Is This Sell-Off Another "Buy the Dip" Opportunity?

Macro Update

Index futures sold off during overnight trading as market sentiment turned risk-off.
Newswires reported that, after Colombia denied entry to two U.S. deportation aircraft, President Trump announced emergency tariffs of 25% on all Colombian imports, with plans to increase them to 50% next week. Additionally, The Wall Street Journal noted growing support among President Trump's advisors to impose 25% tariffs on Canada and Mexico as early as Saturday to initiate negotiations.

Meanwhile, Chinese startup DeepSeek is challenging U.S. dominance in the AI sector by introducing a low-cost model rivaling OpenAI's o1. This development may intensify geopolitical and economic tensions.

Adding to the unease, Chinese Manufacturing and Non-Manufacturing PMIs missed expectations. Manufacturing PMI came in at 49.1, below the forecast of 50.1. Markets in China and most of Asia will remain closed starting Tuesday for the Lunar New Year holiday, which could lead to lower regional liquidity.

Looking ahead, the week features several high-impact events:

Wednesday, January 29:
Federal Reserve interest rate decision and the first FOMC press conference of 2025.
Bank of Canada interest rate decision.

Thursday, January 30th:
ECB interest rate decision
Preliminary Q4 GDP data (QoQ).

Friday, January 31st:
Core PCE Price Index (Dec).


ES Futures Update



This week is packed with critical data releases, and macroeconomic developments are having a stronger influence on short-term price fluctuations. It’s an important time to step back, zoom out, and identify key levels of interest to engage with the market.

Despite the overnight sell-off and heightened volatility, the auction process remains orderly. Managing risk is paramount, as losses are an inherent part of trading.

Key Observations:

• ES futures bounced off the yearly open in overnight trading, marking it as our critical Line in the Sand (LIS).
  
• If prices stay above the LIS, markets are likely to consolidate further this week, with FOMC and other data releases determining the next move.
  
• A break below the yearly open could open the door to short trade opportunities targeting the support zones identified on the chart.
  

Scenario 1: Wait and See
Allow the market to digest the sell-off. Look for long setups from the LIS. Key events like the FOMC decision will likely influence market direction, but unexpected negative news could overshadow these data releases.


Scenario 2: Sustained Sell-Off
If a catalyst triggers further downside, the market may test support levels near 5,750 and 5,800. Below the LIS, short setups may be viable if supported by news or price action that aligns with a bearish trade thesis.


For traders looking to manage risk more effectively, consider using Micro E-mini S&P 500 contracts, which are 1/10th the size of standard ES contracts.

This week’s data releases, geopolitical developments, and tariff announcements are likely to shape market sentiment. Stay cautious and adapt to new information as it unfolds. Risk management remains the cornerstone of success in volatile markets.

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