The Dow Jones Industrial Average rose about 220 points on Friday to near 49,665 after opening at 49,366. This followed a 669-point drop on Thursday. The S&P 500 was slightly higher, and the Nasdaq Composite was mixed. All three indexes were still on pace for weekly losses, and the S&P 500 was on track for its worst week since November. US CPI rose 0.2% month over month in January, below the 0.3% forecast. It rose 2.4% year over year versus 2.5%, down from 2.7% in December. Core CPI rose 0.3% month over month and 2.5% year over year. CME FedWatch put the odds of a June rate cut at about 83%, up from below 50% earlier in the week. Money markets priced about 63 basis points of Federal Reserve cuts for 2026. That equals about a 50% chance of a third cut by December. A leadership change is expected in May, with Kevin Warsh seen as likely to replace Jerome Powell. Applied Materials jumped about 12% after posting adjusted EPS of $2.38 on $7.01 billion in revenue, beating estimates of $2.20 and $6.87 billion. It also forecast more than 20% growth in semiconductor equipment this year. Rivian rose more than 20% and guided 2026 deliveries of 62K to 67K, up from 47K to 59K in 2025. Roku gained about 10% and guided 2026 revenue of $5.5 billion versus $5.34 billion. Pinterest fell more than 20% after guiding Q1 revenue of $951 million to $971 million versus $981 million expected. DraftKings dropped about 17% after guiding 2026 revenue of $6.5 billion to $6.9 billion versus $7.31 billion expected. The Dow’s 50-day EMA is 48,852 and its 200-day EMA is 46,472. Stochastics are at 73.67/76.23. Resistance is 50,509 and support is 49,092. With January inflation coming in at a mild 2.4%, we believe the Federal Reserve has a clear path to start cutting rates. The jump in June-cut odds to 83% is a strong signal to prepare for easier policy. We should consider buying call options on broad market indexes, such as the SPDR S&P 500 ETF (SPY). We can target expirations in the third quarter to benefit from a likely easing cycle. This setup looks similar to the pivot in late 2023, which helped drive a strong rally into 2024. When the CME FedWatch tool shifts this sharply, it often makes sense to reduce defensive positions. The expected Fed leadership change in May adds uncertainty. Still, soft inflation data may push the new Chair to follow the market’s expected path toward rate cuts. The market is split, and we should trade that gap. We should add to bullish semiconductor positions using call options on names like Applied Materials, which benefit directly from AI infrastructure spending. Data from last year showed global semiconductor sales rose by more than 13% after a slump in 2024, and this trend appears to be strengthening into 2026. At the same time, we see pressure on consumer-focused digital platforms, as shown by weak guidance from Pinterest and DraftKings. This creates a chance to buy put options on ad-driven and discretionary-spending companies. Even if the Fed cuts rates, ad budgets may not rebound right away, which supports these bearish trades. Recent swings have been large, with the Dow moving nearly 700 points in one day. We expect implied volatility to fall as the Fed outlook becomes clearer. We can try to benefit from that by selling VIX call spreads or buying VIX put options. A lower “fear gauge” would fit with less uncertainty about interest rates. Using the technical levels above, we can set up trades with clear risk limits. Selling cash-secured puts near the Dow’s support area around 49,000 could help us collect premium while staying bullish to neutral. If the index fails to hold that level, we should treat it as a signal to recheck and possibly reduce our bullish exposure.

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