by Danny Riley

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Futures Sink as DeepSeek Sparks Worry Over US Tech

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Our View

Everyone loves the Trump Bump but that’s not the only reason the stock market is going up. The US dollar has skyrocketed and foreign countries are buying the dollar and some of that is ending up going into the stock market. And sure if you live in Europe vacationing in the US is cheap, but we all know the dollar can’t keep going up forever.

In fact, they say when you see a big shift like this it sometimes marks a high. I did tons of FX for Sheikh Mohammed bin Rashid Al Maktoum’s Dubai Holdings at my currency operation on the CME floor where we’d roll his currency option positions when they let them expire, but this is different. While the dollar is still top dog there is a lot of competition that didn’t exist 20 years ago.

Like I have always said, I am not an economist, but with the US debt clock nearing $37 trillion, one has to wonder if we have already gone beyond the point of no return? So I searched for stories on the dollar and came across this story from the World Economic Forum which I think is very informative:

(Here’s the link for those who prefer it)

Why the US dollar will be indispensable as the world’s reserve currency – until it’s not

Jan 23, 2025

The US dollar is at a near-record high, but its future role as the world’s reserve currency continues to be questioned due to financial fragmentation and global debt concerns.
US borrowing trends, challenges from other currencies – traditional and digital – and the burden of US dollar debt on developing countries all raise questions about ongoing dollar dominance.
An expert panel at the World Economic Forum’s Annual Meeting 2025 in Davos expects US dollar primacy to continue for the foreseeable future, but gradual diversification could necessitate greater global collaboration in the years ahead.

I would read the links within the story. I have no idea when the dollar will fall, but that is what I suggested over a year ago by adding some crypto exposure to your portfolio — and if you did you have already seen a jump in those positions and I don’t think it’s going to stop and nor is Musk and Trump going to stop pushing that theme. Like I said I am not an economist, but my street smarts tell me there will be a time when you will look back and say, I should have added some exposure, if not already.

Our Lean

The big buy imbalance on the NYSE 3:50 imbalance pushed the futures up going into the 4:00 close and after. I think it really surprised people but so did last night’s gap down on Globex after a headline hit saying S&P 500 FUTURES SINK 1% AS DEEPSEEK SPARKS WORRY OVER US TECH. Now those losses have accelerated dramatically this morning.

It was only a matter of time until the Chinese caught up and the market are caught off-guard. DeepSeek’s success may push OpenAI and other US providers to lower their pricing to maintain their established lead. It also calls into question the vast spending by companies like Meta and Microsoft — each of which has committed to Capex of $65 billion or more this year, largely on AI infrastructure — if more efficient models can compete with a much smaller outlay.

According to the Stock Trader’s Almanac, February is the weak link in the best 6 months for stocks and the PitBull said he has seen weakness in the last two weeks of January. My lean was that the markets had rallied enough without any major pullback to sell the rallies, but the ES made a low at 6072.00, down almost 50 points. That leaves the question, do the futures bounce? Probably but my trade was to be a seller today and I always have a hard time selling down 50 points.

MiM and Daily Recap

ES 5-min chart

The ES traded mostly sideways in the overnight session, with an overnight high of 6156 and an overnight low of 6139. It opened the regular session at 6152 and barely traded lower before rallying to a new high at 6162.25, which proved to be its high of the day by 9:42am. This was rejected as the market pulled back to the open and through, printing a morning regular session low of 6144.50 by 10:38am. After it failed to make a new low about 20 minutes later, the ES rallied back up to print 6157.50 at 11:50am, and rejected this level hard, as the sellers pounded it right back down through the open. One last effort to rally made a lower high of 6154.50 at 12:22pm, where the afternoon selling began, and traders took profits after the previous four days of upside momentum and going into the weekend.

By 1:10pm, we had taken out the overnight low and printed 6134.75 where we got about a 20-minute pullback to print and reject 6141.75 just before 1:30pm. The sell programs continued as the ES moved down to 6123.25 by 2:10pm, where it paused and tried to rally again before the last hour of the regular session. This rally failed at 6133.25 at around 2:53pm, and we got a last push to the downside and printed our low of the day at 6122 at about 3:42pm. We moved back to the 6125 level and received the 3:50pm MIM imbalance release of $2.3 billion to buy as the shorts started some of their covering. The imbalance gradually decreased and was absorbed into the close with the move higher ending at 6135 and printing the cash close settlement at 6131.75. A bit more selling but then sideways and upward drift post-market brought the exchange close to 6132, down 16.50 points on the day (-0.26%). The NQ closed at 21,907.75, down 114 points (-0.51%). Volume was light as ES traded 1.18 million contracts, while NQ traded 519k.

In the end after a nearly 5 day rally, it came to a screeching halt and on a Friday’s options expiration. In terms of the ES’s overall tone, the ES and NQ were weak but not overly. In terms of the ES’s overall trade, volume was on the low side at 1.18 million contracts traded.