Daily Analysis - Wednesday, 12/18/24

The last big news event of 2024, FOMC, is today. Will Powell send us into the new year riding a Santa Claus rally or be the Grinch?

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

• The FOMC rate decision and press conference is TODAY, starting at 2pm EST. Expect volatility between 1:30pm through the close. It is always wise to be flat going into any news event. On Friday, 12/20, we have the PCE reports release and the rare Triple Witching event. Both could cause unusual market behavior and volatility once we get past the FOMC event. Traders should be on guard this week when holding positions.

Today - Wednesday, 12/18/24

• 8:30am US Housing Starts Number (Expected: 1.343M)

• 2:00pm FOMC Rate Statement

• 2:00pm US Interest Rate Decision (Expected: 4.5%, 25bps rate cut)

• 2:00pm FOMC Summary of Economic Projections

• 2:30pm FOMC Press Conference w/ Powell

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 - Tuesday, 12/17/24

Session Open: 22,336.00
Session High: 22,386.00
Session VAH: 22,342.25
Session POC: 22,308.75
Session VAL: 22,274.75
Session Low: 22,244.25
Session Close: 22,315.25
Session Settlement: 22,314.50
Session Range: 141.75 pts, 567 ticks
OI Change (Prelim): +8,946 (NQ) / -4,877 (MNQ)

Other levels of Note:

• 22,448.50: all-time high

• 22,386.00: yesterday’s high

• 22,350.00 - 22,340.00: area of resistance from yesterday’s session.

• 22,265.00 - 22,250.00: area of support from yesterday’s session.

• 22,192.00: low from Tuesday’s session

Market Profile Analysis - Tuesday, 12/17/24

• Yesterday’s market profile was a classic “D” shaped profile; I classify it as a Nontrend day. Some may ask why this is not a Neutral day. Neutral days are also typically “D” shaped, but they are characterized by other timeframe participants extending the range on both sides of the Initial Balance, testing whether there is appetite for both higher or lower prices. Yesterday, we saw little to no range extension on either side of the initial balance; the high and low were essentially set in the first hour of trading, outside of a short-lived breakout to the upside at around 11:30, which was quickly rejected.

• These types of days are typical right before a big news event, such as FOMC today and are characterized by a complete lack of directional conviction.

• Participants yesterday were balancing their positions for the news event today.

• If you read my thesis for yesterday, I noted that after such a strong uptrend on Monday, 12/16, and the FOMC event the next day, i.e., today, it was likely we would see a sideways or pullback day, and that’s precisely what we saw happen yesterday.

Price Action Analysis - Tuesday, 12/17/24

• The price action yesterday did not provide many trades with an edge or “cheap trades”, and the profit potential was very limited for traders. It was a good day to sit on the sidelines or shut down the screens and go touch grass. I managed a few scalps, but otherwise, I was patient and happy to do nothing.

• Off the open, we saw what I call the “wash cycle,” where price whipsaws back and forth and stops out traders positioning for a breakout in either direction.

• The bottom of the range was put in around 10:30 at approximately 22,245.00. It’s easy to see that in hindsight, but in real-time, it would have been hard for a trader to know this, given that price was now auctioning below the prior session’s value area low. It would have been reasonable for a trader to expect price to auction lower and test the prior session’s low at 22,191.75. It did not, but it would have been difficult for a trader to go long at this level with no prior session structure to indicate this as a level of support. There were some scalping opportunities in the uptrend that developed off this rejection.

• This uptrend continued auctioning back up into the prior session’s value area and put in the session and range high at 22,386.00 around 11:45am. Again, just as before it would have been difficult for a trader to know this was the session high when it happened. When price auctions out of the prior days value area and then is rejected back into it, it’s common for price to auction all the way back to the other side of the value area. It did not in this case and proceeded to auction back down and out of the value area from the prior session.

• From this point, price meandered sideways and slightly downwards until rejecting below 22,260.00 around 3:30. This was really the only trade location with any edge during this session. A trader could have decided to go long here given the slow range-based day and the prior rejection near that price area earlier in the session. Price then auctioned higher into the close, settling at 22,314.50.

Thesis for Today - Wednesday, 12/18/24

• At the time of this writing, overnight inventory is mostly neutral, slightly above yesterday’s settlement.

• For today, I expect more of the same price action as yesterday during the morning time frames: slow & sideways with few good trade locations.

• A 25bps rate cut is already priced into the market, and the market expects it.

• What the market hates more than anything is uncertainty. Traders who decide to trade during the FOMC event must watch for any indication of uncertainty either in the rate cut announcement or Powell’s commentary starting at 2:30pm.

  • Bullish scenarios: 25bps or greater rate cut, Powell is clear in his language and expectations that the Fed is committed to further rate cuts in the coming months.

  • Bearish scenarios: No rate cut; Powell setting expectations for no further rate cuts in the foreseeable future or expressing uncertainty around or noncommittal to cutting rates further.

• The FOMC is a fluid event; often, the initial reaction by the market is not followed through, and we see a lot of whipsaw price action as participants digest the announcement and commentary from Powell. I recommend that all traders be safe, protect capital, and use stop losses on all trades (you should be doing this every time regardless of FOMC), and a gentle reminder that there is nothing wrong with sitting on the sidelines and letting other traders take the risk today.

• My personal plan today, barring any surprises, is actually to take no trades. I have found through experience that the day after FOMC typically presents much better trade opportunities once the market has had time to process everything and determine which direction price should auction to get to fair value. I’m happy to be patient, protect capital today, and use today’s volatility to indicate where good trade locations may present themselves in tomorrow’s session.

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.