Daily Analysis - Monday, 1/6/25
After Friday's positive bounce, can NQ get its feet under it this week, or will the selling continue?
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.
News Events this Week
Today - Monday - 1/6/25
9:45am EST - US S&P Services PMI Final (Expected: 58.5)
10:00am EST - US Factory Orders MoM (Expected: -0.4%)
Tuesday - 1/7/25
8:30am EST - US Trade Balance (Expected: -78B)
10:00am EST - US JOLTS Job Openings (Expected: 7.775M)
10:00am EST - US ISM Services PMI (Expected: 53.2)
Wednesday - 1/8/25
8:15am EST - US ADP Employment Change (Expected: 130k)
8:30am EST - US Initial Jobless Claims (Expected: 221k)
8:30am EST - US Continued Jobless Claims (Expected: 1.89M)
2:00pm EST - FOMC Meeting Minutes
Thursday - 1/9/25
Correction: I originally had the close time incorrect, it has been updated to the correct time of 9:30am EST.
NQ Market will close at 9:30am EST in observance of National Day of Mourning for President Jimmy Carter’s funeral.
Market will reopen for Friday’s trading session at 6pm EST.
Friday - 1/10/25
8:30am EST - US Unemployment Rate (Expected: 4.2%)
8:30am EST - US Nonfarm Payrolls (Expected: 153k)
8:30am EST - US Average Earnings YoY (Expected: 4%)
10:00am EST - University of Michigan Sentiment Prelim (Expected: -)
Higher Timeframe Analysis
On the Weekly chart, NQ is still holding its uptrend. Friday’s 200+ point recovery helped in holding the trend. We are up a little over 1% (216pts) this morning in overnight trading which is a good sign for today. You can see on the Weekly timeframe that buyers have been very stubborn in rejecting prices below 21,500 which lines up with an area of resistance from early November 2024. This consistent rejection and supporting of higher prices below that level indicates bullish sentiment has not completely left the market.
On the Daily timeframe the uptrend hasn’t held together as well as the Weekly and the chart is not as clean to read. In my opinion there is enough evidence here to indicate that the uptrend in NQ is over, at least for now. The real question is whether we are moving into a sideways market or will transition into a bearish trend. It is rare for markets like NQ to go from an uptrend straight into a downtrend in higher timeframes (it happens all the time in lower timeframes), instead there is usually a period of consolidation before the market decides to begin a new trend in either direction. Since the FOMC meeting on Dec 18th we have had a significant pullback with the market putting in lower highs and lower lows and the chart has some indications of a downtrend forming. However, each time price has auctioned below 21,500 buyers have stepped in to auction it back up above. The two levels that stand out to me on the Daily timeframe are 21,800 and 21,000. If price can auction above 21,800 and hold, that would indicate, to me, a consolidating market. If price breaks down below 21,000, that would indicate a downtrend could be forming.
Prior Day Stats and Analysis - Friday, 1/3/24
Session Open: 21,293.75
Session High: 21,559.25
Session VAH: 21,542.50
Session POC: 21,498.00
Session VAL: 21,367.50
Session Low: 21,261.50
Session Close: 21,508.25
Session Settlement: 21,516.50
Session Range: 297.75 pts, 1191 ticks
OI Change (Prelim): -2,120 (NQ) / -2,547 (MNQ)
Prior Session Analysis
Friday’s session was a Normal Variation day. We had a fairly significant Initial Balance at approximately 280 points. Not huge but not small either. We then saw range extension above as buyers were in control for most of the day.
There were ample opportunities for traders to buy on pullbacks throughout the session until around 2pm when things really slowed down and there were indications a top was being formed.
NQ sold off into the close which was expected given it was Friday and the dour mood of the week overall.
NQ lost business on Friday to the tune of -2,120 contracts. Some of this may have been short covering after the prior 5 sessions were all negative days.
Plan for Today - Monday, 1/6/25
As of right now, overnight inventory is very long, +200 points above Friday’s settlement price. We will wait and see if these levels can hold once the NY session opens at 9:30am or if participants attempt to rebalance price back down off the open.
If the current overnight price action holds, we will open out-of-balance with a gap to the upside from Friday’s session. Gap rules apply off the open.
We could see more short covering today, the -2k contracts on Friday were not even half of the new business that came into the market the prior 5 red days, I suspect there are still shorts in the market that may seek to cover if price continues to auction back up. Shorts who were in early on Dec 26th are still over 300 points in the money, so they still have some room to cover and take profit.
We have the holidays behind us now. The holidays are a weird time due to a reduced amount of participants in the market, we also had contract expiration and triple witching that impact the indexes as well. I expect market behavior to change starting this week and return to a more “normal” flow of volume and OI changes.
I strongly advise caution to any traders right now who tend to be bullish by nature. The market is a forward looking instrument and the Dec 18th FOMC comments and dot plot changed the long-term outlook of the market. As I mentioned above, I believe the higher timeframe likelihood is a range-bound balanced market forming, but we cannot rule out a downtrend developing until we see more green days and some key levels reclaimed above. That doesn’t mean there won’t be bullish trading opportunities intraday as the market moves from level to level, however if you’re a trader who buys contracts and holds them for any length of time, I would be very careful right now being long.
Trading Plan for Today
Bullish: Assuming we open with a gap, I will play gap rules and look for the gap to close relatively soon after open, if not I will look for long trades on pullbacks. Do recall that we opened with a gap to the downside last Monday, Dec 30th and the buyers did not gain control and make gains to close the gap until after 11am that morning. As with everything in the market, gap rules are not always strict, anything can happen. If price does auction up, areas I will be watching for potential resistance:
21,800 - 21,870: long single-print selling tail from Dec 27 in this area, and the 21,800 to 21,825 was an area of resistance on Dec 20th & Dec 23rd.
21,975 - 22,065: this was an area of consolidation back on Dec 24th & 26th that we gapped down and sold off sharply from on Dec 27th.
Bearish: If price does pullback at some point today and attempt to close the gap these are the levels I will be watching:
21,560-21,540: this area includes both Friday’s session high and value area high. I would watch closely here for support and buyers to reject price auctioning back down into Friday’s value area. If they do not, that signals a rejection of higher prices as being fair value.
21,500 - 21,475: the 21,500 level seems to be a key level for higher timeframe participants to come in and buy, rejecting lower prices. If price were to auction below this level I would expect to see strong buying enter the market.
"The goal of a successful trader is to make the best trades. Money is secondary." – Alexander Elder
Really like the calendar of weekly events
I'm glad it's helpful, I'll be sure to continue including it. If there's anything else you would find helpful please don't hesitate to let me know!