by Danny Riley

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Market Rotations Persist Amid Yield Pressure and Year-End Uncertainty

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Our View

Rotation, rotation, rotation is the name of this game. Yesterday, the YM closed higher for the fifth consecutive day, while the ES and NQ ended the session down about half a percent. Adding to the market’s weakness, jobless claims came in at 219,000, below estimates, and the yield on the 10-year note traded at its highest level since May, peaking at 6%. However, a strong 7-year notes auction provided some relief, pulling the 10-year yield back slightly to 4.58% in late-afternoon trading.

I’m looking for a silver lining, but the current price action is clearly up a day/down a day, and that’s not what the bulls are looking for. These rotations have been pretty much going on non-stop since Trump won the election and to tell the truth, it’s not very impressive. I’m still long, but the price action is not bullish. I know there are a lot of ES stops that go up to 6165, but something big needs to change and with only three sessions left in the year, it’s fair to question whether we’ll see the much-anticipated year-end rally.

Our Lean

I think it’s a very bad omen if the YM closes down for December. After a historic two-year run, Trump is walking into a nearly $37 trillion debt, a figure that’s surely set to jump after he gets into office. Meanwhile, 10-year yields are hitting two-year highs, tariff wars loom, and global conflicts show little sign of improvement. I’m still long, but I’m leery of what’s ahead.

MiM and Daily Recap

The ES traded in a narrow ten-point range between 6095 and 6105 during the first half of the overnight session. After midnight, selling pressure emerged, driving the market down to its overnight low of 6067.50 at 6:12 a.m. Pre-market action was marked by some upward and sideways trading, bringing the ES to the regular session open at 6079.25.

The market initially held this level for about twenty minutes before sellers returned, triggering downside stops and printing the day’s low at 6063.25 around 9:55 a.m. A quick reclaim of the range allowed for a blast back up and through the open. A pullback to the open provided a solid long-side entry for the morning session, as the ES steadily climbed to its high of the day at 6107.50 at 12:18 p.m.

Profit-taking set in over the next thirty minutes, pulling the ES back to test its breakout level near 6086 by 12:46 p.m. This level held and established the afternoon’s sideways trading range. As the 3:50 p.m. Market on Close (MIM) imbalance was revealed—showing $988 million to sell—the ES moved lower into the cash settlement, closing at 6095.25. Post-market activity was relatively quiet, with the ES drifting sideways to slightly lower, ultimately settling at 6091.50 by 5 p.m., down 7.50 points, essentially flat on the day (-0.01%). The NQ mirrored this trend, closing at 21,984.25, down 62.25 points (-0.03%).

In the end, Santa was not a good boy. In terms of the ES’s overall tone, it recovered but it didn’t close above 6100. In terms of overall trade, volume was light as anticipated, with 840,000 contracts traded in the ES and 398,000 in the NQ.

How to read the MIM

Technical Edge

Fair Values for December 27, 2024

SP: 57.22
NQ: 231.04
Dow: 360.87

Daily Breadth Data 📊

NYSE Breadth: 64% Upside Volume
Nasdaq Breadth: 74% Upside Volume
Total Breadth: 69% Upside Volume
NYSE Advance/Decline: 59% Advance
Nasdaq Advance/Decline: 67% Advance
Total Advance/Decline: 64% Advance
NYSE New Highs/New Lows: 51 / 72
Nasdaq New Highs/New Lows: 97 / 87
NYSE TRIN: 0.71
Nasdaq TRIN: 0.78

Weekly Breadth Data 📈

NYSE Breadth: 47% Upside Volume
Nasdaq Breadth: 59% Upside Volume
Total Breadth: 53% Upside Volume
NYSE Advance/Decline: 14% Advance
Nasdaq Advance/Decline: 26% Advance
Total Advance/Decline: 20% Advance
NYSE New Highs/New Lows: 124 / 377
Nasdaq New Highs/New Lows: 379 / 644
NYSE TRIN: 1.14
Nasdaq TRIN: 0.71

Guest Posts:

SpotGamma – Founder’s Notes

What’s Happening in the Market

Futures are off 30 bps.
Support: 6,010, 6,000
Resistance: 6,055

Little has changed to the overall picture ahead of the last weekend of 2024.

The S&P500 has been churning under the massive 6,055 strike, which continues to have a massive amount of positive-gamma pinning-power into 12/31 exp. Today TRACE reflects ~$150mm of positive gamma around 6,055.

If we look back on 9/30 exp (last q’rly exp), the 5,750 (JPM call) was pulling $1bn of positive gamma. Through that lens, as we “decay” toward 12/31, the gamma of that 6,055 strike should concentrate – increasing its pull.

This could be particularly true as other flows subside into the New Year’s holiday. We hold this view until/unless the SPX breaks <6,000, at which point we’d shift to a risk-off stance.

There are indeed large positions at 6k, 6050 & 6,100 which help to invoke some positive gamma. However, the 6,055 is such a dominant focus here because that position is nearly 100% a dealer long call (JPM short), and 100% of that expires on 12/31. Outside of the JPM position, there is little expiring on 12/31.

The bulk of positions at 6,100/6,050,6,100 are for Jan or later expirations, and so their gamma is not as strong. We also note net puts <6,000, which is leads to our view for a risk-off <6k.

Backing the idea of “not much happening” are options volumes, which are near lows of the year. Below is total equity call volume + put volume, which are down sharply from Friday’s all-time record high of ~63mm contracts (12/20 OPEX).

Check out SpotGamma’s Products

Trading Room News:

Polaris Trading Group Summary: Thursday, December 26, 2024

Key Highlights:

Cycle Day Context and Bearish Bias:
- The day started as Cycle Day 1, characterized by a statistical likelihood of declines, with 79% odds for a 10-point drop and 56% for a 20-point drop.
- Initial targets for the S&P 500 (ES) and NASDAQ (NQ) were met early, confirming bearish scenarios from the Daily Trade Strategy (DTS).
Morning Session:
- Neutral opening within the Central Pivot Zone (CPZ) set a defined “sandbox” for early trades.
- A short trade off the Open Range achieved two profit targets.
- The session transitioned into a choppy range as typical during holiday trading with lighter volumes.
- Key note from PTGDavid: “Stay aligned with the dominant force” to avoid emotional or overreactive trading.
Midday Shift:
- Bulls gained momentum, reclaiming critical levels with positive AD Line and Ticks.
- A4 Long strategy was introduced, holding a runner as the market ground higher.
- Successful buy reversal trades occurred around the 6100 line with expansions higher.
Afternoon Activity:
- Several key levels were tested:
  - Pullback responses to the Open Range High (6086.50) and VWAP provided buying opportunities.
  - Targets for sustained bids above 6100 led to intraday highs.
- A notable PKB Short trade was executed, complete with a shared screenshot for playbook documentation.
- Final downside target for Cycle Day 1 (6063.25) was met precisely, underscoring the effectiveness of the cycle strategy.
End-of-Day Notes:
- MOC Sell Imbalance of $1.2 billion reflected potential bearish sentiment heading into the close.
- Emphasis on preparation for future sessions with the Cycle Spreadsheet sent to subscribers.

Positive Trades and Lessons Learned:

Bear Scenario Execution: Early fulfillment of targets (ES 6075, NQ 21957) highlighted the accuracy of pre-market planning.
Dynamic Trade Adjustments: Shifts between short setups and long reversals illustrated flexibility in responding to market changes.
Documentation for Improvement: Screenshots of setups (e.g., Discount Xtreme and PKB Short) provide valuable additions to traders’ playbooks.
Patience and Discipline: Reminders to avoid frustration during slow, choppy conditions helped maintain focus on high-probability setups.

Key Takeaways:

Trust the process and rely on data-driven strategies, particularly during low-volume, holiday conditions.
Proper preparation through DTS briefings and alignment with the Dominant Force is critical to consistent performance.
Leveraging historical cycle data can significantly enhance trade timing and target accuracy.

An efficient day, demonstrating disciplined execution and adaptability in various market conditions!

DTG Room Preview – December 27, 2024

Market Recap and Broader Context:
1. US Indexes:
  - Struggled to maintain bullish momentum, closing near flatline after initial recovery attempts.
  - Highlight: Apple (AAPL) surged near $260 after Wedbush raised its target to $325, pushing its market cap toward $4 trillion.
2. Cryptocurrency and Dollar:
  - Bitcoin: Fell to ~$96K, retreating from its $108K all-time high but still up 120% YTD.
  - US Dollar: Approaching its strongest annual performance since 2015, reflecting robust demand and economic resilience.
3. Labor Market Data:
  - Jobless Claims: Weekly claims fell to 219K (better than expected).
  - Continuing Claims: Rose significantly to 1.91M, indicating cooling in the labor market and the highest level since November 2021.
4. Economic Calendar and Volatility:
  - Light calendar with Goods Trade Balance and Wholesale Inventories released at 8:30 AM ET.
  - Market volatility has decreased, with the ES 5-day average range dropping but still moderately high at 90 points.
5. Market Trends and Technicals:
  - Overnight trading saw low large-trader volume with no evident “whale bias.”
  - Short-term ES downtrend channel held its top at 6105/02, resulting in a solid pullback. Traders may reference NJ’s chart for technical insights.
Trading Implications:
- A cautious environment persists, emphasizing careful alignment with dominant market forces.
- Technical levels and economic data continue to provide key inputs for intra-day strategy development.
- Lighter volumes and reduced volatility into year-end require disciplined, selective trade entries.

ES – Week over Week

ES still playing around in the Christmas Eve session range. Need to get up and over 6108 before heading to new highs. 6062.75 is a must-hold today.

NQ – Week over Week

NQ still needs to move above 22400 to resume its bullish trend. The intraday goal for the bulls is 22120. 21610 is a must-stop line. Exploring lower could pretence a lower low.