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The Market Is Teetering on a Knife’s Edge

by | Jan 16, 2025

JEFFRY WILL SHARE 1 TICKER THAT COULD BE YOUR NEXT BIG WIN — LIVE AT 3 PM ET

The market is at a major inflection point…

The S&P 500 (SPY) is still stuck in the large, choppy range, and recent price action hasn’t done much to inspire confidence, even after a strong trading day Wednesday.

What’s clear is that we’re at a decision point — one where the next move could either confirm a bearish phase, or simply drag us back into the frustrating sideways chop.

We’ve seen a pattern of lower highs and lower lows, which points to a developing downtrend. But to fully confirm a bearish leg, we need to break through key support levels.

For example, the most recent low is right in line with an area of liquidity (right around $577 on SPY). If we bounce from here, we’re likely headed back into the same choppy range. However, if we break below this level, the bearish picture becomes a lot clearer.

And this isn’t just about the S&P 500.

The equal-weighted S&P 500 (RSP) paints a grimmer picture, already looking weaker than its market-cap-weighted counterpart. And it’s not alone. We’re seeing similar dynamics in the Nasdaq 100 (QQQ) and its equal-weighted version (QQQE).

Both are bouncing near their 200-day moving average (MA) levels, but one bar doesn’t make a trend. Without follow-through, it’s just an anomaly, not a signal.

The Russell 2000 — always a key player for small caps — is also testing its 200-day MA. A break below this level would signal more than just a bad day for small caps…

It would mean over 50% of stocks are trading below their 200-day MAs. That’s textbook bear market territory.

So, what’s next?

For now, it’s a waiting game. If the market bounces from these levels, we could see a return to consolidation within the same broad range. But if support breaks, we’ll likely see a decisive move to the downside.

Until inauguration day Monday, or a surprise economic data release, we’re probably looking at more chop than clarity.

This environment demands caution.

It’s not the time to make big directional bets. If you’re trading, keep positions small or use spread strategies to protect yourself.

Better yet, stay in cash. It’s a valid, defendable position — especially in a market this risky. Fund managers won’t get blamed for sitting on the sidelines when the risk-reward profile is this skewed.

The bottom line: We’re at an inflection point, and the market needs time to decide. Exercise patience, wait for confirmation, and avoid trying to be a hero. Sometimes, the best trade is no trade at all.

Kane Shieh
Kane Shieh Trading

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

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The profits and performance shown today are not typical. We make no future earnings claims, and you may lose money. From 7/10/24 – 12/30/24, the result was a 75.6% win rate on 1,348 trade signals with an average hold time of less than 24 hours on the underlying stock.

WRITTEN BY<br>Kane Shieh

WRITTEN BY
Kane Shieh

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