See-Saw. Up and Down

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Our View

We didn’t get a “Turnaround Tuesday,” but we did get the hump day rally I was looking for. As I’ve said before, some patterns are so simple it’s almost ridiculous. So far, the ES has been up one day and down the next this week. I can’t be certain, but I believe smart money bought into yesterday’s weakness, and today the positive weekly stats took over.

MiM and Daily Recap

The ES traded down to 5859.25 and up to 5869.00 during Globex, opening Wednesday’s regular session at 5861.75. After the open, the ES traded at 5865.00 and then dropped 12.75 points to 5853.25 at 9:46 AM. It rallied 22.5 points to 58

75.5 at 10:26 AM, then dropped 17 points to 5858.50 at 10:44 AM. A subsequent rally took the ES up 22.5 points to 5875.50 at 10:27 AM, followed by a sell-off to a higher low at 5858.50 at 10:45 AM. It rallied again by 14.5 points to 5873.00, pulled back to another higher low at 5864.25, and then rallied 16.25 points to 5880.50 at 1:03 PM.

After the pop, the ES pulled back 7.5 points to 5885.25 at 3:03 PM, then traded up to 5890.75 at 3:12 PM. It sold off to 5886.00 at 3:24 PM before rallying again to 5889.50 at 3:45 PM. The ES traded at 5888.00 as the 3:50 PM cash imbalance showed $1.5 billion to buy, briefly trading at 5888.75, then sold off to 5884.50 and traded 5886.00 on the 4:00 PM cash close. After 4:00 PM, the ES traded at 5883.75, rallied to 5887.00 at 4:39 PM, sold off to 5882.75, and settled at 5883.75, up 23 points or +0.39%. The NQ settled at 20328.00, down 5.25 points or -0.03% on the day.

In the end, it’s a case of up one day, down the next during expiration week. The overall tone of the ES was to buy ES, YM, and RTY while selling NQ. The volume was the lowest in a month, with 888k contracts traded for the full session.

How to read the MIM

Technical Edge

Fair Values for Oct-17-2024 are as follows, SP: 44.27 NQ: 169.39 Dow: 262.84

Daily Market Recap 📊

Weekly Market Recap 📈

Guest Posts:

Dan @ GTC Traders

The Era of Reckoning for Cheap Money
Moral Hazard – Part One

It is October 17th, 2024.
It has been 16 years since the Great Financial Crisis of 2008. Lehman Brothers collapsed on September 15th, 2008. By October of that same year, the market was in total free fall.

Sixteen years ago. It may seem strange to us market veterans who traded through that event that it has actually been that long. But it has.
It is almost impossible to describe, for those who did not trade through 2008, the sheer terror that gripped the financial world. It was not a matter of ‘the bulls losing and the bears winning.’ Due to the over-leverage of almost all financial institutions around the planet, even those with short positions against risk markets were not sure that their clearinghouses would be able to function as effective intermediaries. Thus, no one was sure their counter-party actually had funds to execute any trade to their profitable short positions.
In other words, it doesn’t really matter if I win the poker game if none of the other players actually have the cash to pay me what the chips are worth.

To save the global economy, in a rare move, both fiscal and monetary policymakers cooperated by enacting incredible measures. Quite frankly, to save all finance on this planet.
To this day, I do not think the average individual knows just how close we came to a complete and utter collapse—of everything. Policymakers’ gamble paid off, and financial markets recovered.
But the measures enacted came with a very heavy cost.

The persistence of ultra-loose monetary policy—particularly the Federal Reserve’s decision to keep interest rates near zero for years—has, in the eyes of many, created a significant moral hazard. By maintaining artificially low rates long after the initial recovery, it allowed cheap money to flood the financial system, encouraging excessive risk-taking and fueling speculative bubbles across asset classes. This meant that speculative gambles by both investors and institutions were incentivized, creating ‘micro-distortions’ due to economic policy. Meanwhile, retail investors were drawn into increasingly risky assets in search of yield, believing that central banks would always step in to support the markets—a dangerous assumption that echoed the complacency seen before the 2008 crisis.

The PIIGS (Portugal, Italy, Ireland, Greece, and Spain) Debt Crisis of 2010 impelled central banks to remain in a state of alert, and the easy monetary policy continued.
It is the length of time that interest rates were kept near zero that was the real problem. Many argued that the Federal Reserve’s prolonged delay in normalizing rates fostered a reliance on easy credit, distorting market signals and inflating asset prices far beyond their intrinsic value. The warning signs were there—housing prices soared, unprofitable companies were propped up by cheap loans, and tech stocks hit unprecedented valuations. Yet, each time a market correction loomed, policymakers hesitated, fearing the withdrawal of liquidity would trigger widespread panic. This reluctance to act decisively not only postponed necessary market corrections but also entrenched a belief that risk was an illusion, undermining the basic principles of market discipline.

Many warned that this reliance would create a moral hazard of over-reliance on the Fed. By 2013, it was clear that extraordinary measures were no longer necessary. And yet, the Zero-Interest Policy remained.

We would argue that since 16 years have passed since 2008, the easy monetary policy from 2008 to 2016 has created an entire culture among financial news anchors, pundits, and even traders who have standardized their deviations and come to believe that an easy, zero-interest rate policy should be the norm.
When the 2020 COVID outbreak occurred, the Fed did not take rates down 25 basis points, or 50 basis points, or even 100 basis points. In a move that is almost universally agreed to be a policy mistake, they immediately lowered the interest rate to 0 and kept it there for two years, despite the fact that we and others were warning at the time that inflation was not transitory—that it would be the worst inflation outbreak since 1977.

Now, as we said before, the real problem with all of the above was the delay in raising rates to normal levels once again—the length of time that ZIRP remained.
I have met traders that have been trading for 14 years. That sounds like a long time. But that means they were not trading before the Financial Crisis of 2008, and for the majority of their career, they have known low to zero interest rates.

We believe that the aforementioned moral hazard, which many—including ourselves—warned of, has now led us into an era where the effects of that moral hazard are being felt more profoundly.

We will discuss this in the coming weeks.
But until that time, stay safe and trade well.

PTG Trading Room Summary – October 16, 2024

The session started with PTGDavid sharing essential resources, including the Sierra Chart Zoom Room link, Daily Trade Strategy, and the Daily Range Calculator. The opening market conditions reflected ongoing selling pressure, with members discussing market dynamics, potential price targets, and key support/resistance levels, especially in the 5850 to 5880 zones.

As the day progressed, sentiment shifted towards a bullish outlook. PTGDavid emphasized the need for the price to sustain above certain levels to effectively aim for higher targets. By session end, market internals were supportive, indicating an underlying bid and potential for a relief rally. The discussions focused on reclaiming critical price points and the influence of leading sectors like Financials and Materials.

DTG Room Preview – October 17, 2024

Economic Calendar

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!