Daily Analysis - Thursday, 1/16/25
With good news yesterday from a cool CPI report and bullish news this morning with a hot jobless claims number, is it enough to break NQ out of its downtrend, or will the bounce get shorted again?
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.
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The Week Ahead
Today - Thursday - 1/16/25
US Retail Sales MoM (Expected: 0.6%, Actual: 0.4%)
US Initial Jobless Claims (Expected: 210k, Actual: 217k)
Friday - 1/17/25
8:30am EST - US Housing Starts Number (Expected: 1.325M)
9:15am EST - US Industrial Production MoM (Expected: 0.3%)
Prior Session Stats and Analysis - Wednesday, 1/15/25
Session Open: 21,251.25
Session High: 21,452.75
Session VAH: 21,420.25
Session POC: 21,324.00
Session VAL: 21,314.25
Session Low: 21,186.75
Session Close: 21,395.75
Session Settlement: 21,400.25
Session Range: 266 pts, 1064 ticks
OI Change (Prelim): +2,277 (NQ) / +611 (MNQ)
Prior Session Analysis
Yesterday was a Normal Variation day with range extension to the upside.
Buyers were in control off the start after the significant upside move from a cool CPI report at 8:30am. Sellers stepped in reasonably early, around 10:45am and auctioned price lower, testing the lower range. Buyers rejected that test and took back control, auctioning price back up to new highs until we saw the typical small sell-off into the close.
We did establish a single-print buying tail at the bottom of the range, between 21,220 and 21,200. That could provide support in coming sessions if price auctions lower in that area.
Additionally, NQ opened with a gap yesterday, which means we now have a gap below the current structure from 21,186.75 down to 21,129.75. If you’ve read my Fundamentals page, you’ll know I believe strongly that the market does not like to leave gaps untested, I would not be surprised to see the market test that gap in the coming sessions.
The real story with yesterday was, although on the chart, it appears to be a solid, slow auction up, it was a more complex trading day than it may appear.
Frankly, until buyers took out the prior high later in the session, around 2pm, the session had every hallmark of a range-based day that would stay inside of the initial balance. The biggest move yesterday, and opportunity, was really before the session opened at 8:30am when the CPI report was released.
We had a very modest range yesterday of 266 pts, not exceptionally large for a day with good news. This makes me cautious about whether this bounce will sustain itself.
Another reason for caution in regard to the bullish case is the Daily chart:
First, a caveat: I’m not a fan of drawing trend lines on charts. The reason is algos do most of the trading in the market, and I can tell you with complete confidence that algos do not give a shit about the line you have drawn on your chart. They care about price levels, and that is why I am a level-based trader. However, for the purposes of this discussion, I have a line on the chart to illustrate the point that I want to make more clearly.
When we look at the Daily chart we can make some determinations:
NQ was in an uptrend for a significant period of time. On Dec 18th, the Fed announced fewer rate cuts in 2025 with a definitively hawkish tone. At that moment, the perception by the market participants of what fair value was changed.
We saw an immediate selloff and a test of the bottom of that trend. It didn’t break immediately; we had a bounce starting on Dec 20th, but that rally failed to put in a new high and rolled over on Dec 26th.
Since then, the market has consecutively put in lower highs and lower lows, which means you could argue that NQ is in a downtrend at this point.
With the small rally over the past two sessions, the price is now back in an area that is a key inflection point. Will we continue up and put in a higher high, or will it reject here once again and put in another lower low?
Given the modest amount of new business that came into NQ yesterday after “good news” and the small range we saw yesterday, I believe the odds are greater that this bounce will get shorted once again and put in a new lower low than it will be bought and put in a higher high.
I could be wrong. Anything could happen, but at its core, trading is a practice of making decisions based on probabilities. For me, looking at all of the data, the sentiment in the market right now and with earnings season coming up where valuation multiples are at all-time highs and expectations are, in my opinion, unrealistic, I believe the probability of NQ heading lower is greater than it heading higher.
Plan for Today - Thursday, 1/16/25
At the time of this writing, overnight inventory is a little long, holding above yesterday’s high and value area high, which provided support after Initial Jobless claims came in a bit hot at 8:30am. The Jobless claims being high is a bullish sentiment for the market as it helps to further pressure on the Fed for rate cuts.
If this price action continues we will open with a small gap to the upside and slightly out-of-balance.
Trading plan for today:
Bullish: Opening range breakout trade is always on the table when we open out-of-balance. If the price auctions down off of the open, I will look for support around either the prior session high or value area high, wait for a clear rejection, and then look to enter long on a retest or pullback to the 8-day EMA. A break above 21,515 would be another opportunity to enter long, it was resistance in yesterday’s session, again I would wait for a clear break and retest/pullback before getting in long.
Bearish: Any break down of price below yesterday’s value area high will have me on alert for a short trade. I would again wait for a clear break and acceptance below the level, then enter short on a retest/pullback. The overnight low in the area of 21,360 would be another level to watch if price auctions lower, a break below that would be a short opportunity. Even further below we have yesterday’s value area low around 21,315 and yesterday’s low around 21,187 to watch for entries or rejections.
"Success in day trading is not about predicting the future; it’s about managing your present." – Unknown