimate the current value of a company’s stock based on future sales and earnings. A higher rate translates to a lower current valuation.
Finally, Bitcoin just went back to a BUY signal as a crypto-friendly administration takes office this week. It has now likely established a higher leg range above $85k.
What else am I watching?
Oil prices have drifted higher. Will they top out soon?
Dr. Copper is trying to figure out a direction…seeking growth in China or the US or Middle East rebuilding.
Intel’s stock price…is there a new upside catalyst brewing?
Bottomline
We are long term investors and continue to believe that this is not the time for heroics and rampant speculation.
It remains prudent to stay long, yet nimble. i.e. Stay long in high conviction positions and keep trades on a short leash. Maintain some cash on hand to deploy during buyable dips.
I am using shorts as a partial hedge to make money in the direction of the market trend.
This is probably the best m.o. for most of 2025 i.e. Buy the dip, trim when overbought, raise cash, buy the dip...rinse and repeat.
Cheers and good luck in the markets!