One of the best weeks for the markets.

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Our View

The Trump rally has added over $1.8 trillion of market capitalization, who would have thought? The change in the tone of the S&P has gone from a slow grind down to an enormous rally. There is nothing notable to speak of today, consumer sentiment and two fed speakers and the Friday options expiration.

During Thursday’s trading session, the S&P 500 gained 0.7%, setting a new record, while the Nasdaq jumped 1.5% to close above 19,000 for the first time. The Dow remained slightly lower, though all three indexes reached intraday record highs. The Federal Reserve cut interest rates by a quarter point as expected, with Fed Chair Jerome Powell expressing optimism about the economy.

We have strong weekly gains for all major indexes, with the S&P 500 up 4.3%, the Dow nearly 4%, and the Nasdaq advancing 5.6%. Investors are weighing the potential impact of a Republican-controlled government, which is expected to be favorable for deregulation, tax cuts, and M&A activity but could also spark inflation concerns due to higher federal deficits and new tariffs. I don’t think the Fed’s path forward for rate cuts is as certain with uncertainty over growth and inflation risks.

MiM and Daily Recap

The ES overnight Globex session opened at 5963.50, initially finding a bottom at 5951.00 around 7:50 PM. From there, it rallied into the evening, climbing back into a trading range. Through the early morning hours, ES chopped higher, reaching a near-session high of 5977.00 by 8:14 AM. This high then pulled back to 5967.00 at 8:40 AM, setting up a rally that extended through the cash session open, ultimately pushing up to 5988.75—a 29.75-point gain—by 11:00 AM.

The regular session opened at 5977.00, with ES continuing its upward momentum. By 11:56 AM, ES reached a new high of 5999.25, up 29.75 points or 0.5% from the open. After a brief pullback to 5994.00 at 12:04 PM, ES tested a low of 5988.00 by 1:42 PM, then rallied into the Fed FOMC announcement at 2:00 PM. Following initial sideways action post-announcement, the market dipped to the afternoon session low of 5985.50 at 2:42 PM. From there, ES staged a strong rally, reaching the high of the day at 6013.00 by 3:20 PM—a 27.50-point move.

As the session neared its close, the Market-on-Close Imbalance (MIM) showed a $3 billion sell-side imbalance at 3:50 PM, led by significant sell pressure in AMZN, MSFT, CSCO, and AAPL, while NVDA continued to show strength on the buy side. However, this imbalance did not significantly drive market volatility; instead, the focus remained on holding the gap from the Trump Rally and responding to the FOMC update.

In the cash session, ES traded 934K contracts, with total daily volume reaching approximately 1.2 million contracts. The primary drivers of the day’s action were the FOMC statement and key support levels from the Trump Rally, rather than the closing imbalances.

The NQ session opened at 20923.50, reaching a high of 21253.00 and a low of 20861.50. The session closed at 21225.25, with a settle at 21224.75. The gain from open to close was 301.75 points. A total of 455,880 contracts were traded. The gain from open to close was 301.75 points. A total of 455,880 contracts were traded.

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SpotGamma – Founder’s Notes

Today we saw a familiar frothy rally building up into the FOMC rate announcement (+25bp cut), but then there was a shocking lack of reaction after the fact. This quiet continued throughout the press conference, and there was a low-volatility grind up. For many years, we have not seen volatility this low in response to a rate change, but there could still very well be a latent reaction even though the temptation for complacency will be high after seeing a quiet FOMC day (which sounds like an oxymoron). After the announcement, HIRO flows kept inching upward as a grind into progressively new all-time-highs continued and now we are very close to that 6000 SPX Call Wall: SPY +0.76%, QQQ +1.58%, and IWM -0.37%.

What can be seen from the chart above is that the Call Wall is also the Key Gamma Strike. The KGS is the largest put+call combined gamma strike. By sharing this level, it makes it even more of a pinning target. And since it is a Call Wall, without looking we know that it is dominated by [sticky index] call gamma.

Let’s have a look at our Absolute Gamma model to study the nuances here:

A quick glance at this model each morning adds qualitative depth to the key levels, and helps to frame expectations of price behavior. For example, shown above there is a large supply of sticky call gamma in between here and the VT down at 5820.

What we can also see is that functionally there is no Put Wall right now. One will always be elected on a technical basis, but when it is on a tiny strike like that this tells us that there is not a genuine Put Wall and that it was only selected because it has a proportionately low amount of call gamma on that particular strike.

Regardless of all that is going on, the map looks remarkably calm. There is a good lesson here: Despite macro fear, markets will always be responsive to active technicals and feedback loops, and it is the technical reaction which we have the most edge in trading. If prices are squeezing up like they were today, then it is often a good momentum scalp to jump on board (and it was), especially when confirmed with technicals like the steadily bullish activity in HIRO.

From these equity basket flows (S&P Equities), we can see call-dominant bullish momentum flows moving up until the 2:30pm EST press conference started with Chair Powell. This is our strongest-known continuation pattern, although it would have been even stronger if put flows could match the steepness of call flows.

What this means is that calls on stocks were net-bought all day, and that puts on stocks were net-sold for most of the day.

Briefly to address the actual content of the presser today, a reporter asked Chair Powell if he would consider a lower inflation target than 2% to help people catch up, and he said no and that prices will not go down, and also how inflation that low has its own problems. Chair Powell’s explanation was that the only way for them to catch up will be with outperforming wage inflation. Stopping to think about that for a moment, we are only fractionally above their inflation target. This could mean that we might be transitioning into less fear of the Fed in general, which would be a stark contrast to the past few years.

But as an opposing viewpoint, some pundits on Bloomberg today expressed a fear that the Fed might actually increase rates sporadically (on the way down) if fiscal policy became too growth oriented. History shows us not to rule that out, but in general the market seems to be looking for its next anxiety sticking point, which very well could be global macro risk instead of the Fed.

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Trading Room News:

Polaris Trading Group Summary: November 7th.

he trading day on Thursday, November 7, 2024, was a successful and educational session led by PTGDavid, focused on capturing strong upside targets within the cycle framework.

In summary, the day was marked by disciplined adherence to cycle strategy, insightful educational exchanges, and effective execution of both short and long trades. Traders gained valuable experience in managing positions through planned targets, trailing stops, and reacting to key announcements.

DTG Room Preview – November 1st, 2024

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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!