Economic Turmoil and Geopolitical Tensions: Is 2025 Already Unraveling?

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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.

Evidence China Might Take Taiwan Before Trump’s Inauguration

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 partner HandelStats has published these month by month stats for SPX,NDX,INDU,RUT: Stats

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.

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MrTopStep Levels:

Fair Values for January 3, 2025

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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.

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Trading Room News:

DTG Room Preview – January 3, 2025

Market participants are advised to remain cautious amidst thin trading volumes and heightened volatility.

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!!