From Oversold to Overdrive: ES Rallies Amid Positive CPI and Earnings

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

Our View

The ES was oversold and holding within its range heading into one of the most important economic and earnings releases of the year and both came out with flying colors. The price action went from selling every rally to a 110-point ES rip, followed by $3.4 billion in sell imbalances. Sometimes big events are trend changers and after the ES made a few higher lows, the consumer price index came out at 2.9% for December (in line with forecasts) treasury yields dropped and stocks ripped. The yield on the 10-year note dropped by 0.13% to 4.653%, the biggest decline since yields began climbing rapidly in December.

Adding to the upside party, Goldman Sachs’ profits more than doubled, Citibank turned a profit, and Wells Fargo and JPMorgan both beat profit forecasts. At its high, the YM was up over 750 point while the ES climbed 1.8%, and the NQ closed up over 2%. The PitBull was unsure about the CPI number but told me last week that yesterday’s bank earnings would be pivotal—and they were.

On Monday in the MrTopStep chat, as the ES sold off and bounced, I said that I didn’t think it acted badly. I knew after weeks of selling the rips there could be a trend change but I have to admit I had no idea that it would go up so much. Once I got a look at the ES price action, I told the MTS room that the ES was going to 6000.00 and the NQ would be up 500 points. Plain and simple, the index markets were extremely oversold and there were buy stops all the way up.

I want to explain something that many of you have probably been wondering about. About two and a half months ago, I became very sick. I went to the emergency rooms and doctors, and no one could figure it out. On October 20, I weighed 236 pounds and right now I weigh 205. My blood tests were fine and scans were fine. I would run a 99 to 102.5 degree fever that would start at 5:00 pm and also lose over a liter of water in night sweats every night. Over a week ago, the PitBull asked for all my blood work and scans and paid for a concierge doctor who told the PitBull that had I waited two more days I would have died. I believe it. The next day after the consultation I was in the Cleveland Clinic where they did blood cultures that showed I had a blood infection which I got from a routine teeth cleaning. I’ll talk about the Florida medical system another time but I spent four days in the hospital and a nurse is now coming to my house every day to give me an IV. My dad always told me life is too short and it is. You just never know.

Our Lean

After a big day like yesterday, a pullback, but I’m in “buy the pullback” mode. Net, net, we are not done going up.

MiM and Daily Recap

The ES traded in a narrow ten-point range overnight, hitting a low of 5879.50 around 3:00 a.m., which held as the day’s low. By 6:45 a.m., it climbed to 5906 and then drifted slightly lower leading into the CPI announcement at 8:30 a.m. The market exploded to the upside on the news, printing 5979.75 by 8:48 a.m. before sagging slightly lower to open the regular session at 5964.75.

With a little buying to the 5970.50 level, followed by some choppy trade to start the session, the ES had a slight downdraft to 5952.50 at 9:38 a.m. Here the regular session low was in and it was up and away again to a new high of 5991.75 by 10:18 a.m. From here the sellers came back in and took profits but it was a choppy and unimpressive move lower as the ES ran stops back below the open, printing a low of 5955.75 by 11:50 a.m. The decline was short-lived as the market immediately bounced from there as there were more shorts to cover into the afternoon session.

Back above the open, a steady stream of buying with only small pullbacks moved the market up to new highs on the day printing 6001.25 at 3:26 p.m. As the market touched and reversed from the psychologically significant 6000 level, traders anticipated sell imbalances into the close and took profits again, moving the ES back down to 5992 ahead of the 3:50 p.m. MIM release, which revealed $3.1 billion to sell. The selling pressure led to a final cash close settlement of 5989, with an exchange closing price of 5987.75, marking a daily gain of 96.25 points (+1.63%). The NQ closed at 21,376.75, up 399.25 points (+1.9%).

In the end, it was a runaway train. If you shorted, you lost. If you were short, you more than likely covered or attempted to. In terms of the ES’s overall tone, it was firm. Volume was slightly lower but about average, with the ES trading 1.56 million contracts and the NQ trading 544k contracts.

How to read the MiM

Technical Edge

Fair Values for January 16, 2025

Daily Breadth Data 📊

Weekly Breadth Data 📈

Guest Posts:

Dan @ GTC Traders

Increasing Inflation …

One of the real skills we believe we bring to the table, is an accurate read for where we stand on a Macro-Economic basis. We were bearish throughout 2008, aggressively pressing short-risk positions. Bullish on all Equities from 2009 to recently into 2020 when we began a very conservative approach to risk. In August of 2021 we were very public that Inflation was NOT transitory; and we were beginning one of the worst inflationary flashes since the 1970’s.

In fact, we’ve been so accurate with many of our reads as to the Initial Conditions (they are not predictions, and prediction is a mathematical and scientific impossibility. Actual Scientists and Economists speak in terms of probabilities from models; from understanding ‘Initial Conditions’) of Macro Economics, In November of 2023 we stated that we have entered the beginning phases of a Stock Market Bubble. A topic that has entered mainstream discussions as of late.

In fact, so as to not get lost in the ‘ocean’ of sporadic ‘calls’ and ‘predictions’ from amateurs, we now actually publish a record of our Economic view at the bottom of our GTC Sample Portfolio page entitled “Record of Economic Outlooks” .

One of the features of our Premium Service at GTC Traders … is that most mornings we take the Daily Note we publish internally from our Private Equity Proprietary Firm; and post it for readers of “Read the Report”. And something we have been discussing as of late, is our current read of inflation.

We say this, not to ‘brag’, but to stress that we are not ‘your broke Uncle Rob with a Fed opinion’.

In September of 2023, we stated that as rates markets rallied, ones were insane to think that Inflation had been quelled, and the rates markets were wrong to rally to such higher prices and lower yields, and the trade was crowded. To expect to see higher yields in coming months.

Which is exactly what has occurred.

For the last three months at each daily note, we have been publishing this, or similar wording …

“SOFR Yield Curve: We do not share the stated view of the Federal Reserve Chairman. We are viewing Inflation at this point, as not as severe, but instead? As far too elevated and in danger of re-igniting. CPI has turned around, and started following Core. To aggravate the problem, the Fed has been cutting the rate instead of remaining steady as we have been stating in recent months. At this point? There are a few ‘marks’ or ‘goals’, that we have for Inflation. The annual inflation rate in the US rose for a 4th consecutive month to 2.9% in December 2024 from 2.4% in September, as we have outlined during that time period.

CPI: Goal: 2.0%. Current: 2.9%. Which is up from 2.4%, then we hit 2.6% and now 2.7%, then 2.9%. Heading in the wrong direction. ( tradingeconomics.com/united-states/inflation-cpi )

Core Inflation Rate: Goal: 2.33% (The Highs of 2018). Current: 3.2% ( tradingeconomics.com/united- states/core-inflation-rate ).

Sticky Inflation: Goal: 2.93%. Current: 3.75% ( A level not seen since July of 1992 ) ( fred.stlouisfed.org/series/CORESTICKM159SFRBATL )

We have believed that the Fed has been far, far too early and aggressive when it comes to cutting the interest rate. Inflation has not been definitively tamed … sticky inflation is still at levels not seen since the 1990’s. And, we have what we believe, as STRUCTURAL Inflation as having embedded itself within the fabric of the economy. CPI has reversed course, and is now following Core Inflation higher. And in the midst of this, the Federal Reserve is cutting the interest rate only aggravating the inflationary problem as we receive inflationary data.

We had been looking at the ‘box’ of prices set from the middle of November between 96.06 in the SR3H2026 on the low side (pressing higher yields) … and 96.38 on the high side (pressing lower yields). With the Fed’s rate cut and presser last month, we sank to a new intermediate case price of 95.95 on the H26 term or the First Red. With the economic releases of last week, which were wildly inflationary SR3H2026 as the First Red headed markedly lower through those structures to 95.83. We have eased somewhat, but only up to the prior structural low in the 95.96 region. Also watch wages if a wage-price spiral begins; as wages lept higher by 5.60% in October of 2024 and 5.80% in November of 2024 ( tradingeconomics.com/united-states/wage-growth )”

Despite the market rally yesterday (which was a short-term blip anyway) … we take this time to stress those sentences in the first paragraph ..

“… CPI has turned around, and started following Core. To aggravate the problem, the Fed has been cutting the rate instead of remaining steady as we have been stating in recent months. At this point? There are a few ‘marks’ or ‘goals’, that we have for Inflation. The annual inflation rate in the US rose for a 4th consecutive month to 2.9% in December 2024 from 2.4% in September, as we have outlined during that time period.“

We have warned of this for some months. Other data (input costs, PPI, NFP) has also been quite inflationary.

Inflation has not been tamed. The Fed, has made a policy error. Of course, this does not show itself in intra-day price action, but rather long term trends and impact to; and cheaper rates and any inflationary geo-political event risks what we have long warned here of in this space.

A repeat of 1977, of Inflation re-igniting in earnest. It has yet to ‘re-ignite’ to that level?

But those ‘pieces’ are on the board so to speak.

Until then? Stay safe … and trade well.

Trading Room News:

Polaris Trading Group Summary: Wednesday, January 15, 2025

Morning Session Highlights:

Key Lessons and Guidance:

Afternoon Session Highlights:

Positive Trades and Takeaways:

Closing Notes:

DTG Room Preview – Thursday, January 16, 2025

Morning Market Brief:

Stay tuned for market updates following key economic releases.

Calendars

Economic Calendar Today

This Week’s High Importance

Earnings:

Released

Full Calendars

Affiliate Disclosure: This newsletter may contain affiliate links, which means we may earn a commission if you click through and make a purchase. This comes at no additional cost to you and helps us continue providing valuable content. We only recommend products or services we genuinely believe in. Thank you for your support!

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!