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Don’t fight the fed, Watching PPI
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Our View
I wouldn’t say I was wrong, as there were some good sell-offs, but despite the uptick in inflation, the market managed to rally. These markets are geared to spin bad news into positive momentum. Today, we’ll get a look at the October Producer Price Index (PPI), and Jerome Powell will speak in Dallas. Friday brings retail sales and the November options expiration. The PitBull mentioned he’d be looking for a low to buy, expecting a rise into expiration, as the Dow has been up in 15 of the last 21 occasions.
Our Lean
The general sentiment is that the market has moved too far too quickly, but as usual, the theme is clear: don’t fight the Fed. My hunch is that the market will stay firm through the year-end, possibly pulling back at the start of 2025 or after the inauguration. For today:
Our lean: is to sell the early rallies and buy the pullbacks, while preparing for potential late-day selling. Support in the ES ranges from 6005 down to 5975.
MrTopStep Levels: (How to read/use)
MiM and Daily Recap
The ES traded down to 5990 and up to 6030.25 after the Consumer Price Index showed a 2.6% increase in October. Wednesday’s session opened at 6016.00. Shortly after, the ES moved up to 6018.75, pulled back to 6012.00, rallied 7.75 points to 6019.75, and then dropped 28 points to 5991.75. Not long after, I posted this in the chat:
IMPRO: Dboy: (10:34:40 AM): That was the low, no going back down today."
Following the low, the ES rallied 33.5 points up to 6025.25 at 11:39, then dipped 10.5 points to 6014.75, rallied another 20.5 points to 6035.25, sold off 9 points to 6026.25 at 1:21, rallied 8.5 points to a lower high of 6034.75 at 1:51, then fell 25 points to 6009.75 by 3:05. At that point, I posted,
"IMPRO: Dboy: (3:08:03 PM): Pop time, mes thinks."
The ES then rallied to 6024.50 at 3:31, sold off to 6015.00 at 3:32, jumped to 6028.00 at 3:36, pulled back to 6023.75 at 3:44, and traded at 6022.00 as the 3:50 cash imbalance indicated $3.2 billion to sell. It dropped to 6008.00, rallied to 6023.25, sold back off to 6017.50, and then closed around 6015.75 on the 4:00 cash close.
After 4:00, the ES traded up to 6024.50, sold off down to 6013.00 at 4:56, and settled at 6016.00, up 3 points or +0.05%, with the NQ at 44108.00, down 30 points on the day.
In retrospect, I should have seen this coming when bonds were up on Tuesday. Despite the 2.6% rise in inflation, the ES was bought on dips, showing resilience. Trading volume was higher than usual, with 1.425 million contracts traded.
Technical Edge
Fair Values for November 14, 2024:
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SP: 26.29
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NQ: 100.63
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Dow: 136.64
Daily Market Recap 📊
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NYSE Breadth: 45% Upside Volume
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Nasdaq Breadth: 61% Upside Volume
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Total Breadth: 59% Upside Volume
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NYSE Advance/Decline: 41% Advance
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Nasdaq Advance/Decline: 34% Advance
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Total Advance/Decline: 37% Advance
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NYSE New Highs/New Lows: 192 / 70
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Nasdaq New Highs/New Lows: 275 / 186
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NYSE TRIN: 0.81
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Nasdaq TRIN: 0.33
Weekly Market Recap 📈
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NYSE Breadth: 61% Upside Volume
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Nasdaq Breadth: 66% Upside Volume
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Total Breadth: 64% Upside Volume
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NYSE Advance/Decline: 79% Advance
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Nasdaq Advance/Decline: 69% Advance
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Total Advance/Decline: 73% Advance
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NYSE New Highs/New Lows: 663 / 131
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Nasdaq New Highs/New Lows: 899 / 361
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NYSE TRIN: 0.96
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Nasdaq TRIN: 0.48
Guest Posts
Dan @ GTC Traders
Problems Remain: Inflation and Valuations
Risk markets have experienced a tremendous rally. While we usually attempt to tactically time our entrances and exits in various markets, was any ‘tactical decision-making’ really necessary with the euphoria that swept markets after the election?
At GTC Traders, we announced we were simply buying a basket of risk assets and holding on. No “waiting for a down rotation.” No looking at pivots. The euphoria was palpable. Just “buy ’em and hold on.” We announced to members we were exiting that position on the 11th and thus enjoyed a nice gain.
Problems Remain: Inflation
Euphoria is a state that can only last for a limited time. In truth, problems still remain in markets. While it is true that the incoming administration could address such problems on a fiscal basis, we have not seen anything from them that appears to address those issues.
To be sure, rewriting much of the underlying tax base could have a tremendous effect on fundamentals. However, this approach seems to be inflationary, particularly during a period when markets are concerned about inflation. It does not address inflationary concerns but rather ignites them, especially if the fiscal side of the administration is interested in lowering interest rates.
The Federal Reserve lowered their rate by another 25 basis points, and rates markets are having absolutely no part of it. The SR3Z2025 market continues to head lower and lower to higher yields…
SR3Z2025
Worse yet, core inflation remains elevated as it headed higher, not lower, in the last few months. And as we have been warning for months in our Twitter stream, the true risk is structural inflation taking hold, and we will see CPI begin to follow core inflation, which is exactly what we saw the other day with the latest CPI data.
At this point, GTC Traders has a few ‘marks’ or ‘goals’ for inflation:
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CPI: Goal: 2.0%. Current: Up from 2.4% to 2.6%. Heading in the wrong direction.
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Core Inflation Rate: Goal: 2.33% (the highs of 2018). Current: 3.3%
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Sticky Inflation: Goal: 3.45%. Current: 3.96%
Also, watch wages if a wage-price spiral begins; wages recently leapt higher by 6.3%.
The idea of lowering the rate further? Is insane.
So briefly put? Inflation is still an ongoing and growing concern. The risk of inflation re-igniting is actually on an uptick. It has not abated.
Problems Remain: Valuations
Then there is the problem of valuations. We maintain that we began a stock market bubble in November of 2023 and are still in the beginning stages of a bubble. How long this bubble can maintain itself? No one can foresee.
Valuations are still incredibly piqued. The only other time such extreme over-value was seen in markets was the 2000s, in the 1960s, and in the 1920s.
Whether looking at assets under a classic GDP model, or through the lens of the multiples the market historically and typically is willing to pay for risk assets, earnings relative are beginning to rise in recent months. But that does not account for the fact that the majority of the stock price rally is led by simple expansion of those multiples, not by the underlying fundamental situation.
As we said earlier, rewriting much of the underlying tax base could have a tremendous effect on fundamentals. Now, for valuations, this could prove to be a large boon. But as yet, no one knows the details. Unknown details have yet to be fought out in Congress. And as stated earlier, it compounds the aforementioned inflation problem.
So simply put? While we enjoy some bright spots and even profited from the rally, we feel the euphoria has passed. And the underlying problems of inflation and valuations remain.
Until next time, stay safe … and trade well.
Trading Room Summaries
PTG Trading Room Summary – November 13, 2024
The trading session yesterday in the PTG room, led by PTGDavid, navigated through a range-bound day with key insights and strategy applications. Here’s how the day unfolded:
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Pre-market and Initial Strategy: David began by sharing essential resources, links, and disclaimers for members. The CPI report aligned with expectations, sparking a brief price increase to the 6025 – 6030 target zone. David highlighted a bullish scenario targeting this zone if prices held above 6015, which was validated when the price hit 6030.
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Key Levels and Trades:
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Line in the Sand (LIS) was set at 6015, pivotal for both bullish and bearish moves.
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Bearish Scenario: Prices dipped below 6015, swiftly tagging the 5995 – 5990 target zone as David called the short, a significant opportunity for bearish traders.
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Throughout the morning, volume and price levels were closely monitored, with David emphasizing the skill of reading volume at price levels.
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Market Rhythm and Range Strategy: The session had a strong focus on range trading, with David noting a “Dips n Rips” rhythm ideal for range-focused traders. Although the market provided some short trade opportunities, David’s focus remained on observing and reacting to price movements within the established range.
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Afternoon Updates and Final Session: Following a midday update, David noted price remained in the upper range with a bullish lean, looking at the 6035 – 6040 zone as key for any breakout. The day ended with price closing near the 6015 level, affirming the LIS and resulting in a neutral range day.
Key Takeaways:
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Accuracy and Discipline: David demonstrated precision in identifying target zones, emphasizing the importance of sticking to the strategy.
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Volume at Price: Monitoring volume at price levels was repeatedly noted as critical, offering valuable insight into market participant behavior.
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Adaptability: In a range-bound environment, traders were encouraged to adapt their strategies, with David tailoring advice for those favoring range and rhythm-based trades.
Overall, today’s session reinforced the value of accuracy and adaptability in both trending and range-bound markets.
DTG Room Preview – November 14, 2024
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Market Summary – Morning Brief
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Stock Market Performance: U.S. indexes closed mixed on Wednesday. The Nasdaq 100 fell 0.3%, the Dow rose slightly by 0.1%, and the S&P 500 remained nearly flat. Bitcoin surged to a record high of $93,000 before pulling back.
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Economic Indicators & Fed Outlook: October’s CPI figures aligned with forecasts, supporting expectations for a 25-basis point rate cut in December, with an 83% probability according to FedWatch. Minneapolis Fed President Neel Kashkari suggested inflationary pressures could influence rate decisions.
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Political Landscape: U.S. Republicans have secured control of the presidency, Senate, and House, potentially solidifying a conservative Supreme Court if any current justices retire. Republican infighting, however, could slow legislative progress.
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Consumer Debt: U.S. consumer debt has reached a record $17.9 trillion, with past-due credit card balances climbing to 11.1%. Nonetheless, income growth has outpaced debt, keeping the debt-to-income ratio below pre-pandemic levels.
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Global Markets: Chinese tech stocks are declining amid concerns about U.S. trade and political policies, with the Hang Seng Tech Index down 20% since October.
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Corporate Earnings: Key earnings reports today include premarket releases from ZCAR and after-market earnings from companies like Walt Disney (DIS), JD, MFG, NTES, and others.
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Economic Calendar: Key economic releases include the PPI and unemployment claims at 8:30 a.m. ET, with oil inventory data at 11:00 a.m. ET. Fed speakers scheduled include Barkin at 9:00 a.m. ET and Fed Chair Powell at 3:00 p.m. ET.
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Market Technicals & Sentiment: S&P 500 volatility is contracting near its all-time high. Large traders show a short bias leading into 8:30 a.m. economic data on lighter overnight volume. In the ES futures, resistance is noted at 6065/68 with support around 6000/03 and 5784/89.
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ES – S&P ES -Week to Week
Last week we set 6082, yesterday we lowered that to 6071
Looking for 5950 and then 5912 for downside holds
NQ – Nasdaq 100 Futures – Daily
Still in this tight consolidation pattern.
Watching 20912 for a hold then 20362
Economic Calendar
Important Releases this Week
Earnings
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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