by Danny Riley

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Navigating the Rally: Why I’m Sticking with My Buying

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Our View

There was another typo in Tuesday’s OP: “I’m going to keep shorting unless something big happens; this trend could hold through the end of the week.” I can’t blame the editor because sometimes it’s hard to read my gibberish, leaving them trying to decipher what I mean versus what I actually typed. My bad!

Like I was saying, I’m going to keep buying unless something big happens. The ES, NQ, and YM have rallied for the third day, gaining back most of the Fed day losses. The S&P is now on pace for its second consecutive annual increase of 20% or more—the first time since the late 1990s. Contributing to this move higher, the yield on the 10-year note fell to 45.84%.

Our Lean

I’m still long two ES at 6044.50. I broke the PitBull rules about getting out, but my gut told me the selloff wouldn’t last. I felt strongly that the ES went up too much too fast, then fell too fast. Like I’ve said before, there have been other years where I went in too early and paid the price—but this time, I’m holding.

I don’t know the exact date and time, but the ES is going to rip through 6100 and take out the highs.

My lean: continue to buy the pullbacks. This rally is not over.

From Stock Traders Almanac:

The Day After Christmas; Nasdaq and Russell up 72% of the time

https://www.stocktradersalmanac.com

@AlmanacTreader

Santa Claus Rally starts Tuesday. The Santa Claus Rally was discovered and named by Yale Hirsch in 1972 and published in our 1973 Stock Trader’s Almanac as the last five trading days of the year and the first two trading days of the New Year. This short, sweet rally is usually good for about 1.3% on the S&P 500, but the real significance of the SCR is as an indicator.

It is our first seasonal indicator of the year ahead. Years when there was no Santa Claus Rally tended to precede bear markets or times when stocks hit significantly lower prices later in the year. As Yale’s famous line states (2025 Almanac page 118): “If Santa Claus Should Fail To Call, Bears May Come to Broad and Wall.”

NASDAQ and Russell 2000 have logged the greatest frequency and magnitude of gains on the day after Christmas. Since 1988, NASDAQ has advanced 72.2% of the time with an average move of +0.38%. R2K has also advanced 72.2% of the time with an average advance of +0.40%. DJIA and S&P 500 have slightly softer records, but bullish, nonetheless.

Two days after Christmas, the market is less bullish with NASDAQ down more often than up. Three days after Christmas R2K small caps take the lead advancing 63.9% of the time with an average gain of +0.49%.

Looking further out, from 1950-1985 last 5 trading days of the year S&P 500 up 34 of 36 years, average gain 1.24%. 1986-2023 up 21 of 38 (no change in 2006), average gain 0.44%.

Happy Holidays,
Yale and Jeff

MiM and Daily Recap

The ES traded in a narrow overnight range from 6030 to 6042.50, edging slightly higher in the early morning hours and making a pre-market high of 6051.50 at 9:12 a.m. After opening at 6048, the regular session dipped briefly for a couple of minutes, reaching a low of 6042.25 but never testing the overnight low. This set the stage for Tuesday’s move higher, kicking off the first day of Yale Hirsch’s (Stock Trader’s Almanac) Santa Claus Rally.

The ES moved back through the open into new highs for the day, with only shallow pullbacks, marching steadily to 6081.25 by 10:46 a.m. After ten minutes of selling down to 6073.50, this marked the low of the next sideways range. Eventually, the range resolved itself higher, with the ES printing 6085.50 by 11:47 a.m. Some profit-taking led to a retest of the 6075s, but this level held firm as the ES resumed its climb.

Heading into the half-session holiday MIM release at 12:50 p.m., the ES printed 6087.25. The Imbalance Meter revealed $2.1 billion to buy, which sparked a squeeze higher into the cash close, printing our high of the day at 6099.50 before settling at 6098. A little profit-taking and sideways post-market action managed the close for the holiday practically at the high at 6099.

The first day of the Santa Claus Rally delivered with the ES gaining 63 points (+1.04%) and the NQ performing even better, up 309.25 points (+1.42%). Half-session volume was light as anticipated, with the ES trading 582,000 contracts and the NQ trading 257,000 contracts.

In the end, the lean was right on: buy the pullbacks and look for 5980-6000.

In terms of the ES’s overall tone, there are only three words to describe it: THIN TO WIN.

How to read the MIM

Technical Edge

Fair Values for December 26, 2024

SP: 61.02
NQ: 246.86
Dow: 391.25

Daily Breadth Data 📊

NYSE Breadth: 82% Upside Volume
Nasdaq Breadth: 79% Upside Volume
Total Breadth: 80% Upside Volume
NYSE Advance/Decline: 76% Advances
Nasdaq Advance/Decline: 70% Advances
Total Advance/Decline: 70% Advances
NYSE New Highs/New Lows: 28 / 81
Nasdaq New Highs/New Lows: 72 / 112
NYSE TRIN: 0.65
Nasdaq TRIN: 0.60

Weekly Breadth Data 📈

NYSE Breadth: 46% Upside Volume
Nasdaq Breadth: 58% Upside Volume
Total Breadth: 54% Upside Volume
NYSE Advance/Decline: 14% Advances
Nasdaq Advance/Decline: 26% Advances
Total Advance/Decline: 22% Advances
NYSE New Highs/New Lows: 124 / 377
Nasdaq New Highs/New Lows: 379 / 644
NYSE TRIN: 1.13
Nasdaq TRIN: 0.71

Guest Posts:

Dan @ GTC Traders

Looking Ahead to 2025

Last week we reviewed how the GTC Sample Portfolio had performed through 2024. As we stated then, we have performed pretty much how we had hoped to perform in a worst-case scenario. Playing our bets conservatively, since we believe that a stock-market bubble began in November of 2023 (as we have outlined in previous entries).

The best-case scenario was that we were hoping our short-term trading would have performed well with a few simple trades, carrying our other two programs (Equity Fixed Income Hybrid Core Program and our Long-Short Valuation Program) higher still. However, we received a ‘worst-case’ scenario, wherein the few short-term trades we placed did not perform as well as we had hoped. Nevertheless, we still managed to deliver linear returns, beating the risk-free rate and thus preserving and growing our capital in what we feel is an insanely overvalued market.

In a few days’ time, once we officially arrive at the end of December and 2024, we will have the GTC Sample Portfolio page updated with the exact returns for the year along with the assorted performance metrics. We do know up to this point we’ve grown the account by nearly $7,000.00, with $4,417.00 in growth. In 2024, we have generated an average of approximately $17.94 in monthly income on what is a very tiny account. And although we are keeping that income in the portfolio as part of a synthetic-DRIP, it still covers the more than reasonable cost of our “Read the Report” premium service.

We did this in real time, announcing every move as we made it, including the losses.

What About 2025?

Well, in our “Read the Report” premium service, we will continue to announce every move as we make them: Option Trades, Relationship Trades, and Directional outright trading. Wins, losses, and ‘scratches.’

Very obviously, we still feel the market has begun a bubble, with A.I. leading this systemic move higher in equity prices. And inflation is still a problem. As we have said in past articles, the entire trick in a bubble is not to short it too early and thus get run over as ones did in 1997, 1998, 1999, and in 2000. We aim to avoid style drift and to print consistent gains.

Equity Fixed Income Hybrid Core Program

The Equity Fixed Income Hybrid Core Program will take care of itself. We have only purchased half-sized positions and do not have all of the positions on at the present time (we only have 13 of the 18 positions). There are a couple of scenarios we can think of wherein we would purchase the other 5 positions, but that time is not now. We will simply continue to collect the dividends, count the capital additions, and hedge when appropriate.

Long-Short Valuation Program

The Long-Short Valuation Program will continue as it has. With our belief on the indices, we are only interested in shorts against the indices. But we are not stupid. We are not going to short a market and get run over as the indices move higher unless they first show us some preliminary weakness. In the meantime, we still need to print positive basis points. So we are currently running and will continue to run a “Neutral-Carry-Short” Program at 100% in this account in 2025.

Rates are decreasing as we speak (which we feel is a policy error on the part of the Federal Reserve), and should this continue, we may adjust what we use as a ‘carry’ position in the future. You see, there are a few things we can run as a ‘carry’ in this program.

We will attempt to keep printing positive returns each month as we have been, but the future will tell how successful we are in doing this.

Short-Term Trading Portion

So what about the short-term trading portion of our portfolio?

We actually are going to look to run this side of the book a tad more aggressively. Not overly so, but slightly more than we did in 2024. If there is one mistake I think we made in 2024, it was playing too few positions, too sparingly. We would attempt a trade. Some of those trades were profitable, but some did not work out. Then we spent the rest of our time making sure that we tried to print a positive month while weighing the trading performance against the rest of the portfolio to ensure the returns stayed above the risk-free rate and maintained linearity.

Mind you, this did work. So I’m not sure it was a ‘mistake’ as much as I would argue its merits from the standpoint of making sure a newer portfolio track record maintained linearity and positive Sharpe. For the context of where the portfolio was at in terms of its history, I think it was the right move.

But at this point, we have the entire year of 2025 in front of us in terms of a runway, and we have all of those positive returns underneath us. So we are going to run a few more trades this year, and we will be introducing another one of our multi-day trading programs to the mix that will give us a few more trades.

Premium members can look forward to ‘the look over our shoulder’ as we trade a ‘tad’ more actively.

We will have more to say on all of the above thoughts in the coming days. Until then, stay safe and trade well.

Trading Room News:

Polaris Trading Group Summary: Tuesday, December 24, 2024

Morning Session:

The session began with key preparatory links and tools shared by PTGDavid, including the daily trade strategy and range calculator. A motivating “Trader Wisdom Quote” emphasized discipline in following entry and exit rules.
Early focus was on market analysis, with PTGDavid noting that the NQ 3-Day Cycle Rally Target of 22374 was fulfilled.
The Line in the Sand (LIS) was set at 6125 for ES futures, establishing a critical level for trade setups. Discussions around reclaiming prior day lows (PDL) suggested a potential reversal pattern.
Notable action: Buyers regained control mid-morning, with NQ showing strength first, followed by a key volume-trigger level hold in ES. This reinforced the importance of observing correlations and intraday patterns.

Midday Observations:

PTGDavid described the day as “waffley” and noted “sideline-action” ahead of the FOMC announcement. Market rhythms were relatively subdued, with insights shared about order flow and net delta differences.
Blibby71 highlighted recurring technical setups like the “first A4 flip after VT” paying off, signaling opportunities to refine trade setups.

FOMC Reaction (Afternoon):

At 2:00 PM, the Fed announced a 25 bps rate cut, as anticipated. The market initially sold off, fulfilling a lower target zone and testing the CD2 violation zone (6084-6086).
Price action became volatile, and David highlighted sentiment shifts, with the market searching for excuses to sell off, culminating in a sharp drop (“lemmings off the cliff”).
Despite the selloff, notable areas like the Put Wall at 5981 were mentioned as potential zones for stabilization or bounce opportunities.

Key Trades and Lessons:

Positive Execution:
- The cycle call setup executed beautifully in the morning, validating predictive cycle analysis and highlighting the importance of monitoring target fulfillment.
- Buyers seizing control mid-morning provided a favorable trade opportunity for those tracking volume triggers.
Lessons Learned:
- Traders were reminded of the necessity to avoid emotional reactions post-FOMC. As David noted, sentiment shifted dramatically, which warranted caution.
- The volatility shake-up was seen as a positive development for future trading days, with potential for improved trade selection.

Closing Insights:

PTGDavid emphasized the importance of not chasing late-day moves, especially in reaction to MOC sell imbalances ($4.1 billion).
The day ended with a significant sentiment shift, evidenced by screenshots showing decliners swamping advancers and substantial weakness in tech-heavy names like TSLA, GOOGLE, NFLX, and AMZN.
The session concluded with optimism for improved volatility and trade setups in the following cycle day.

Overall Reflection:
The day presented challenges with FOMC-driven volatility, but strategic trade setups early on and critical analysis of sentiment shifts provided opportunities for learning and refinement. David’s reminders about discipline and order compliance were timely and insightful for all participants.

DTG Room Preview – December 26, 2024

General Market Overview: Following a strong 62-point rise in the S&P 500 during shortened Christmas Eve trading, the Asian session has maintained gains while European markets have seen light-volume retracement. Today’s trading is expected to remain subdued due to light volume, although recent market volatility leaves room for potential price action.
Key Developments:
- Electric Vehicles (EVs): China is leading the EV market, with sales projected to overtake gasoline-powered vehicles by 2025. A merger between Honda and Nissan is Japan’s bid to compete with China’s BYD, which has outpaced both companies combined in 2024 vehicle sales.
- Cryptocurrency: Bitcoin, up 126% this year, is increasingly mainstream, bolstered by Bitcoin ETFs and its use as an alternative global exchange currency. Russia is leveraging Bitcoin for oil sales to bypass U.S. sanctions.
Economic Data:
- No notable corporate earnings are expected today.
- Key economic releases include Unemployment Claims (8:30 AM ET) and Crude Oil Inventories (11:00 AM ET).
Market Technicals:
- The ES tested the short-term downtrend channel top (6110/07) overnight, which held as resistance. This level remains a key resistance point for the day, with the 50-day MA (6029.50) offering potential support.
Trader Insight: Overnight large trader volume was too light to indicate significant directional bias.

ES – Week over Week

ES broke that 5991 line to indicate a trend change to the downside. A move to 6119 would change that. We need a day for the dust to settle. On the upside, there is 6030 and 6061. Downside looking at 5939 and 5915. Yesterday the U/D volume closed below 10% making it a 9:1 down day. That is a capitulation day but needs to be tested.

This week is all chopped up with starts and stops. Our abbreviated Christmas Eve session hand a nice bull move as Santa rally began. That needs to be validated in today’s full session. As long as we don’t fall through the 6030 level today, the previous day stands. Upside after the open if we rally we see 6113 as top side target. Intermediate support/resistance levels are at 6080 and 6075. Our bearish trend remains until we print prices above 6180.

NQ – Week over Week

NQ will have to lead the resumption of this bounce. Look to his 22,130 and a strong rally over the next couple of days should take us to 22393. If Santa is tired expect to make prints in the 21753 are or even down to 21,610.