Fed Chatter, Prudence taking over

Markets stalled waiting for directions

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Our View

Forget all the news; let’s get to the nitty-gritty. The markets have weakened over the last two days as more Fed headlines surfaced. Some Fed officials have started discussing a slower pace for rate cuts, and the markets reacted accordingly. With only 13 days (10 trading days) until the election, everything is in motion. Gold closed higher for the sixth consecutive session, reaching a new all-time high. Treasury yields also pushed higher, with the 10-year note yield spiking to 4.2% for the first time since July and settling at 4.18%. Crude oil also rose, closing up 2.2% after hitting $72.09 per barrel.

The ES and NQ opened lower, dropped 10 points (remember my rule about buying the lower open or the first drop after the open), traded down to 5862.25 at 9:32, and then rallied 42 points to 5904.25. There was a lot of two-way price action, but it seems like the index markets might have a case of the yips. The Fed has indicated it’s still on track for rate cuts in November (6-7) and December (17-18). However, with bond yields falling so much, it doesn’t seem likely the Fed will lower rates by another 0.50 bps. In fact, it looks like the Fed may have made a mistake by cutting rates by half a point earlier, as it has definitely pushed yields back up. It feels like the clock is ticking, and not in a good way. While you can still buy the 30 to 50 point pullbacks, it seems like some risk-off trade is already in play, which explains why the ES and NQ struggle later in the day.

MiM and Daily Recap

The ES traded down to 5861.25 at 9:10 am on Globex and opened near the 5869.25 level during Tuesday’s regular session. After the open, the ES reached 5872.00, quickly dropped 9.75 points down to 5862.25—just one point above the Globex low—and then rallied 19.75 points up to 5881.00. From there, it dropped 12.5 points to a higher low at 5868.50 by 10:52, followed by a 15.5-point rally to a new high at 5884.00. The ES then sold off 10 points to 5874.00, rallied up to 5882.25, and eventually sold off again to 5874.50 by 12:30.

Following that low, the firm ES surged 29.75 points up to 5904.25, pulled back 16.75 points to 5887.50 at 3:00, and rallied 8.5 points to 5899.75 at 3:37. After a slight pullback to 5894.75 at 3:42, it traded 5895.50 when the 3:50 imbalance showed $1.5 billion to sell. On the 4:00 cash close, the ES traded 5892.75. After 4:00, it dropped to 5888.00, rallied back to 5887.50 at 4:26, and finally settled at 5887.00, down 9.25 points or -0.16%.

Other markets saw mixed results. The NQ settled at 20519.00, unchanged, while the YM closed at 42,972.00, down 205 points or -0.47%. The RTY settled at 2,242.40, down 13.10 points or -0.58%.

Despite the late NQ weakness, the ES managed to shake off the selling. However, the tone of the ES was tired, and trading volume remained low, with only 995k contracts traded.

Technical Edge

Fair Values for Oct-23-2024 are as follows, SP: 39.71 NQ: 153.05 Dow: 238.21

Guest Posts: Jeff Hersch @traderslamanac

Market Not Out of October Woods Yet

Rising 10-year Treasury yields spook market rally just as the historically weak late-October stretch begins.

Aside from early-month weakness, this October has been relatively calm. Both the S&P 500 and DJIA have recorded new all-time highs, extending a six-week winning streak. However, the CBOE VIX index has remained stubbornly elevated around 20, and the 10-year Treasury yield has climbed back above 4.10%, with gold also trading at new record highs.

Despite yesterday’s mixed close—where the DJIA, S&P 500, and Russell 1000 and 2000 all dipped while the NASDAQ posted a modest gain—today’s action serves as a reminder that it’s still October, and volatility could still loom large, at least until the presidential election dust settles.

Compared to the typical October election-year patterns, this month’s mid-October strength has been unusually robust. Today’s weakness, however, aligns with the start of a typical seasonal pullback during the second half of the month. Market softness may persist through the rest of October before a potential rebound in the final week.

Room Summaries

Polaris Trading Group Summary – October 22, 2024

The trading day on Tuesday, October 22, 2024, started with room setup and links to important resources, followed by a calm opening in the markets.

Overall, the day was marked by patience in the morning and a well-executed bullish breakout in the afternoon. Lessons emphasized include watching for classic patterns like short squeezes and being mindful of market internals to gauge potential breakouts.

Discovery Trading Group Room Preview – October 23, 2024

Economic Calendar

Full 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!