Daily Analysis - Friday, 12/20/24

The market still digesting what fewer rate cuts mean, and a looming government shutdown are weighing down any potential recovery from Wednesday's historic selloff.

Disclaimer

This publication and its authors are not licensed investment professionals. Nothing posted on The Shmuts blog should be construed as investment advice. Do your own research.

Note

The majority of trading volume has moved to the back month contract (Mar 2025, NQH25). From this point forward, any prices mentioned on here will reflect the March 2025 (NQH25) contract and no longer be representative of the Dec 2024 (NQZ24). If you are not already trading in the back month contract and are not on a broker who adjusts this for you automatically, you should be trading the back month contract from this point forward.

Upcoming Events

• Today, we have the release of the PCE reports and the rare Triple Witching event. Both could cause unusual market behavior and volatility.

Today - Friday, 12/20/24

• 8:30am US PCE Price Index YoY (Expected: 2.5%)

• 8:30am US PCE Price Index MoM (Expected: 0.2%)

• 8:30am US Core PCE Price Index YoY (Expected: 2.9%)

• 8:30am US Core PCE Price Index MoM (Expected: 0.5%)

• 10:00am University of Michigan Sentiment Final (Expected: 74)

• Triple Witching

  • Triple witching happens 4 times a year; it is when Futures, Index Options, and Stock Options derivatives contracts all expire on the same day.

Prior Day Stats and Analysis - Thursday, 12/19/24

Session Open: 21,677.00
Session High: 21,697.75
Session VAH: 21,590.25
Session POC: 21,515.50
Session VAL: 21,462.25
Session Low: 21,345.75
Session Close: 21,376.75
Session Settlement: 21,379.00
Session Range: 352 pts, 1408 ticks
OI Change (Prelim): +5,130 (NQ) / -7,521 (MNQ)

Levels of Interest for Today

• 21,600 - resistance

• 21,450 - resistance

• 21,300 - resistance

• 21,000 - support

• 20,930 - support

• 20,685 - support

Market Profile Analysis

Market Profile NQH25 - Thursday, 12/19/24

• My bullish bias for yesterday never panned out which is ok, I’m wrong all the time. Instead we got a Normal Variation day with rotation to the downside during the late afternoon.

• Price action was very range-based for most of the session, and sticking to my trading plan, I took no trades yesterday.

• Prior to the 3:30pm, the range of the session was less than 200 points, we had a late auction down that expanding the range to 354 points. This close indicated a bearish sentiment in the market for today’s session.

Thesis for Today - Friday, 12/20/24

• My bias for today is Neutral Bearish.

• We have significant factors at play today.

  1. There is macro risk with the looming government shutdown tonight after the House failed to pass a funding bill yesterday. That news is weighing on the market this morning.

  2. PCE and Core PCE reports will be released this morning, which the Fed watches closely. Those reports will be analyzed in the context of the Fed’s announcement this week of fewer rate cuts in 2025. Any results from these reports that could cause the Fed to reconsider its stance of fewer rate cuts will be seen as bullish.

  3. Triple Witching today, which is set to be the 2nd largest expiration in total value of contracts in history. That will bring volatility and market vulnerability as positions are closed and reopened in future contracts.

  4. Related to Triple Witching but specific to the NQ, we still have, as of this morning, almost 99,000 contracts that have not been rolled over to the back month. Some will expire, but I expect a significant amount of those to be closed today and reopened in the NQH25 contract, which will bring potential volatility as well. Traders are advised to be very cautious today when holding positions.

• At the time of this writing overnight inventory is very short, down 276 points below yesterday’s close. If this continues into open, we will open out-of-balance below yesterday’s value and range.

• Underlying market dynamics with contracts expiring and being rolled will bring volatility today and the macro risk of news breaking regarding the impending government shutdown.

• If it is not breached by the open, I will be keeping a close eye on the 21,000 level. These big round numbers are psychological levels to the market and should always be watched. They can be key levels of support but also triggers for continuation if they are breached.

• Another thing I will be keeping watch for in the coming sessions is a potential short squeeze. Anytime we get a large move down in the markets, we get a lot of shorts, and if a key level above is breached, those shorts head for the door, which leads to a short squeeze. As a trader, if you can recognize this and jump on board, it can be a very profitable trade. Figuring out the level for this is tough, especially as we continue to head further down and potentially accumulate more shorts. As of right now, I believe that trigger level is anywhere between 22,300 to 21,500.

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, 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.