ES Morning Update January 23rd 2024

As expected yesterday, a little up early then a pullback to flat or slightly up, then sideways. This is the “grind phase” where the market does the “two steps up” and “one step back” until it finally tops out and has a sharp pullback.

Looking at the daily chart for clues, and the weekly, I think we could top out at the end of this week, or into the end of the month, which is next Wednesday the 31st. My only issue with it being the 31st is that there’s an FOMC meeting on that day, and the market usually doesn’t turn down right after a meeting. I don’t know why we don’t see “turns” around the meeting but history shows that any “turn” is usually delayed until the following week. Possibly that so the Fed doesn’t get the blame for it? I don’t know? But I’ve been down that road many times thinking that there will be some big move (up or down) right after the meeting and most of the time it never happens.

And most of the meeting days close green (from what I’ve seen over the past 15 years of writing this blog). Another thing that is common is for the market to pullback small the Monday and/or Tuesday the day prior to any FOMC meeting.

So if we can grinding up into this Friday I think we might see a small pullback (50-100 points?) into next Wednesday, but it’s probably not a safe short as it might just go sideways too? All this makes me lean toward Monday, February 5th as the date to start looking for a top and a decent pullback to start from.

This is the DOW Jones Seasonality Chart

As you can see on it the market actually looks bullish from about the 25th/26th (guess… in Blue on the chart), and it last into early February. That’s into the 5th from the looks of it. This isn’t an exact science as we know the current market is off on the Seasonality right now here in January as it shows we should be going down.

But it’s just an average of all the election years and not every month will track the chart. Sometimes it gets off for a few weeks and then gets back on track, which is what I think it’s going to this time around too. I think the down move into the end of the month could just be some small weakness this week and in front of the FOMC meeting next Wednesday. A sideways pattern in a tight range would be close enough to say it’s “kind of” tracking the Seasonality chart, which again is on the DOW and not the SPX. So we could drift lower some on it and sideways on the SPX and that would still work to keep is on track (for the most part).

Here is the VIX Seasonality Chart

Notice that it suggests the SPX/DOW/NDX, etc… (the market) should pullback into the end of January as well. It shows a top on it around the 31st and then a sharp pullback into early February, like maybe the 5th, and then another spike higher on it into possibly the 9th?

This all aligns up with my thoughts on sideways or slightly lower into the FOMC meeting, and then a move up (how much I don’t know?), that should be the short squeeze on the shorts, and probably the last high before good pullback. Of course I’ll have to let the technicals form and give me the clues to “try” and pick the turns, but if that pullback does end by say the 9th of February then I’d expect another rally up into mid-month (OPEX, 2/16) where the VIX pulls back sharp too.

But the Seasonality Chart for the DOW doesn’t show a sharp move up, so the VIX dropping into OPEX might only result in a “lower high” in the market. After that we should get a big move up in the VIX and nice drop in the market into mid-March. The technicals that I covered in my weekend update are what I’ll be looking at closely in the coming weeks.

I do think they can form just as I explained in that post. This week though I just don’t think there’s anything worth gambling on. For me it’s best to wait until the FOMC meeting and if there’s a decent pullback in front of it I might risk a small long. We’ll see.

Have a blessed day.