Daily Analysis - Thursday, 12/12/24

It was a very strong day yesterday to break out of a 5-day range, but mixed news this morning. Will price hold above the range or break back down into it?

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 due diligence and research.

7-Day Chart

• Prior to yesterday’s session, we had been in a bracketed, range-bound market for the last 5 days, with the two prior sessions defined by heavy selling pressure, auctioning price back down to the bottom of the range. Yesterday, with the CPI report coming in within expectations and that headwind behind it, the market was able to break out of the bracket with fantastic strength. The most notable thing to me is that price stayed at the top of yesterday’s range for most of the session, indicating two-way trade and acceptance of price well above the prior price range of the last 5 trading sessions.

Upcoming News

Today, 12/12/24

• 8:30am EST - US PPI YoY (Forecast: 2.6%, Actual: 3%)

• 8:30am EST - US PPI MoM (Forecast: 0.2%, Actual: 0.4%)

• 8:30am EST - US Core PPI YoY (Forecast: 3.2%, Actual: 3.4%)

• 8:30am EST - US Core PPI MoM (Forecast: 0.2%, Actual: 0.2%)

• 8:30am EST - US Initial Jobless Claims (Forecast: 220k, Actual: 242k)

• 8:30am EST - US Continued Jobless Claims (Forecast: 1.877M, Actual: 1.886M)

Prior Day Stats and Analysis - Wed, 12/11/24

Session Open: 21,589.50
Session High: 21,820.00
Session VAH: 21,822.50
Session POC: 21,795.75
Session VAL: 21,717.25
Session Low: 21,573.00
Session Close: 21,791.75
Session Settlement: 21,793.50
Session Range: 247 pts, 988 ticks
OI Change (Prelim): +9,038 (NQ) / +7,078 (MNQ)

Market Profile Analysis - Wed, 12/11/24

• I categorize yesterday’s session as somewhere between a Trend Day and a Normal Variation Day.

• Buyers were firmly in control for the entire session up until close, where I believe we saw some profit-taking with the PPI and US Jobless Claims reports due out this morning.

• The most impressive part of yesterday’s market profile for me is that the POC is at the top of the range, meaning that even after the strong auction up off the open, there was two-way trade being facilitated and price acceptance by both buyers and sellers at those higher prices.

• Unfortunately, as we will see in the Price Action Analysis, this lack of rotation provided traders with limited opportunities for good entries in yesterday’s price action.

Price Action Analysis - Wed, 12/11/24

1. Prior to the release of the CPI report yesterday, overnight inventory was neutral to slightly long, hovering above the settlement price from Tues, 12/9. Once the report came in within expectations, overnight inventory became very long going into the open. We did not see any hesitation or pullback on the open by participants to auction price higher. A break of the opening range, with the bullish CPI report as a catalyst, would be the first good opportunity for traders to enter long.

2. Price broke through the prior session’s high, retested the high, found support, and then saw a continuation upward. This was the second opportunity for traders to enter long if they missed the opening range breakout.

3. Price entered a period of consolidation from approx 10am-10:50am when price auctioned down to VWAP, and once again, participants entered with initiative to auction price higher. This was the third, and in my opinion, last, good entry opportunity for traders to get long in yesterday’s session.

4. From approximately 11:30am - 3:45pm, we saw volume drop off and a slow grind upward with two-way trade happening between buyers and sellers, indicating an acceptance of price. In hindsight, it is easy to look at this chart and consider each one of the pullbacks during this time as a long entry opportunity for a scalp. However, in real-time, when each candle is to the right of the chart, each one of those pullbacks could have been seen as a potential for the market to pull back to VWAP, and any trader in a long position would have been caught on the wrong side. There were likely many traders also attempting to go short on each of those pullbacks to take advantage of what they believed to be an impending rollover of price and were very frustrated by the end of the day.

5. As we neared the close, we finally saw a pullback in price. I believe this pullback was profit-taking by some participants with the PPI and US Jobless Claim reports due out this morning.

Thesis for Today - Thurs, 12/12/24

• At the time of this writing, the PPI and US Jobless Claims came in higher than expected. The market initially reacted negatively to the news but price did find some support around 21,660 and has stabilized.

• Overnight inventory is currently short, below yesterday’s value area but still in range from yesterday. Price would need to break below 21,573.00 to open out of balance from yesterday. As of this time, we will open in-balance.

• Trade Scenarios:

  • Bullish: Assuming we open below value from yesterday, I would need to see price auction back above yesterday’s value area low and be accepted as a signal for a long. In that scenario, I would expect a continuation back to the top of the value area. Other long opportunities may come if price auctions further down into yesterday’s single-print buying tail from 21,664 - 21,575. If price auctions down into this range I would look for an indication of responsive buyers stepping in with conviction to reject lower prices. Given the market structure and other variables, I would expect long participants who entered yesterday’s session to step in and defend this area. Entering long into a strong reversal would be a trade opportunity I would look for.

  • Bearish: If price auctions lower, the first key level of support will be the top of the bracket we just broke out of yesterday at 21,665. A break of yesterday’s low at 21,573 with acceptance would be a bearish signal to go short. This would indicate capitulation by participants who went long in yesterday’s session due to price has auctioned back down through yesterday’s single-print buying tail without participants stepping in to reject lower prices. This scenario would be very surprising to me. The next level of support below that is the value area high from Tuesday’s session at 21,525. If the price were to auction through that level with acceptance, we would have room to run even further down the downside. Again, I would be very surprised by this if it were to happen, but remember, anything can happen.

  • Neutral: Given the good news yesterday and mixed news this morning, it’s entirely possible that we become range-bound today. In the absence of a strong move in either direction off the open, I plan to sit patiently and wait for more information and better trade opportunities. If a range is established then trade the extremes of the range.

Word of advice - We are entering into 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.