Bulls and Bears Battle: December Expiration Drives Market Surge

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Our View

They huffed and they puffed but that didn’t prevent major U.S. indexes from ending the week lower. The Dow suffered its third consecutive week of losses, finishing the week down 2.3%. Notably, it had a wild session, dropping sharply on Globex before rallying over 500 points early on. A key factor lifting the market was the yield on the 10-year note, which fell to 4.522% after climbing for two days to settle at 4.569% on Thursday.

The only thing I can say is that there are no free rides. The longs were too complacent at the highs and did not pay attention to the buy NQ/sell YM rotation. Meanwhile, the bears, who were correct to short, overplayed their hand by adding positions Thursday night and got caught when a mammoth buy program—tied to the $6.9 trillion December expiration and the thousands of margin calls—added up to a giant buy program. Clearly, the short bus was too full.

This week’s economic calendar is light, with no scheduled Fed speak. The markets will be close early on Tuesday and for the whole day on Wednesday for the Christmas holiday. According to AAA, an estimated 119 million people are expected to travel 50 miles or more this week, which is 3 million more than last year.

On Friday, I mentioned that I don’t think the ES is going back to Thursday’s Globex low of 5888. With many market participants likely stepping away this week, we’re likely to see a “thin to win” trading environment. That doesn’t mean the market won’t see some drops, but I plan to focus on buying dips.

Lessons from the Floor

“Pigs get fat, hogs get slaughtered.”

There are a lot of smart traders but knowing when to fold may be more important than being smart. The PitBull said in the Market Wizards that his best trade ever was getting out of a loser.

I watched him for years make tough multi-million dollar trade decisions and I don’t think his decisions were based on his charts, I think it was self-preservation. He knew what he had and how much he could lose and when it reached that point he liquidated. It didn’t matter if it was a 10 lot or 60,000 crude options or 45,000 S&P options, he pulled the trigger. I don’t have that problem, I always get out too early.

In August of 2015, the ES had been going down all week and he called me so many times I lost count. The position grew so big that the clearing firm was constantly telling him to adjust it. An account that he opened with $25 million was up to $108 million. Somehow he kept the position intact, but by Wednesday the ES was puking on the release of the China Caixin PMI. He was trading thousands of options but still not getting out. I remember a call from him where he kept asking me what he should do and I said repeatedly all week ‘get out’ . He yelled at me and said ‘I can’t get out, it will cost me $13 million’. A few weeks before he had asked me what I would do with the account and I told him ‘take the original $25 million out and play with the profits’ but he didn’t listen then and did not listen when I told him to get out of another position in Feb 4th 2018. It was not until the Thursday night ‘vol-mageddon’ crash and his positions were so big the market makers and prop trading firm were making wide markets. They knew he was fucked and the PitBull set off an avalanche.

I remember the head of the clearing firm calling the desk and asking what he was doing and John, who I hired away from Goldman, got on the phone and told the head of the firm he was out. I asked John what he said and he said ‘that’s amazing’. But that’s not the end of the story. The Chicago based LJM fund had two to three times as many options as the PitBull had on and by the time they they started getting out, the prop firms were already loaded up and were told not to make markets in certain strikes. It took two days for the hedge fund to get out and they blamed it on the pit, desk, and the brokers. LJM lost 80% of its holdings.

Had the PitBull not gotten, out he would have lost everything. But that’s still not the end of the story. The PitBull broke one of his golden rules, it’s called no half-in, meaning when you are getting out, you get out of the entire position. I am a big believer that when you make a big score, you bank some of that cash. Even to this day, he still says my advice was the best he was ever given.

The moral of this story is when you are wrong, get out. There is always another trade coming and as much as we hate losses, it is part of the business that keeps you in the game.

MiM and Daily Recap

The ES Globex session opened on its high at 5944.50 and moved lower for most of the night, printing a morning low at 7:15 AM of 5866, which would be the low for the day. Buyers stepped in and pushed the market up to the regular session open at 5907.25. After a quick move up to 5931.75, there was room for some selling as the ES pulled back through the open to test the 5900 level. With a false move below, printing 5898.25 at 9:50 AM, it was off to the races as the buyers stepped in and ripped the markets higher, with 2.5 hours of nearly uninterrupted upward momentum. This culminated in the high of the day at 6050.75 at 12:28 PM.

Exhausted at that point, the ES began to sag, forming a large A-B-C top from the high. It sold off down to 5991.25 at 3:34 PM ahead of the imbalances. At 3:50 PM, the MIM (Market on Close Imbalance) release revealed a large sell imbalance of -10.57 billion, which later updated to -3.59 billion. The ES whipsawed within a 34-point range into the cash close at 6001.75 and finally settled at 5996.50 for the weekend, up 53.25 points (+1%).

The NQ settled at 21,552.50, up 144.25 points (+1%). Volume was heavy, with the ES trading 2.133 million contracts and the NQ trading 844,000 contracts. The question remains: Was this the start of the next leg higher, or just the initial reaction to significant profit-taking as we roll into the new year?

In the end, the ES rallied 148.75 points from the Globex low of 5866.00 to the day session high of 6050.75, before selling off 63.5 points  from the high. Notably, all 11 industry segments of the S&P were up for the first time since the big election-day rally—a true S&P “hellablue.”

In terms of overall price action, the ES and NQ showed they were overdone both on the upside and downside. Both markets acted firm, and the ES’s overall tone has shifted significantly. Just a week ago, ES volume dropped under 950,000 contracts. Now, it’s consistently printing over 2.2 million contracts daily—and climbing.

How to read the MIM

Technical Edge

Fair Values for December 23rd, 2024:

Daily Breadth Data 📊

Weekly Breadth Data 📈

MTS Levels:

How to read/use the MrTopStep Levels

Market INFO:

Goldman Sachs:

Room Summaries:

Polaris Trading Group Summary Friday, December 20, 2024

Trading Day Summary: Friday, December 20, 2024

The Polaris Trading Group session led by PTGDavid provided a highly instructive and positive trading day marked by successful predictions, strong market analysis, and excellent execution.

Market Context and Pre-Market Action

Key Trades and Lessons Learned

Final Thoughts and Outlook

Positive Takeaways:

Traders were left with valuable lessons on structure reclaims, level validation, and trend adaptation, setting a strong foundation for future success.

O

DTG Room Preview – December 23, 2024

Chart Reference: ES Swing Bottom Chart

Conclusion:
While broader trends hint at intermediate-term strength, near-term conditions remain volatile and unpredictable, especially in this low-volume holiday week. Traders should remain cautious.

Calendars

Economic

Important events for the rest of the week:

S&P 500 Earnings

Recent

Full MTS Calendars

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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!