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Higher Lows and Key Tests: Navigating the ES and NQ Movements
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Our View
One thing is for sure, the big movements in the ES and NQ have provided some great trading opportunities for both buyers and sellers. Large trading ranges are usually news-driven, but many recent moves have occurred without any clear news catalyst. Instead, a buy or sell program kicks in, and the futures keep going and going.
Recently, we’ve seen some bottom-picking, with two separate higher lows forming on Thursday and Friday. Is that an indication that the ES and NQ are headed back up? The bigger question is whether these rallies can hold. Friday’s jobs report will be the big test. After the ES delivered its best two-year gain since 1997-1998, the December rate reduction did not wear very well so this week, the labor market data is crucial.
The big question remains: can the ES rally for a third year in a row? I’m a bull, but I am also concerned about inflation, rising interest rates, and swelling national debt.
Our Lean
There are still 11 trading days left until Inauguration Day on January 20 which this year falls on a Monday and is a US Federal Holiday for MLK. I think there are a lot of shorts in the market, and it wouldn’t be hard to push the ES up to 6050. There are a lot of buy stops above 6018, and the strategy remains to buy any 30- to 50-point pullbacks. I think we are going higher, but keep an eye on the 10-year yield and the late-day “walk away”.
MiM and Daily Recap
The ES put in a first-hour low of 5911.25 during the Globex session, which ended up being the low of the day. Trading slightly higher to 5934, the session then moved sideways for most of the night and morning, holding a higher low of 5922.75 before climbing further in the pre-market. The regular session opened at 5945, quickly squeezing to 5965.75. This setup created an opportunity for a pullback and a long entry during the test and retest of the pre-open range.
After pulling back to 5934 at 10:18 a.m., the ES quickly recovered its opening price and began a steady buy-side move for most of the day. A new high of 5969.25 was printed before a moderate pullback to 5951.50 at 11:10 a.m. Buyers then came in force, pushing the price straight up to 5980.75 within the next 40 minutes. A subsequent pullback to retest the previous high at 5969.25 around 12:30 p.m. set up an afternoon squeeze. This move brought the ES near the big figure but printing a little shy at 5996.75 at 2:38 p.m., which proved to be the high of the day.
From this point, some profit-taking led to a sideways to downward movement in a moderate A-B-C formation, with a low of 5980.75 printed just before the 3:50 p.m. MIM imbalance release. Initially showing about -400 million to sell, the imbalance flipped to the buy side with 1.19 million to buy at 3:54 p.m. This late-session buying pressure pushed the ES back up to 5992, with the cash close settling at 5989.50. Post-market action was sideways to downward, ending at an exchange closing price of 5985.25, up 65.25 points (+1.1%) for the day. The NQ closed at 21,493, up 310.50 points (+1.47%). Volume was lighter, with the ES trading 1.14 million contracts and the NQ trading 479,000 contracts.
Both the ES and NQ demonstrated strength, shaking out some of the shorts. In terms of the ES’s overall tone, it acts firm but I still think you have to beware of the rotations and late-day sells. In terms of overall trade, volume was lower but still high for the holiday week.
Technical Edge
Fair Values for January 6, 2025:
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SP: 46.04
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NQ: 187.22
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Dow: 283.15
Daily Breadth Data 📊
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NYSE Breadth: 70.1% Upside Volume
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Nasdaq Breadth: 77.6% Upside Volume
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Total Breadth: 76.7% Upside Volume
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NYSE Advance/Decline: 76.3% Advance
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Nasdaq Advance/Decline: 72.9% Advance
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Total Advance/Decline: 74.4% Advance
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NYSE New Highs/New Lows: 38 / 58
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Nasdaq New Highs/New Lows: 93 / 45
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NYSE TRIN: 1.54
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Nasdaq TRIN: 0.76
Weekly Breadth Data 📈
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NYSE Breadth: 52.8% Upside Volume
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Nasdaq Breadth: 63.8% Upside Volume
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Total Breadth: 61.6% Upside Volume
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NYSE Advance/Decline: 62.0% Advance
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Nasdaq Advance/Decline: 59.3% Advance
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Total Advance/Decline: 60.6% Advance
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NYSE New Highs/New Lows: 77 / 247
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Nasdaq New Highs/New Lows: 236 / 266
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NYSE TRIN: 1.16
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Nasdaq TRIN: 0.56
Room Summaries:
DTG Room Preview – January 6, 2025
Market Performance & Outlook
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Markets Closed Thursday: U.S. markets will close Thursday in observance of a day of mourning for former President Jimmy Carter.
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Santa Claus Rally Absent: Despite Friday’s bullish reversal, the S&P 500 is down ~0.6% over the typical rally period. Last year, a similar rally miss preceded a 24% annual gain.
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Key Financial Levels:
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10-Year Treasury Yield: Hovering around 4.6%, potentially dampening bullish sentiment.
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Gold: Trading near $2630, pressured by hawkish Fed commentary emphasizing inflation control.
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Fed Commentary:
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Officials reaffirm commitment to reducing inflation to 2%, with recent statements by Mary Daly and Adriana Kugler dampening hopes for near-term rate cuts.
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Fed Governor Lisa Cook speaks at 9:30 AM ET today.
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Corporate and Economic Highlights:
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CES Tech Show: Notable announcements anticipated from Nvidia and other tech leaders, with CEO Jensen Huang delivering a keynote Tuesday.
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SpaceX Expansion: Italy reportedly nearing a $1.6 billion deal for encrypted communication services via Starlink, marking the 20th country to join the network.
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Earnings on Deck: Key reports expected from Cal-Maine, Albertsons, Constellation Brands, KB Home, Tilray, and Delta Airlines. No significant earnings scheduled today.
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Economic Data Today: S&P Global Services PMI (9:45 AM ET) and Factory Orders (10:00 AM ET).
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Jobs Report Friday: December payrolls expected to slow; unemployment rate forecast to remain stable.
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Market Volatility: ES 5-day average daily range surpasses 100 points. Overnight large trader volume was light, offering no significant directional bias.
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Key ES Levels:
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Resistance: 6032.25 (50-day MA), 6056-6059 (downtrend channel top), 6291-6296.
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Support: 5887-5890, 5817-5820.
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Charts linked in the original post outline these levels for further reference.
ES Week vs. Week
Globex this AM pre-market has a nice gap up near 0.8% as of 7:30 am. We like 6008 holding for the bull scenario, 6041 is the next level up and then 6066. We still have a ways to go to reach 6170 which is our current bull-market resumption level. We still expect some downside detection. Below 6008 look to 5975.
NQ Week vs. Week
For the bulls on NQ, they need to hold 21,643 and drive up and over 21,749. Pretty clean air above that level up to 21,940. On the downside, if 21,565 breaks lower look to 21,352 and then 21,190.
Calendars
Economic
Important events for the rest of the week:
NONE
S&P 500 Earnings
Recent
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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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