A Month to Remember for the Bulls

ES not bearish, but lacking upside momentum

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

I feel like one of those mice running around in the wheel. 

The ES finally broke out into a new high, but it failed. Gold settled at $2,047 and has been up four days in a row. Gold tried to break out earlier this month, but hit a wall. Now that weakness is gone and it’s hitting its highest level since May. That’s got it within striking distance of its record high from August 2020. 

Elsewhere, the yield on the 10-year Treasury note — which started the month above 4.8% — fell to around 4.27%, down from 4.335% Tuesday. I guess you could say everything is moving and it’s been a busy month for the bulls. 

MiM and Daily Recap

The ES traded up to 4590.25 on Globex and opened Wednesday’s regular session at 4585.25. After the open, the ES rallied up to 4597.00 at 9:58, then traded down to a 4574.50 double bottom. From there, it traded just above the VWAP at 4582.75 at 10:59 and then dropped down to 4562.75 at 11:35. After the low, the ES traded back up to the VWAP at 4578.00 at 1:06, pulled back to the 4570.50 level at 1:37, rallied back up to 4577.00 and then sold off down to a new low at 4555.50 3:42 as the TSLA, AAPL and MSFT weakness spilled over into the index markets. 

The ES traded 4559.50 as the 3:50 cash imbalance showed $1.2 billion to sell and traded 4560 on the 4:00 cash close. After 4:00, the ES traded up to 4565.25 and settled at 4563 on the 5:00 futures close, down 3.75 points or 0.08%. 

Ultimately, it was simple: All the buying power was used up during the Globex rally and then on the gap-up open and early pop. After that, it was like the air came out of the tire. In terms of the ES’s overall tone, it was on the weak side. In terms of the ES’s overall trade, it was higher: 267k traded on Globex and 1.353 million traded on the day session for a total of 1.62 million contracts traded.

Technical Edge

Guest Post

From my friend Jeff Hirsch at the Trader’s Alamanac:

First Half December Weak Ahead of Mid-Month Pop

Trading in December is holiday-inspired and fueled by a buying bias throughout the month. However, the first part of the month tends to be weaker as tax-loss selling and yearend portfolio restructuring begins. December’s first trading day has been bearish for S&P 500 and Russell 1000 over the last 21 years. 

A modest rally through the fifth or sixth trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in and propel the indexes higher with a pause near month-end. Pre-election year Decembers follow a similar path, but with noticeably larger historical gains in the last third of the month. 

Small caps tend to start to outperform larger caps near the middle of the month (early January Effect) and our “Free Lunch” strategy is served from the offerings of stocks making new 52-week lows on Triple-Witching Friday. An email Issue will be sent prior to the market’s open on December 18 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 22 and lasts until the second trading day of 2024. Average S&P 500 gains over this seven trading-day range since 1969 are a respectable 1.3%.

This is our first indicator for the market in the New Year. Years when the Santa Claus Rally (SCR) has failed to materialize are often flat or down. The last six times SCR (the last five trading days of the year and the first two trading days of the New Year) has not occurred were followed by three flat years (1994, 2004 and 2015) and two nasty bear markets (2000 and 2008) and a mild bear that ended in February 2016. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!