Daily Analysis - Wednesday, 12/11/24

With CPI coming in within expectations, have the last few days been a healthy pullback, or will we see continued selling?

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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.

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Today, 12/11/24

• 8:30am EST - US CPI YoY (Forecast: 2.7%, Actual: 2.7%)

• 8:30am EST - US CPI MoM (Forecast: 0.3%, Actual: 0.3%)

• 8:30am EST - US Core CPI YoY (Forecast: 3.3%, Actual: 3.3%)

• 8:30am EST - US Core CPI MoM (Forecast: 0.3%, Actual: 0.3%)

Thursday, 12/12/24

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

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

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

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

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

Prior Day Stats and Analysis - Tues, 12/10/24

Session Open: 21,532.75
Session High: 21,606.75
Session VAH: 21,563.75
Session POC: 21,548.25
Session VAL: 21,433.50
Session Low: 21,352.75
Session Close: 21,408.00
Session Settlement: 21,405.25
Session Range: 254 pts, 1,016 ticks
OI Change (Prelim): -2,102 (NQ) / +6,153 (MNQ)

Market Profile Analysis - Tues, 12/10/24

• Yesterday’s session was a Normal Variation day, characterized by a balance early in the session and then stronger participants enter the market causing a significant directional move outside of the balance later in the session.

  • The move during a Normal Variation day is more controlled and less aggressive than a Trend day, with some rotation around key levels, which did happen, and I have called out in the price action analysis below.

• The Initial Balance was established at the top of the range, and then range extension occurred to the downside in subsequent periods, showing sellers gained control after the IB was established. Sellers remained in control for most of the session until later time periods.

• In later time periods, notably L-N, responsive buyer activity stepped in to defend lower price levels.

• We saw Value Area expansion in yesterday’s session, with the Value Area High (VAH) moving higher than the prior session and the Value Area Low (VAL) moving lower than the prior session. This expansion of the value area indicates increased trade facilitation in the market during yesterday’s session. We also saw the POC rotate downward from the prior session.

Price Action Analysis - Tues, 12/10/24

1. Off the open, for the first hour of the session, price attempted to auction higher above the prior session’s value area high on two attempts, each time being met by strong selling pressure. On the second attempt, sellers took control and aggressively auctioned price back down inside of Monday’s value area with the prior session’s value area high providing no support for price.

   1. Any long positions placed by traders on the break above Monday’s value area high should have been exited once price auctioned back down below it. With the VAH providing no support for price, it should have been an indication of a failed auction higher and that most likely the high extreme for the day had been put in.

2. Price initially did find support at Monday’s point of control and then after a battle, seller’s continued to auction price lower to Monday’s value area low where it found some support again around 11:40am (E period). This value area low had been support in the prior session, last Thursday and Friday, so it was a key level to break through. There were some short-lived long trade opportunities at this level on the bounces if you were quick to take profits before price turned to head back down.

3. Price entered a range of consolidation from 11:40am - 2pm between the prior session’s point of control and the value area low before ultimately breaking down through the prior session’s low at 2:30pm.

4. Price initially retested the prior session low but found it had turned into resistance rather than support, price then auctioned aggressively further down into the gap below. This retest of the low and failure to auction back above was a good trade location for a short.

   1. In yesterday’s analysis, for my bearish scenario I mentioned that price being accepted below the prior session’s value area low could indicate a test of the gap below at 21,388 which is exactly what ended up happening.

5. Price auctioned down after the retest of the prior session’s low and tested the gap, finding strong buyer support around the middle of the gap, at approximately 21,355 and then auctioning back up and out of the gap by close.

Thesis for Today - Wed, 12/11/24

• The CPI reports all came in in-line with expectations this morning. We saw an immediate bullish reaction from the market.

• Overnight inventory was largely neutral before the reports, which was expected and is now headed to be long going into the open.

• At the time of this writing, price is still within value from yesterday’s session but auctioning higher towards the upper end of yesterday’s value area. We will likely open in-balance today.

• In the higher-level Daily and Weekly charts, the market structure over the past few days has been nothing more than a reversion to the mean and a healthy pullback. There is no indication technically that the continued up trend in NQ threatens to break.

• A reminder to traders that we are in contract rollover right now and will be for the next 7 trading sessions. This is always a weird time in the market, adding in inflation data, a new administration coming in, and the Middle East conflict, and I would opine that risk is high in the current environment. As always, anything can happen.

• We did see a continuation of business leaving the NQ yesterday, with the removal of -2,902 contracts with increased volume from the prior day’s session. A small amount of new business did enter the March 2025 contract yesterday, +849 contracts and open interest is still small in the March 2025 contract compared to Dec 2024, 12,424 compared to 279,561, respectively. This ratio will continue to adjust to the March 2025 contract over the coming days.

• My bias for today is Neutral-Bullish. The market hates uncertainty more than anything else and today’s CPI reports coming in within expectations will alleviate some of that uncertainty. Arguably, the PPI reports are less important than the CPI. However, they are still important, and we also have US Jobless Claims tomorrow as well. Responsive buyers stepped in with conviction later in yesterday’s session in the gap, auctioning price higher with strength into the close. We will likely open in balance, which always means being patient and waiting for good trade locations as the session unfolds. For these reasons, I’m cautiously bullish today and will be patient off the open.

• Scenarios:

  • Neutral: A failure to break and accept prices above or below yesterday’s value area would indicate a range day, and traders should look to trade the extremes of the range. In this scenario, we could see a slow grind up or down with choppy price action.

  • Bullish: A break of yesterday’s value area high with acceptance would indicate a push to test yesterday’s high at 21,606.75. If that is taken out and price is accepted above, the next key area to break would be the 21,650 area which is the top of the current bracket.

  • Bearish: There are more areas of support below current price than resistance above at this moment. A break of yesterday’s value area low with acceptance would indicate price could test yesterday’s settlement price of 21,405.75. A continued push down would take it to yesterday’s low of 21,352.75 and another test of the gap below that has not been completely filled yet, with the low of the gap being 21,312.50. If price does auction down into this gap, I would expect price to run into heavy resistance with responsive buyers stepping in once again to defend lower price levels.

Word of advice - 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.