Daily Analysis - Friday, 12/13/24
After a slow, inside day yesterday, we are set to open with a gap up at all-time highs. Will we see a gap fill off the open or another Trend day to the upside?
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7-Day Chart
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Today
Nasdaq 100 Reconstitution
Every quarter, the Nasdaq 100 rebalances, and each December, it reconstitutes. This is when stocks are dropped or added to the index. It is often hard to determine precisely which stocks will be added or dropped until after it’s announced. The reconstitution for this year will happen today and will affect the NQ futures market, I believe we are already seeing the effects in the overnight price action. Two of the stocks rumored to be added to the index are, Microstrategy (MSTR) and Palantir (PLTR). Among the stocks that are rumored will be dropped are: Moderna (MRNA), Super Micro Computer (SMCI), and MongoDB (MDB).
Prior Day Stats and Analysis - Thurs, 12/12/24
Session Open: 21,693.75
Session High: 21,744.50
Session VAH: 21,717.75
Session POC: 21,691.25
Session VAL: 21,665.00
Session Low: 21,642.25
Session Close: 21,643.25
Session Settlement: 21,651.25
Session Range: 102.25 pts, 409 ticks
OI Change (Prelim): -11,977 (NQ) / -1,465 (MNQ)
Market Profile Analysis - Thurs, 12/12/24
We saw a Neutral-Extreme day yesterday with the value area inside of the Initial Balance and some slight range extension on both sides of the IB, with the downside range extension happening late in the session. It also happened to be an Inside Day with the total range of the session inside of the prior session’s Initial Balance and range.
There was a very tight range in yesterday’s session, 102 points, and limited opportunity for traders. The best trading strategy yesterday was range trading at the edges of extremes, but the profit potential was limited given the choppy price action and slow market with low volume. There were also a few trading opportunities in the middle of the range, both long and short off of VWAP, if that is a strategy a trader employs.
Yesterday’s profile indicates a rotation down of the Value Area from Wednesday’s session, with the value area low of Wednesday’s session becoming the value area high of yesterday’s session and the value area low of yesterday’s session now being in line with the top of the range NQ broke out of in Wednesday’s session, see the 7-day chart above for that illustration.
The initial auction of price down into the single-print buying tail from Wednesday’s session in B period (seen in 7-day chart above) was met with other timeframe participants defending that area around 21,640 and auctioning price higher. We did not see that same participant conviction late in the session as price once again auctioned down into that area of potential support in M & N periods.
NQ closed yesterday’s session at the bottom of the day’s range and back inside of the top of the longer timeframe range it broke out from on Wednesday’s 12/11/24.
No tails were present in yesterday’s Profile indicating no excess on either side. There was a weak high established to the upside during G & H periods.
Price Action Analysis - Thurs, 12/12/24
Prior to open the PPI and US Jobless Claims reports came in with mixed reaction. Initial reaction was bearish but price stabilized and opened in range from the prior session just below the prior session’s value area low. Price consolidated in a tight, choppy range with the bottom being the top of the higher timeframe range NQ broke out from on Wed, 12/11, around 21,660. This initial price action showed indecision and a lack of conviction by participants for the first 45 minutes of the session.
Price attempted to auction lower but met support around 21,630 which can be seen more clearly on the 7-day chart. Buyers stepped in and strongly auctioned price back up. This quick move down and back up had the hallmarks of a liquidity sweep.
Price was able to take out the 8:30am news pivot at 10:35am but met resistance multiple times at Wednesday’s value area low at 21,717 with heavy selling pressure resisting price auctioning higher into the value area from Wednesday’s session. I also noticed that by this time, volume had decreased significantly, and the chances of a successful break and acceptance were low. This lack of conviction by buyers to follow through and auction price higher indicated that participants were interpreting fair value as being lower than the prior session, most likely because of the mixed news from earlier in the morning. Sellers eventually won the battle and auctioned price back below the value area low from the prior session.
Price auctioned lower running into support at the same area of consolidation off the open and where a high volume node (noted to the right) was present on the volume profile between 21,675 and 21,680. This area slowed down the price auction downwards allowing buyers to retake control and once again attempted to auction price higher to retest Wed, 12/11’s value area low.
Price once again struggled first to break into Wed 12/11’s value area and then once successful, even after an initial successful retest ultimately failed to hold in the value area and was once again rejected back down and out of the value area. This was another indication of a change in perceived fair value by participants. There was a long scalp opportunity during this time as price rejected cleanly off of VWAP.
After breaking down below Wed, 12/11’s value area, price retested the value area low again around 2:10pm and failed, at this point sellers were firmly in control of the auction and it appeared that buyers had capitulated.
Price auctioned down, once again running into support at the high volume node area in line with the consolidation off the open and the prior rejection at that level from 11:45am-12pm. Price then attempted to auction back up but was rejected off of VWAP. This was not a clean rejection for taking a short trade but further indicated that sellers were firmly in control of the auction and buyers were capitulating.
Sellers could now auction price down through the high volume node level. Buyers stepped in to retest the HVN level and were rejected, allowing sellers to then auction price lower into the close.
Thesis for Today - Fri, 12/13/24
At the time of this writing overnight inventory is long, well above yesterday’s range, and if this continues, we will open out-of-balance. This is not surprising, given yesterday’s small range. Out-of-balance days typically provide both the most profit potential for traders but also the most potential risk.
The Nasdaq 100 reconstitution will likely cause some volatility today as futures traders pay close attention to the announcement and position based on the reaction to which stocks were added and removed.
With contract rollover underway, we saw a net change of almost -12,000 contracts leave the NQ yesterday. Broken down, however, there was a loss of -17,000 contracts in the December 2025 contract (NQZ24) and an addition of over 5,000 contracts in the March 2025 contract (NQH25). This rebalancing will continue until December 20th and could cause more volatility.
Next week will be a busy news week, most notably the FOMC rate decision looming on December 18th. The market typically slows down heading into that significant event. I expect that slowing down will occur next week. I believe today, we will likely see increased trade facilitation and volatility.
Trade Scenarios:
If overnight price action continues to be long above yesterday’s range into the open, we will open with a gap to the upside. In this scenario gap rules apply. Gap rules are as follows: if price does not fill the gap within a reasonable timeframe, usually the first hour of the session, continuation is likely, and trade opportunities should be looked for in the direction of the gap.
When overnight inventory gets too imbalanced in one direction, it is not uncommon for other timeframe participants to attempt to re-balance price off the open. In this scenario, we would see price auction down and attempt to close the gap before potentially reversing at a key level of support.
Bullish: One of my favorite trades on out-of-balance days are opening range breakouts in the direction of the gap. Since NQ has gapped up, this would be a bullish trade today. I plan to mark the opening range and enter on any breakout of that range in the direction of the gap with my stop just below the bottom of the opening range. Since we are set to open at all-time highs in NQ, there are no known resistance levels above. Because of this, I will plan to trail this trade at a 20-point stop.
If price does not break out from the opening range and/or we see an attempted fill of the gap, I will look to enter long on any reversals near support levels.
Levels of potential support:
21,822.25 - Value Area High from Wed, 12/11 session.
21,744.50 - Yesterday’s session high
21,717.50 - Yesterday’s Value Area High
21,665.00 - Yesterday’s Value Area Low and price level for the top of the longer timeframe range price broke out from on Wed, 12/11.
Bearish: Given we are opening with a gap up today and the multiple levels of potential support below current price I would be cautious of any short trades today. With that said, it’s important for a trader to not to let their bias blind them to what the market is showing them. If we see price auction lower today, I would want to see a break and acceptance of price below any of the levels of support listed above before entering short. Any short trades will be taken with a mentality of “see money, take money” and not being greedy with profitable trades.
Neutral: For a neutral scenario to play out, we would need to see a gap fill off the open, a reversal of price at a level of support, and then a rejection of higher prices after the reversal. Out-of-balance days are typically days where the best trade locations are earlier in the session, and the neutral scenario would take time to reveal itself. In this scenario, I will likely be done trading and not take any range-based trades today.
Word of advice - We are in a contract rollover period in the NQ. Contract rollover periods are usually defined by volatility and whipsaw price behavior. Traders must be patient during this time, protect capital, and follow the “see money, take money” mantra if they choose to trade during this period. Many traders completely exit the market and avoid trading during contract rollover periods. That is not a bad thing. I would encourage all traders to take a break during this time period if they find the price action frustrating and/or lacking a fit to their trading strategy.