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Popping the Cork. Happy New Year.
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Our View
According to the Stock Trader’s Almanac, the last trading day of December has seen the Nasdaq decline in 18 of the past 24 occasions. Meanwhile, Thursday’ close and January 2 have shown strength, with the Nasdaq up in 18 of the last 27 occasions. Additionally, the second trading day of the new year—part of the “Santa Rally”—has seen the Dow rise in 21 of the last 31 occasions.
Our Lean
It doesn’t seem to matter how short the market is; I think as volume drops, we could see a pop. Traders working on those rebalancing orders could drive movement. The strategy is to buy early pullbacks using tight stops and sell into 30- to 60-point rallies.
MiM and Daily Recap
The ES opened its Globex session with a quick high of 6036.25, which ended up being the high of the day. It traded sideways and moved lower overnight but began a large-scale selloff around 7:00 AM from the 6012 level, dropping to a pre-market low of 5945.25 at 8:56 AM. After some profit-taking, the regular session opened at 5955.25 and continued to sell off, hitting the day’s low at 5918.25 at 10:24 AM.
From here, the ES found some buyers and made a quick 30-point move upwards, reaching 5948.50 by 10:45 AM. However, a four-minute sell program quickly drove it back down to 5926.25, marking a significant higher low. This set the stage for a steady rally over the next two hours, with the ES printing 5990.25 at 12:49 PM. Sellers re-entered, pushing it down to 5971.50 in about a ten-minute pullback, essentially setting the afternoon range, with somewhat of a sell-side bias over the next three hours.
Coming into the 3:50 PM MIM Imbalance release, the ES traded at 5978.75. Despite a flat MIM, sellers returned with force. By the 3:55 PM update, the imbalance had grown to approximately $1.6 billion to sell, driving the ES down to settle at 5958.75 on the cash close. A little more post-market selling printed back to the 5950 strike before drifting sideways. The ES ultimately closed at 5954.25, down 75 points on the day (-1.24%).
The NQ also declined, closing at 21,388.25, down 331.50 points (-1.53%). Volume for the ES was about average, with 1.49 million contracts traded, while the NQ saw 516,000 contracts change hands.
Technical Edge
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Fair Values for December 31, 2024
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SP: 50.27
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NQ:203.71
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Dow: 308.95
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Daily Breadth Data 📊
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NYSE Breadth: 24.5% Upside Volume
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Nasdaq Breadth: 54.2% Upside Volume
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Total Breadth: 51.7% Upside Volume
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NYSE Advance/Decline: 35.3% Advance
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Nasdaq Advance/Decline: 36.7% Advance
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Total Advance/Decline: 36.1% Advance
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NYSE New Highs/New Lows: 24 / 164
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Nasdaq New Highs/New Lows: 106 / 171
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NYSE TRIN: 1.39
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Nasdaq TRIN: 0.45
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Weekly Breadth Data 📈
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NYSE Breadth: 53.6% Upside Volume
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Nasdaq Breadth: 65.1% Upside Volume
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Total Breadth: 61.6% Upside Volume
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NYSE Advance/Decline: 50.1% Advance
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Nasdaq Advance/Decline: 56.4% Advance
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Total Advance/Decline: 53.9% Advance
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NYSE New Highs/New Lows: 73 / 236
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Nasdaq New Highs/New Lows: 205 / 302
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Room Summaries
Polaris Trading Group Summary – Monday, December 30, 2024
Morning Session:
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The session opened with a focus on technical preparation. PTGDavid highlighted that both the S&P 500 (@ES) and Nasdaq (@NQ) were at statistical extreme zones, suggesting potential market volatility.
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Participants engaged in technical setup discussions, including AR settings (4-7-10 configuration) and POC shift concepts, promoting alignment on strategies.
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Initial trading strategies were cautious. David identified a sandbox range (5920–5940) and advised probing the long side on dips. This approach yielded success as the “a10 on dips” strategy played out effectively.
Midday Session:
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Price action saw a return to VWAP and OPR Mid levels, which were expected to provide resistance but did not hinder buyers’ progress.
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David maintained a focus on the long side, aligning with the prevailing market trend. By mid-session, the gap fill with price tagging the prior low was accomplished, and the Sector AD Line turned positive, indicating a strong market recovery.
Afternoon Session:
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A potential PKB Short setup against the prior high was identified, demonstrating flexibility in strategy as conditions evolved.
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The session concluded with a MOC (Market-on-Close) sell imbalance of $1 billion. This was attributed to a rare failed 3-day cycle, historically observed only 7% of the time. David noted that the previous instance of such a failure led to a significant “224% Super Cycle,” raising speculative potential for the upcoming trading days.
Key Takeaways and Lessons Learned:
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Statistical Extremes as Key Zones: The day’s trading emphasized the importance of statistical extremes in framing the initial strategy, with successful dip buys reinforcing this concept.
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Adaptability to Market Trends: The shift from resistance expectation at VWAP to a continued long bias highlighted the importance of staying flexible and responsive to real-time developments.
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Cycle Observations and Historical Context: David’s analysis of the failed 3-day cycle provided historical insights, reminding traders of the potential for large moves in unique market conditions.
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Team Collaboration: Active discussions on technical setups and shared insights enhanced collective learning and execution.
Overall, the session reflected disciplined trading with a focus on key technical zones, historical probabilities, and a strong recovery narrative.
Discovery Trading Group Room Preview – December 31, 2024
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Key Updates:
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Holiday Closures:
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Markets will close tomorrow for New Year’s Day (Jan. 1) and again on Thursday, Jan. 9, for a day of mourning for former President Carter.
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Retail Investor Trends:
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Nvidia (NVDA) leads retail inflows in 2024, with over $30 billion, far surpassing SPY ($15.3B) and TSLA ($14.7B). Despite challenges with AI chip migration and China export bans, NVDA is up 180% this year.
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Fannie Mae and Freddie Mac:
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Shares surged 18% on speculation from Bill Ackman that these companies might exit conservatorship within two years, potentially privatizing. Both companies were originally placed under federal control during the 2008 crisis.
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Cybersecurity Breach:
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The US Treasury Department reported a “major cybersecurity incident” linked to a state-sponsored Chinese actor via BeyondTrust Inc., a third-party vendor. China denies these allegations.
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Market Dynamics:
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Economic Calendar:
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S&P/CS Composite-HPI y/y and HPI m/m data to release at 9:00 AM ET.
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Volatility:
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Dropped Monday but remains elevated for holiday trading.
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Trading Volume:
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Overnight large trader volume was light, offering no clear whale bias.
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Technical Levels – ES Futures:
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Support: 5922/25, 5837/34.
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Resistance: 6087/84, 6420/25.
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Outlook: Short-term bullish bounce near the intermediate-term uptrend channel bottom. The 50-day moving average (6031.25) serves as loose resistance.
This summary provides a snapshot of market developments and key trading levels for the day.
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ES – Week over Week
ES needs to get up and over 5977 and stay there for the bulls to succeed today. Above that area is the 6024 region which has the next 24 points or so above that as a wall of resistance. On the downside, the bears will want to push below 5962 which would bring 5912 into play.
NQ – Week over Week
Bears owned yesterday’s push and closed below 21,445. We are looking to open above that level and the bulls need to stay above that. On the way up, the bulls need to overtake 21512 and head up to 21730 today.
Economic Calendar
Important Recent and Upcoming Events
Earnings Today:
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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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