Daily Brief - Monday, 3/3/25
We had a small short squeeze Friday afternoon. Tariffs are set to go into effect tomorrow but NQ is up over 100 points this morning. Are we squeezing more today?
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Upcoming News
Monday - 3/3/25
9:45am EST - US S&P Manufacturing PMI Final (Expected: 51.6)
10:00am EST - US ISM Manufacturing PMI (Expected: 50.5)
Wednesday - 3/5/25
8:15am EST - US ADP Employment Change (Expected: 145k)
9:45am EST - US S&P Services PMI Final (Expected: 49.7)
10:00am EST - US ISM Services PMI (Expected: 53)
10:00am EST - US Factory Orders MoM (Expected: 1.6%)
Thursday - 3/6/25
8:30am EST - US Trade Balance (Expected: -92.8B)
8:30am EST - US Initial Jobless Claims (Expected: 234.5k)
Friday - 3/7/25
8:30am EST - US Unemployment Rate (Expected: 4%)
8:30am EST - US Nonfarm Payrolls (Expected: 155k)
8:30am EST - US Average Earnings YoY (Expected: 4.1%)
12:30pm EST - Fed Chairman Powell Speaks
Prior Session Stats and Analysis - Friday, 2/28/25
Session Open: 20,590.25
Session High: 20,944.25
Session VAH: 20,767.50
Session POC: 20,688.25
Session VAL: 20,565.00
Session Low: 20,460.50
Session Close: 20.919.75
Session Settlement: 20,919.50
Session Range: 483.75 pts, 1935 ticks
OI Change (Prelim): +9.966 (NQ) / -1,859 (MNQ)
Est Volume: 839,407
Prior Session Analysis
Friday’s session was a Normal Variation day with range extension to the upside which came later in the session. NQ added new business for the 5th straight session with +9,966 contracts added on another high volume day with close to 840k contracts traded.
The session started with a strong auction down and a swift reversal from buyers right around 20,460. We then saw some indecision as priced moved back into the prior sessions range and another auction up before price plateaued below 20,780. It stayed in this fairly tight range for the majority of the morning, providing very little trade opportunity. There was an auction down below VWAP around 12:40pm, and I expected to to head lower given the overall sentiment for the week and nothing in the news to change that sentiment.
However, that didn’t happen. Unexpectedly we saw a strong auction up for the remainder of the session, price did get sticky around the prior resistance area of 20,720 to 20,760 before heading higher, ultimately breaking back above the prior session’s value area before close.
Given the price plateued in that 20,720 to 20,760 area both in the morning and during the drive up, mark this area on your chart as a potential area of resistance if price returns back down to it in the near future. Intraday levels tend to not be as strong as higher timeframe levels so “near future” is key to remember.
So why the auction up late in the session? Based on my experience and the data, my answer is this was a bit of a short squeeze. I’ll provide a couple reasons for this determination.
It was Friday, and looking at the Daily chart, shorts had made quite a bit of money last week depending on when they entered the downtrend. Given that we are in a highly volatile news environment, I can understand if some shorts did not feel comfortable holding their positions over the weekend and decided to take profit.
The data backs it up. The ES and NQ are often called “the sisters” because they move in tandem quite often, not always, but often. The chart for ES on Friday is almost identical to the NQ chart. When a short squeeze happens, the evidence is both the timing of it, after an extended downtrend, and the change in Open Interest that’s reported the following day which should be negative due to the large amount of short positions being closed. On Friday, ES lost over 18k contracts. NQ did not, it gained almost 10k contracts which is surprising but does not invalidate the short squeeze theory.
So what can explain the gain in contracts in NQ? This is a harder question to answer. The two possibilities to the best of my knowledge are:
Longs opening new positions into the auction up, buying into the uptrend recognizing a short squeeze and that NQ had become too out-of-balance to the short side. The play here would be a continuation of the short squeeze into today and hoping to profit from the pullback in the higher timeframe chart.
Participants recognizing that NQ had become too out-of-balance to the short side and taking advantage of the pullback in the longer timeframe chart selling into the buying, opening new short positions and positioning themselves for another leg down.
Which one do I think it is? I don’t know. If I had pick one, I would lean towards the first one. Given the amount of new business that has come into NQ over the two weeks, and that is was most likely predominantly short, there are still a lot of shorts holding so the squeeze could easily continue. If I was a participants looking to get short for another leg down, I don’t think I would be doing it on a Friday afternoon after a small pullback relative to the higher timeframe chart and how overweight short NQ was going into the session. But that’s just my $0.02, I could be completely wrong.
Plan for Today - Monday, 3/3/25
At the time of this writing, overnight inventory is long, +120 points above Friday’s close. Price has auctioned above the 21,000 level and above Friday’s range. It appears we will open out-of-balance with a gap to the upside. Gap rules will be in play.
On gap days, opening range breakout trades are my go to, I will be looking for one off the open today. If that does not materialize I will be patient and wait, looking for good trade locations and for the market to identify premium and discount zones as the session progresses.
Levels on my chart today:
21,400 - area of resistance in both last Thursday and Wednesday’s sessions. Area of support and then resistance in Tuesday’s session as well.
21,100 - area of both support and resistance in last week sessions, Thursday and Wednesday.
21,000 - psychological level and a key support level in the higher timeframe chart. Price broke below this last week and was an area of resistance on Friday. If the market cannot hold this level today or in coming sessions we are likely looking at another leg down once price pulls back and rebalances.
20,940 - Friday session high, any auction back down into Friday’s range would be bearish to me and indicate sentiment if not better today.
20,760 - area of resistance on Friday and price battled here during the auction up later in the afternoon as well. I would look for this to provide some support if price reaches this level again in the near term.