Daily Analysis - Thursday, 12/19/24
Fear and panic took hold of the markets yesterday as the Fed announced fewer rate cuts expected in 2025. Will stability take hold, or will fear again rule the day?
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
On Friday, 12/20, we have the PCE reports release and the rare Triple Witching event. Both, especially Triple Witching, could cause unusual market behavior and volatility.
Today - 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 - Wednesday, 12/18/24
Session Open: 22,280.50
Session High: 22,351.75
Session VAH: 22,354.75
Session POC: 22,301.50
Session VAL: 21,739.00
Session Low: 21,311.00
Session Close: 21,496.75
Session Settlement: 21,501.75
Session Range: 1,040.75 pts, 4,163 ticks
OI Change (Prelim): +8,682 (NQ) / +3,180 (MNQ)
Other levels of Note:
22,448.50: all-time high
22,288.50: news pivot point from yesterday’s rate cut release at 2pm
22,156.00: level of resistance during selloff
21,850.00: level of resistance during selloff
21,690.00: level of resistance during selloff
21,320.00: level of support at end of selloff
21,311.00: yesterday’s low
Market Profile Analysis - Wednesday, 12/18/24
Before we get into the Market Profile today, I want to include the Weekly and Daily charts because they provide perspective. Sometimes, we get so wrapped up in small-timeframe trading that we lose sight of the big picture. As you can see from the charts, the uptrend in NQ is still very much intact, even with yesterday's significant selloff.
Sometimes, a picture speaks a thousand words; there isn’t much I can add to the commentary around this profile that isn’t expressed in the profile itself.
We had a sideways, choppy day leading up to FOMC, as I predicted, then a selloff starting at 2pm. Even though the rate cut was 25bps as expected, the catalyst was the Median Rate projections released by the Fed, showing a higher-than-expected rate for the Next Year and the Next 2 years.
This gave the market an indication of what message Powell would share at his 2:30pm press conference; the Fed now sees fewer rate cuts than originally projected in 2025 and 2026.
In my opinion, what started as an initial bearish reaction to the news turned into panic selling for the next 2 hours. Over a 2-hour period from 2pm-4pm, we saw a 977.5 point drop in the NQ.
What happened yesterday is an excellent example to all participants that even with the rise of computers doing the bulk of the trading, markets are fragile and still ruled by human emotion. Fear took hold, not just in NQ but across the markets as a whole; a lot of money was lost yesterday in the subsequent selloff that rippled across futures, indexes, and equities.
Thesis for Today - Thursday, 12/19/24
My bias for today is Extremely Bullish.
I believe the selloff yesterday was an overreaction, and now that participants have had time to digest the news and calm down, we will see a bounce today back up to a more reasonable fair value than we ended yesterday.
Overnight inventory supports this bias. We have seen consistent buying since the London session at 3am, with increased volume compared to typical overnight sessions. As of the time of this writing, overnight inventory is very long, 160 points above yesterday’s settlement price of 21,501.75.
As always, anything could happen. It’s not impossible that we could head even lower today, but I think the odds of that happening are much less than the odds of heading higher.
My trading plan today is to be patient off the open, wait for signals that indicate a directional conviction, and look to trade trends that develop in either direction. Even though I am biased to the long side coming in, I will be careful not to let my bias cloud my judgment based on what the market is showing me.
In the event of an uptrend, I will keep an eye on levels of resistance (noted above) that appeared during yesterday’s selloff, where bounces were rejected.
In the event of a downtrend, I will keep a tight trailing stop to protect against any levels of strong support that may appear. Trading downtrends today will be a “see money, take money” approach.
In the event of a sideways, range-based day, I will not take any trades and wait for range extension, even if that means waiting for upcoming sessions.
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.