Daily Brief - Tuesday, 3/4/25
The market as a whole is in full risk-off mode and fear is dominating sentiment. How far will we have to fall before price is considered fair value for buyers to step in? Nobody knows.
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.
Upcoming News
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 - Monday, 3/3/25
Session Open: 21,055.50
Session High: 21,121.00
Session VAH: 21,000.00
Session POC: 20,862.25
Session VAL: 20,650.00
Session Low: 20,316.75
Session Close: 20,473.00
Session Settlement: 20,468.25
Session Range: 804.25 pts, 3217 ticks
OI Change (Prelim): +2,733 (NQ) / +6,460 (MNQ)
Est Volume: 833,524
Prior Session Analysis
Yesterday’s session was a Normal Variation day with range extension to the downside, but it also had some characteristics of a Trend day. NQ added +2,733 contracts and it’s safe to assume these were shorts being opened. On a side note, the sisters (NQ & ES) once again shared an identical chart and ES added 42,000 new contracts, again most likely all shorts. The sentiment in the market is in full risk-off mode at this point. This is further supported by BTC being down which is a great sentiment indicator and the bond market (2.9%) is outperforming the S&P (1.6%) so far this year.
We saw three distinct legs down in yesterday’s session:
The first was off the open. NQ opened with a gap to the upside, the opening range breakout trade I was looking for did not materialize and true to my plan I waited. Price auctioned down to dip its toe below the prior session’s value area high before auction back up and settling into a period of consolidation along the prior session’s high and settlement price.
The second leg down occurred around 12:45pm EST. There was not a lot of news around this time other than a few quips from Trump about Ukraine. My guess is that some participants caught wind of the upcoming Trump announcement on tariffs and were able to get short beforehand. This move drove price below the prior session’s value area high where it consolidated sideways once again.
The third, and most volatile move, came at 2:45pm EST when Trump confirmed that tariffs would go into effect today; 25% on Mexico and Canada and he was adding an additional 10% to the China tariff to make it 20%. He also stated that there was no more room to make a deal to avoid the tariffs on Canada and Mexico essentially eliminating any hope the market had for a last minute delay.
Yesterday’s session provided day traders with 2-3 great opportunities for short positions if you they were patient enough to stay out of the consolidation zones and wait for a significant move to occur out of those zones. I encourage you to review any trades you made and look for areas of improvement if you were not able to capitalize on these opportunities.
As I flip through charts of indexes and equities I’m seeing the same pattern repeat itself in chart after chart. The market is moving as one right now based on sentiment and macro level news. Technical analysis is always valuable but expect levels to be less important in this environment. I’ve mentioned this before but I just want to reiterate, if you are trading you should have a news feed such as financialjuice.com up next to your trading screen at all time. Don’t risk getting caught unaware by breaking news both as capital protection and giving yourself an edge to take a position because you can see why the move is happening.
Why is the market reacting so volatile to the tariffs? I’ve been asked this by a few so I’ll give my take. The market is a forward-looking instrument. What we are seeing is a recalculation of fair value for all assets across the market based on the potential impact tariffs could have on corporate earnings and the economy as a whole, which includes things like GDP, unemployment rate, and the risk of a recession. The market hates uncertainty more than anything else and it is not clear how bad the impact of tariffs will be. The market tends to overreact to uncertainty, how far that overreaction will carry it is anyone’s guess but I expect this sell-off will not keep the same momentum forever. With that said I don’t see the overall sentiment changing until one of two things happens (or both, who knows):
The tariffs are lifted.
The true impact of tariffs is fully understood and can be seen in the data. This could be through corporate earnings, economic data, unemployment data, etc.
Among the major indexes and equities, we are currently in negative gamma. When in negative gamma, market makers must buy or sell to hedge with the direction of the market. This adds to volatility and momentum in these moves. If you are not familiar with delta hedging or gamma hedging, take some time and read up on them both.
Plan for Today - Tuesday, 3/4/25
At the time of this writing, overnight inventory is quite short, well over -150 points from yesterday’s close and at times has approached -200 points. This currently puts NQ below yesterday’s range and the possibility of opening out-of-balance with a gap to the downside.
If we open with a gap, gap rules will be in play and I will be looking for an opening range breakout trade to the downside. If this does not materialize I will be patient and wait for the market to provide better trade opportunities either by showing premium and discount zones or momentum trade opportunities.
I have a bias to the short side today. I do believe that the 20,000 level is at risk at this point. If price breaks below 20,000 that would be a +2,000 point loss in NQ in 8 trading sessions. If price does drop below 20,000 there is not a lot of prior price structure to go off of for levels.
Levels on my chart today:
21,000 - I think any chance of an auction above this today is slim without a short squeeze developing. There was a consolidation just below this in yesterday’s session so could be a level of resistance.
20,650 - yesterday’s value area low. An auction up and into yesterday’s value area would signify sentiment for today’s value is not much different than yesterday’s. Price in yesterday’s value area would likely not be a good area for trades. A rejection at this area, however, could be a good short opportunity.
20,315 - yesterday’s low. Was an area of swift rejection and support around 3:40pm in yesterday’s session and price is currently waffling around it in the overnight session. An auction down in price below it would indicate to me that sentiment for fair value is below yesterday’s and the market is going to search lower for trade facilitation.
20,000 - a key area for me today. If price auctions below this it’s very hard to see any structure for support. Below this, as a day trader, you should just be focused on trading price action, don’t worry about levels until they emerge through market generated information (price action).