Daily Analysis - Monday, 12/16/24

The market wants to head higher, and overnight inventory is very long. Will a big news week plus contract rollover provide headwinds or tailwinds?

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.

7-Day Chart

• NQ opened last week trading in a range, finally breaking out on Wednesday, 12/11, to new all-time highs. It struggled to hold the range on Thursday, 12/12, with most of the time spent during that session staying just above. A late drive down near the close settled price just back inside of the top of the range. On Friday, 12/13, NQ was able to regain its strength after an initial auction down early in the session to test the top of the prior range; other timeframe buyers responded to lower prices and drove price back up, settling just under 21,800.00.

Upcoming Events

• This week will be dominated by news. The FOMC rate decision and press conference on Wednesday, 12/18, will loom over the market early in the week. On Friday, 12/20, we have the PCE reports release and the rare Triple Witching event. Both could cause unusual market behavior and volatility once we get past the FOMC event. Traders should be on guard this week when holding positions.

Today - Monday, 12/16/24

• 9:45am US S&P Services PMI Flash (Expected: 55.8)

• 9:45am US S&P Manufacturing PMI Flash (Expected: 49.5)

Tuesday, 12/17/24

• 8:30am US Retail Sales MoM (Expected: 0.5%)

• 9:15am US Industrial Production MoM (Expected: 0.3%)

Wednesday, 12/18/24

• 8:30am US Housing Starts Number (Expected: 1.343M)

• 2:00pm FOMC Rate Statement

• 2:00pm US Interest Rate Decision (Expected: 4.5%, 25bps rate cut)

• 2:00pm FOMC Summary of Economic Projections

• 2:30pm FOMC Press Conference w/ Powell

Thursday, 12/19/24

• 8:30am US Initial Jobless Claims (Expected: 229k)

• 8:30am US GDP QoQ Final (Expected: 2.8%)

• 10:00am US Existing Home Sales (Expected: 4.08M)

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 - Friday, 12/13/24

Session Open: 21,795.25
Session High: 21,908.00
Session VAH: 21,825.00
Session POC: 21,795.25
Session VAL: 21,712.25
Session Low: 21,666.50
Session Close: 21,797.50
Session Settlement: 21,795.75
Session Range: 241.5 pts, 966 ticks
OI Change (Prelim): +6,276 (NQ) / -1,634 (MNQ)

Market Profile Analysis - Friday, 12/13/24

• The Friday, 12/13, session was a Normal Variation day characterized by the other timeframe participant showing up around 10am and strongly rejecting price above 21,880. This will be a key level to watch in the coming days, both as potential resistance and support if price can break above with acceptance.

• This rejection resulted in range extension below the Initial Balance until other timeframe participants stepped in below 21,700 and rejected price auctioning lower. Bullish participants were stubborn and held price above this level for quite a while, approximately three hours, rejecting price auctioning lower on multiple attempts. 21,680 will be a key level to also watch in the coming days as potential support if price auctions back down.

• At precisely 1pm, buyers were able to gain control and auctioned price back up over two and half hours, finally running into selling pressure around 21,810. Price flattened out at this level; I determine it to be softer than the prior two levels mentioned, but it would still be a good level to mark on your charts in the coming sessions.

• Price auctioned lower into the close, settling almost precisely where it opened. This, essentially flat day, provided no read on sentiment heading into the weekend. We will need to see what overnight inventory looks like compared to Friday’s close heading into today’s open for any indication of sentiment.

• Contract Rollover Note: The OI change for NQ on Friday was a net of +6,726 contracts. However, the detailed breakdown was a loss of -28,200 contracts in the December 2025 contract (NQZ24) and an addition of +34,469 contracts in the March 2025 contract (NQH25). I believe this OI data, combined with an analysis of the chart, gives strong evidence that the auction down of price and then subsequent two and half hour consolidation at the bottom of the range may have been due to other timeframe participants closing contracts in the NQZ24 (i.e., selling) and reopening them in the NQH25 (i.e., buying).

Price Action Analysis - Friday, 12/13/24

1. On Friday, 12/13, premarket, the PPI report came in hotter than expected; price initially went lower but stabilized. NQ opened with a gap up and participants immediately auctioned price higher off the open. If you read my trade scenarios on Friday, I shared that one of my favorite trades on gap days is an opening range breakout trade in the direction of the gap if there isn’t an immediate rejection of the gap off the open. This trade, realistically, was a 70-90 points trade, assuming no one catches the absolute bottom or top.

2. Sellers stepped in and firmly rejected price above 21,890. As mentioned above, mark this level on your chart as a potential strong level of resistance in the coming sessions. If NQ can break it and accept above, it could also become a strong level of support in a push-up to 22,000.

3. After a fairly volatile auction down of over 200 points, which presented traders with multiple pullbacks to get short, buyers stepped in and were very persistent in defending any further move down below 21,670. There were multiple attempts by sellers over a two-and-a-half-hour period to auction price lower, and each was unsuccessful. This area of consolidation over a substantial time period, I believe, absorbed a lot of sellers. Again, as mentioned above, it wasn’t a swift rejection but was a very persistent one. I would mark this level on your chart as potential support if price revisits this level in the coming days.

4. With the sellers exhausted, buyers were able to take control right at 1pm and auctioned price back up just above the session open price. This uptrend also presented traders with multiple opportunities for pullbacks to hop on, albeit with lower volume than the downtrend earlier in the session. This trend would have required more patience by the trader but may have been less stressful as well. Price finally flattened out around 21,810 as buyers ran out of steam.

5. Price auctioned slightly lower into the close, settling right around where it opened that morning. Price opened at 21,795.25 and settled at 21,795.75.

Trading Plan for Today - Monday, 12/16/24

• At the time of this writing, overnight inventory is overweight long, well above Friday’s value area, and has auctioned right up to Friday’s high of 21,908 where it has run into some resistance. If price breaks and holds above 21,908, we will open out of balance; if the price rejects and opens under, we will technically be in balance but still rotated strongly to the upside.

• It is FOMC week, and the market is generally pretty calm in the days before the event. A 25bps rate cut is already priced into the market. Assuming that does happen and there are no surprises, what will be most important to the market are any comments or indications about the potential for future rate cuts.

• As mentioned above, Friday saw a substantial amount of contract rotation from the Dec 2024 contract to the March 2025 contract. There are approximately 239,000 contracts still open in the Dec 2024 contract; I expect to see this rotation continue through the end of the week, with price action being volatile as a result and potentially disturbing the slow market we typically see before FOMC.

• Key levels for today:

  • 21,900 - 21,885: area of strong resistance from Friday’s session.

  • 21,825 - 21,818: Friday’s value area high and an area of repeated resistance in Friday’s session and on Wed, 12/11. Price has moved above this level, I would watch it for potential support on any move down.

  • 21,700 - 21,675: Strong area of support in Friday’s session and on Wed, 12/11. This area also happens to be the top of the range we broke out from last week on Wed, 12/11.

• In-Balance: Be patient off the open, look for good entries in trends, and look for good trade opportunities around the levels listed above based on rejection or acceptance.

• Out-of-Balance: Use gap rules off the open. If there is no initial rejection of the gap, look to trade in the direction of the gap. Opening range breakouts are a potential option if we open out-of-balance. Also, being patient and observing if the 21,900 level holds as support would be a potential trade location. If it does not hold, follow the same plan as an In-Balance open.

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.