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Did the Rally come to Early?
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Our View
So far, December has picked up where November left off, going up. While I continue to be bullish and believe “the trend is your friend,” I want to emphasize that there will be some bumps in the road. It’s not going to be like November.
According to Jeff Hirsch’s Stock Trader’s Almanac, historical patterns can offer guidance, but traders should remain vigilant for shifts in momentum or unexpected news that could impact the market. Staying adaptable while following the broader trend will be key in navigating December’s trade environment.
Overbought Markets Pullback During Typical Early December Weakness
• Choppy First Half Before Year end Santa Claus Rally
• Small Caps Surge in Election Years
• “January Effect” Small Cap Out-performance Starting Mid-December
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 year end portfolio restructuring begins. December’s first trading day leans bearish for S&P 500 and Russell 1000 over the last 21 years. A modest rally through the sixth or seventh trading day also has fizzled going into mid-month. It is around this point that holiday cheer tends to kick in (and tax-loss selling pressure fades) propelling the indexes higher with a pause near month-end. Election year Decembers follow a similar path, but with noticeably larger historical gains in second half of the month by Russell 2000.
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 Quad-Witching Friday. An email Issue will be sent prior to the market’s open on December 23 containing “Free Lunch” stock selections. The “Santa Claus Rally” begins on the open on December 24 and lasts until the second trading day of 2025. Average S&P 500 gains over this seven trading-day period 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. Six of the last seven times our 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. Santa’s no show earlier this year was likely due to temporary inflation and interest rate concerns that quickly faded. As Yale Hirsch’s now famous line states, “If Santa Claus should fail to call, bears may come to Broad and Wall.”
I don’t think this means you are supposed to start bulking the trend but from the November low to yesterday’s high the ES has rallied 380 points and the NQ is up 1520 points. As I remember you don’t try and jump on the Santa Claus rally early.
Our Lean
As many of you know, the PitBull has a rule referred to as the “20s,” which suggests that the first test of 6120 could act as resistance. Sometimes it works, and sometimes it doesn’t. The reason I post how many points the ES and NQ have rallied from the November lows is to illustrate the strength of the recent trend and the magnitude of the move over the last 22 trading days.
The strategy remains to look for buying opportunities during periods of ES weakness on Globex and buy the 30 to 50-point pullbacks, though recently we have only seen 15-25 points. There are still a tone of ES buy stops above but my gut says to be careful. I think Friday’s job report will be market-moving.
MiM and Daily Recap
The ES opened its Globex session at 6067 and quickly made an overnight low of 6063. It then put in a steady upward grind all night, reaching a new all-time high of 6086 by 9:00 AM. After opening the regular session at 6080, we got a quick push to retest the high at 6085.50 followed by the same pattern of making the low of the regular session, 6072.50, early in the day around 10:14 AM.
A quick bounce and move up to another new high of 6088.25 by 11:18 AM. was followed by a couple of hours of slow and sideways trade. At 12:58 PM, we had a failed breakout of the high with a sell program to run stops back below the open but support held at 6075.25 and a higher low formed at 1:36 PM, setting the stage for another rally.
Despite some volatility around the Fed’s Beige Book release, the ES advanced steadily, culminating in a 3:50 PM MIM showing $4 billion to buy. This buying momentum drove the market to the high of the day at 6102.25. After some profit-taking on the announcement, the ES still managed a strong close, settling at 6095.50, up 32.25 points or +0.53%.
The NQ settled at 21,517, up 235.50 points or +1.11%, marking a new all-time closing high. Another similar day where the selloff provided good buying entries with upside follow-through on light volumes.
In the end, things went according to plan – buy the pullbacks and look for 6080 to 6100 and then 6120. The ES. NQ, and Dow all made new all-time contract highs. In terms of the ES’s overall trade, volume was slightly higher with 1.053 million contracts traded but I think that had a lot to do with all the buy stops.
The yield on the 10-year note settled at 4.18% to 98,972. Bitcoin rose 3.4% after President-elect Donald Trump chose conservative lawyer Paul Atkins to run the SEC. Crude oil fell 2% ahead of today’s OPEC+ meeting.
Technical Edge
MrTopStep Levels:
Fair Values for December 5, 2024
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SP: 11.8
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NQ: 43.86
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Dow: 88.8
Daily Breadth Data
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NYSE Breadth: 42%
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Nasdaq Breadth: 73%
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Total Breadth: 70%
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NYSE Advance/Decline: 49% Advances
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Nasdaq Advance/Decline: 54% Advances
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Total Advance/Decline: 52% Advances
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NYSE New Highs/New Lows: 117 / 30
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Nasdaq New Highs/New Lows: 331 / 109
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NYSE TRIN: 1.45
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Nasdaq TRIN: 0.46
Weekly Breadth Data
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NYSE Breadth: 56%
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Nasdaq Breadth: 62%
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Total Breadth: 59%
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NYSE Advance/Decline: 67% Advances
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Nasdaq Advance/Decline: 65% Advances
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Total Advance/Decline: 65% Advances
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NYSE New Highs/New Lows: 582 / 68
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Nasdaq New Highs/New Lows: 753 / 206
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NYSE TRIN: 1.29
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Nasdaq TRIN: 0.60
Trading Room News:
Polaris Trading Group Summary: Wednesday, December 4, 2024
Morning Session Highlights:
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Crude Oil (CL) Trades:
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Early success in the open range with two targets achieved:
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TGT 1 filled at 9:36 AM.
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TGT 2 filled at 9:38 AM.
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A trailing stop on the short trade was elected, locking in profits, and PTGDavid remarked on it as a “very nice trade.”
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Nasdaq (NQ) Trades:
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An open range short trade was stopped out at 9:56 AM.
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The upside technical zone (TZ) of 6075–6085 was fulfilled, supporting the “bull scenario.”
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Midday & Afternoon Trades: 3. Nasdaq 3-Day Cycle:
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The 3-Day Cycle target was achieved and documented with a screenshot at 10:32 AM, showcasing well-executed market predictions.
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PTGDavid noted the containment of price action within the opening range rhythm, calling it a “Slug n Chug” scenario.
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Cycle Day 1 (CD1) Bullish Momentum:
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By the afternoon, bulls pushed prices above the open range, leading to steady gains.
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A strong Cycle Day 1 was in play, aligning with options strategies that unfolded favorably.
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Key Target Achieved:
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The 6100–6102 zone target was hit late in the session (4:23 PM), culminating in a “BOOM” moment as declared by PTGDavid.
Lessons and Highlights:
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Patience and Discipline Pay Off: Despite a stop-out on the Nasdaq in the morning, the adherence to strategy allowed for successful recovery and profits later in the day.
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Technical Analysis in Action: PTGDavid’s predefined scenarios (e.g., 6075–6085 TZ and CD1 targets) were fulfilled, illustrating the importance of preparation and technical tools.
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Adaptability: Recognizing and reacting to the “Slug n Chug” rhythm helped traders manage expectations within a range-bound market.
Overall, the day demonstrated the strength of disciplined execution, solid technical frameworks, and a clear understanding of market cycles.
DTG Room Preview – December 5, 2024
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Morning Market Brief – Key Highlights
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Fed Commentary: Fed Chair Jerome Powell stated that the US economy remains “remarkably good,” allowing for a cautious approach to rate cuts. Markets reacted positively, with the S&P 500 (+0.6%), Nasdaq 100 (+1.3%), and Dow Jones (+0.7%) all closing at record highs. FedWatch indicates a 78% likelihood of a 25-bps rate cut in December.
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Corporate Movers: Salesforce (CRM) surged 11% on strong earnings and optimism around its AI offerings. Nvidia (NVDA) rose 3% post-earnings, while Apple (AAPL) and Amazon (AMZN) hit new intraday all-time highs.
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Crypto Surge: Bitcoin soared past $100K, reaching $103K overnight, marking a 40% rally since Trump’s re-election.
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Global Politics: French PM Michel Barnier’s administration collapsed after a no-confidence vote led by Marine Le Pen and a left-wing coalition. France faces fiscal challenges, with its deficit forecasted to exceed 6% of GDP. President Macron must appoint a new PM without a set deadline.
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Bezos on Trump: Jeff Bezos expressed optimism about Trump’s second term, citing potential regulatory rollbacks, and signaled his intent to support these initiatives.
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Labor Market Signals: ADP payroll data suggests a softening labor market, with eyes on Friday’s November jobs report for confirmation.
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Earnings Watch: Premarket reports include Dollar General (DG), BMO, BF.B, and CM. Post-market earnings feature GTLB, IOT, COO, and ULTA.
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Economic Calendar: Key releases today include Weekly Unemployment Claims and Trade Balance at 8:30 am ET.
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Market Trends: The S&P 500 continues its upward trajectory amid declining volatility. Overnight large trader volumes suggest bearish sentiment heading into this morning’s unemployment claims data.
Stay tuned for updates as the day unfolds!
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ES – Week over Week
The chart above was from two weeks ago. Last week was a holiday. But we know what has happened, ES has gone higher. Calling tops is a very difficult talent. We remain in the bullish season but it is reasonable to expect some type of pricing validation from this latest run. The fight and volatility in the markets are quite low indicating that overall the market is ok with what is happening as new monies move in. Don’t short until you see the white of their eyes. It will show up with more active two-way selling and increased volume and volatility. Until then, pick up any 10-point pullbacks, that is all you’ll get. The white numbers on the right of the chart are all normal intra-day expected values.
NQ – Week over Week
L
See comments above
Calendars
Economic Calendar Today
This Week’s High Importance
Earnings:
Released
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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!
This post goes out as an email to our subscribers every day and is posted for free here around 2 PM ET. To get your real-time copy, sign up for the free or premium version here: Opening Print Subscribe.
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