1/17/25
From: Larry Tentarelli
Chief Technical Strategist and Founder
Blue Chip Daily Trend Report
CORE MARKETS OVERVIEW
- This was a bullish week for the S&P 500 index (SPX) and Nasdaq 100 index (NDX), with both up by over 2.8% on the week.
- I attribute this to four key factors:
– The December CPI report was well received. Core CPI was down vs November for both the month-over-month and year-over-year timeframes. It is one thing to beat the forecast, but if the forecast is still higher vs the prior month, than there is no real progress. To come in lower vs the prior month does show progress.
– 10-year US Treasury yields (TNX) were -16.9 basis points on the week and are -20.0 basis points from the intraweek high. The lower CPI readings led to this constructive pullback in yields. Higher yields have recently been a bearish headwind for stocks.
– Corporate earnings reports from financial sector majors JP Morgan Chase (JPM), Goldman Sachs (GS) and Citigroup (C), among others, were all well received. Similar with tech sector and AI bellwether Taiwan Semiconductor (TSM).
– The AAII Investor Sentiment Survey had the most bearish reading since the November 2023 market lows. The AAII survey, at the extremes, is considered a reliable contrarian indicator.
– SPX breadth was very strong all week. Over 5 days this week, the average daily upside breadth was 72% of stocks higher per day. This is a sign of bullish accumulation by fund managers.
EQUITIES
- This was a bullish week overall, as outlined above.
- Markets are going to focus now on earnings reports, with over 40% of the S&P 500 scheduled to report over the next three weeks. That number will probably move higher as earnings dates are confirmed.
- Our top ranked sectors or industry groups: financials (big banks and brokers), technology (Artificial Intelligence (AI) related), energy (natural gas and pipelines), utilities (nuclear and independent power producers).
- Top ranked higher-beta groups: Bitcoin and related stocks.
BONDS AND RATES
- Treasury bonds (TLT) are still in a long-term downtrend. They may have found a near-term floor right now, but the chart is not on our buy list due to the current downtrend.
- 10-year UST yields (TNX) pulled back on the week, as outlined above, but we expect the trading range to be 4.25%-5.00% for the first quarter of 2025.
COMMODITIES
- Gold remains buy rated.
- Crude oil is neutral.
- Natural gas remains rated “speculative buy”.
FOMC/THE FED
- We expect the Fed to stay on hold for the first quarter of 2025, with no changes in the overnight rate.
- At the January 29 FOMC press conference, we expect Jerome Powell to stay on the “data dependent” message with no change in views.
- Labor market strength continues, jobless claims are low, and the economy shows no signs of weakness, so there is no catalyst to cut rates here.
INFLATION
- Inflation remains sticky, but there was slight progress last week, with Core CPI down from November.
- Inflation still looks too high however to warrant a rate cut currently.
BITCOIN
- We remain bullish here and expect new highs within the next few weeks.
BIGGEST RISKS TO OUR CURRENT VIEWS
- A major earnings miss or series of misses.
- A sharp upside reversal in yields.
Have a great weekend.
