The main purpose of this Market Note is to remind members to stay defensive until market conditions improve. In this past weekend’s video, I mentioned that we were back near the mid-December highs, and that the Fed’s comments on Wednesday would likely dictate the next direction of the market. Unfortunately, the DeepSeek news shocked the market to the downside on Monday and the technicals are now telling me it’s going to take more time before we see a new, sustained uptrend. Here are some bullet points reviewing the recent price action.

1) The Nasdaq Composite was in a strong powertrend until it saw its first big hit on December 18. That’s when Fed Chair Powell hinted that the Fed was close to the end of their current rate-cutting cycle. I mentioned that I did not want to panic over one day and wanted to see how the market reacted.

2) Unfortunately, the selling continued, and I pointed out the 7 distribution days over the last 16 trading days of the year.

3) I continued to discuss defense coming into the year not only because of the distribution days, but also because all the major indexes went below their respective 50-day moving averages. I even titled my 2025 Preview “Keep your expectations realistic.” I constantly repeated the phrase “defensive doesn’t mean bearish” and discussed how the Nasdaq Comp was likely to visit its 200-day. HOWEVER, I said that it wasn’t going to go straight down and to be open-minded to a possible new high BEFORE we roll over again.

4) As we started to recover, we saw a Day 4 follow through day (FTD) on Friday, January 17. I didn’t mind increasing my investment levels (because that’s part of my rules after a FTD), but I still wasn’t convinced that we would see something SUSATAINED. I was waiting for more clarity from the Fed and then the DeepSeek news came out.

5) My current take is the market is still heading down to the 200-day over the next 4-8 weeks. Again, it will NOT BE STRAIGHT DOWN, and we are likely to see a continued chop fest. Please keep in mind that I like to trade SUSTAINED uptrends and I’ve been great at identifying them early for members. Right now, I just don’t see one.

6) Many members have told me “We just want you to be bullish, Joe” but as I said, I don’t sugarcoat things just to tell you what you want to hear. Even if you tell me that a person I respect says “this is a huge buying opportunity” I don’t care. I only care what the market is telling me, not someone on TV.

7) On Monday, I took any positions that gapped below their 50-day and sold them. Examples include VRT, VST, BE, SEI, and NVDA. Yes, NVDA. Please keep in mind that I have my rules and that I don’t marry stocks. In addition to the ugly gap down, another reason for reducing exposure were the TWO distribution days right after the recent FTD.

8) As I’ve said a million times, my style is not for everyone. I have to protect capital for clients. Not all members have the same objectives nor the same timeframe.

9) The good news is that I’m 100% convinced we will see another amazing powertrend later this year. My instincts tell me it will come later the year and likely start from a lower level.

10) One last note, please don’t email me asking what to do with your positions. I cannot give specific investment advice, and I will not respond to those emails. The main purpose of this product is to encourage you to make discussions based on your own investment objectives, risk tolerance, and timeframe. By making these decisions, it will help you to build your overall confidence. Again, please remember to be patient and defensive over the near-term. Do NOT force trades in a choppy environment. I will discuss this note in more detail during Wednesday’s MidWeek Video.