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Economic Turmoil and Geopolitical Tensions: Is 2025 Already Unraveling?
Danny Riley
January 03, 2025
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Our View
2025 is starting out where 2024 left off, volatile and selling the rips. The ES closed down for the fourth day in a row. The NQ slipped 0.2% and the YM closed down 0.4% I think this volatility is going to continue right into Trump’s inauguration.
This story didn’t come from the mainstream news but it’s what I have been talking about. Kun from China backs it up, he says the public is unhappy with Xi’s economic policies and is losing faith in him.
Glenn Beck warns we are entering a “wildly dangerous” time. China’s economy is collapsing, social unrest is on the rise, and the government appears to be reverting to Mao-era practices. So, will the Chinese Communist Party attack Taiwan to boost its national morale while America is still weak? This could be China’s last chance before four more years of Trump or even 8-12 years of America First policies. Will the world look different by January 20th? And how would America respond, would we destroy Taiwan’s super chip factories before China can take them? Meanwhile, there is the ongoing war between Russia and Ukraine and reports of Kim Jong Un supplying both military hardware and men to Russia. Volatility is the name of the game and it isn’t going away any time soon.
Our Lean
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Our Lean — Danny’s Trade
This is Danny Riley’s personal trading plan for the day.
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MiM and Daily Recap
The ES traded in a large outside range in the Globex session trading at 5910.75 at 7:15 PM and then rallying all the way up to 5995.25 by 7:15 AM. This ended up being the high of the day and a signal for a volatile session.
At the regular session open, the ES sagged back to 5967.75 and immediately moved lower, printing a double bottom at 5934.50 by 9:42 AM. This was followed by a strong rally that peaked at 5985 by 10:06 AM. However, this rally failed to hold, and as the market moved back below the opening level, selling pressure intensified. By 11:02 AM, the ES reached a new low for the regular session at 5924.
The mid-day session brought another sharp 35-point rally, which stalled just under the 5960 level around 12:15 PM. From there, heavy selling resumed, breaking through the overnight low and the big 5900 handle. The market tested stops and extended losses down to the session's low of 5874.75 by 1:54 PM. While the NQ peeked below last week’s low, the ES’s low from last week was not truly tested and buyers moved back in and pushed the ES back up through the 5890 level and continued up to 5925.25 by 3:30 PM.
An 18-point pullback led to some buying again as we came into the 3:50 PM MiM Imbalance release which showed $550 million to buy. This led to a slight drift upward into the cash close settlement of 5916.50, with the exchange close coming in at 5920, down 18.25 points (-0.31%) on the day. The NQ closed at 21,182.50, down 51.75 points (-0.24%).
Trading volumes were notably high to kick off the year, with the ES trading 1.723 million contracts and the NQ handling 659,000.
In the end, I don’t recall having such volatile trading days around the holidays. The ES’s rally sucked the buyers in only to be let down by reversals.
Technical Edge
MrTopStep Levels:
Fair Values for January 3, 2025
SP: 48.22
NQ: 195.42
Dow: 296.68
Daily Breadth Data 📊
NYSE Breadth: 54% Upside Volume
Nasdaq Breadth: 70% Upside Volume
Total Breadth: 68% Upside Volume
NYSE Advance/Decline: 54% Advances
Nasdaq Advance/Decline: 53% Advances
Total Advance/Decline: 53% Advances
NYSE New Highs/New Lows: 31 / 49
Nasdaq New Highs/New Lows: 85 / 58
NYSE TRIN: 0.87
Nasdaq TRIN: 0.51
Weekly Breadth Data 📈
NYSE Breadth: 54% Upside Volume
Nasdaq Breadth: 65% Upside Volume
Total Breadth: 62% Upside Volume
NYSE Advance/Decline: 49% Advances
Nasdaq Advance/Decline: 55% Advances
Total Advance/Decline: 53% Advances
NYSE New Highs/New Lows: 73 / 236
Nasdaq New Highs/New Lows: 205 / 302
NYSE TRIN: 0.91
Nasdaq TRIN: 0.67
Guest Posts:
SpotGamma - Founder’s Notes
What’s Happening in the Market
Futures are +25bps.
Resistance: 5,900, 5,923, 6,000
Support: 5,850, 5,822, 5,800
We start today with a look at vol. A less sophisticated analysis here would be: "VIX is unchanged despite SPX 1% lower".
Fixed strike vol can show us whats actually happening under the hood. In a real crash setup we'd expect to see longer dated & deep downside vol catch a bid. What we see here is that, since Tuesday's close, shorted dated vols are +1 pt across the board, but the change for strikes out past Feb are much more flat. This informs us that there are some short dated hedges/bets in play, which makes sense given the high realized vol, but traders are not bracing for any type of protracted down-draft.
Simply stated: traders are not worried.
This syncs up with what we see in our SPX position changes, wherein we see traders have sold puts into the drawdown. This shows as positive gamma strikes in the plot below (this is the same data that powers Trace). We can also see that gamma in this model reflects as generally positive all the way down through 5,500.
Not only are traders not worried, they are selling puts into the downside.
Trading Room News:
DTG Room Preview – January 3, 2025
US Markets Decline: All three major US stock indexes slipped on the first trading day of 2025. The S&P 500, Nasdaq, and Dow Jones fell by 0.2%, 0.2%, and 0.3%, respectively, marking the second consecutive year without a year-end Santa Claus rally—a rarity not seen in nearly three decades. The shift in market dynamics may reflect the growing influence of AI-based trading systems.
Tesla Struggles: Tesla (TSLA) dropped nearly 6% after reporting its first annual decline in deliveries. The company also faced negative headlines following a Cybertruck explosion in Las Vegas, which caused a fatality. Tesla shares ended 2024 down 13%.
Apple Discounts: Apple (AAPL) shares declined following an announcement of rare product discounts in China, aiming to counter competition from cheaper local smartphone brands.
Nvidia Rebounds: Nvidia (NVDA) rose 3%, recovering some losses from a recent 4% sell-off. Despite these fluctuations, Nvidia ended 2024 up over 44%, trading at less than 1x its earnings growth estimate as it navigates challenges with its new Blackwell AI chips.
US Steel Deal Blocked: President Biden officially blocked the sale of US Steel (X) to Japan’s Nippon Steel (NPSCY), citing union interests. The decision may strain US-Japan relations and potentially slow Japanese investments in the US. President-elect Trump also voiced support for blocking the deal.
Economic and Market Insights:
No Earnings Reports: No corporate earnings of significance are expected today.
Key Economic Events: ISM Manufacturing PMI & Prices are set for release at 10:00 AM ET, and Richmond Fed President Thomas Barkin speaks at 11:00 AM ET.
Volatility Update: Market volatility remains high, with the ES 5-day average daily range at 92 points.
ES Levels and Trends: The ES intermediate-term uptrend channel bottom supported a bounce but remains under pressure, testing its short-term downtrend channel. Key levels to watch:
Resistance: 6064/61s, 6285/90s
Support: 5879/82s, 5820/17s
Market participants are advised to remain cautious amidst thin trading volumes and heightened volatility.
S&P 500 — ES Futures
Calendars
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