by Danny Riley

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Watching Market’s Reaction to NFP

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Our View

I was concerned that the ES had gone too far too fast. When I spoke to the PitBull he said I was right and that he’s not buying stocks right now and took profits on his Bitcoin position with a hefty profit and made a small profit on this gold position. As we talked, we both agreed that the risk of a large event as Trump takes office is a real possibility and he went on to say with the market up so much it would not take much to send the index markets south. No one knows what the ES will do next, but it surely seems like some downsides can’t be ruled out. While I follow the Stock Traders Almanac I already knew from my own trading that December has its downs.

Our Lean

I’m not saying the rally is over, and I’m not saying I’m not bullish. What I am saying is that the ES and NQ have covered a lot of ground over the last two-plus months.

As for the jobs numbers, I think a sharply higher open could be a selling opportunity. There are two sides to the Fed: the pump and the dump. We’ve already seen the pump, so what’s wrong with a little dump?

Remember, the bullish stats for December come later in the month. I’ve learned this the hard way.

MiM and Daily Recap

The ES traded in a tight 6.25-point range going into yesterday’s regular session, opening at 6098.50. A quick new high and false breakout at 6102.75 at 10:00 AM led to this week’s usual pattern of selling down to about the 10:38 AM mark at 6090.25, again proving to be the early morning low.

A higher low at 11:02 AM was followed by a nice upside move back to a new all-time high of 6107.25 at 12:50 PM, which marked the day’s high. Just 15 minutes later, a lower high was made, and a sell program drove the market straight back down to the low of the range at 6091 by 1:22 PM. This proved to be the start of a narrowing downward range heading into the 3:50 PM MiM, which initially showed $644 million to buy but flipped just before the update to $2.01 billion to sell. This shift forced the ES into new session lows.

Continued selling after the cash close pushed the ES down to 6081.50 before some short-covering brought it back up to settle at 6086.75, down 9.75 points or -0.16%. The NQ settled at 21,453.25, down 63.75 points or -0.3%. It was another tight-range day ahead of today’s NFP numbers.

In the end, the ES and NQ finally posted lower closes. Someone on Twitter asked me what I thought of the ES trading above 6100, and I responded that it acted tired. Not long after, it sold off.

In terms of the ES’s overall tone, it felt overextended and was up against the 6106 resistance level. Regarding trade volume, it remained on the low side, with 1.052 million contracts traded on the ES and 414,000 on the NQ.

Fed funds futures are now showing a 70% chance of a quarter-point cut this month. The yield on the 10-year note ended unchanged from Wednesday at 4.18%. Gold closed down .71%, and Bitcoin traded above $100,000, settling at $99,137.34.

How to read the MIM

Technical Edge

Fair Values for December 6, 2024

SP: 11.92
NQ: 44.61
Dow: 84.21

Daily Breadth Data 📊

NYSE Breadth: 45% Upside Volume
Nasdaq Breadth: 50% Upside Volume
Total Breadth: 48% Upside Volume
NYSE Advance/Decline: 41% Advance
Nasdaq Advance/Decline: 34% Advance
Total Advance/Decline: 36% Advance
NYSE New Highs/New Lows: 151 / 29
Nasdaq New Highs/New Lows: 263 / 140
NYSE TRIN: 0.75
Nasdaq TRIN: 0.52

Weekly Breadth Data 📈

NYSE Breadth: 56% Upside Volume
Nasdaq Breadth: 62% Upside Volume
Total Breadth: 60% Upside Volume
NYSE Advance/Decline: 68% Advance
Nasdaq Advance/Decline: 66% Advance
Total Advance/Decline: 67% Advance
NYSE New Highs/New Lows: 582 / 68
Nasdaq New Highs/New Lows: 753 / 206
NYSE TRIN: 0.88
Nasdaq TRIN: 0.75

Guest Posts:

SpotGamma – Founder’s Notes

What’s Happening in the Market

Founder’s Note:

What’s Happening in the Market

The indices drifted down slightly today, staying within the narrow percentage expectations of what is now an extremely positive market gamma (SG Gamma Index™ = 3.666).

Despite closing in the red, and before bullish option flows were sharply exhausted at 1pm EST today, coordinated bullish flows from the opening drive temporarily established new all-time highs at 6094.55 SPX and NDX 21517.488.

Before pivoting back down, this brought SPX within only 5 points of its new Call Wall at 6100 that it has been drifting toward for several days as the one key level most in play: SPY -0.16%, QQQ -0.28%, and IWM -1.17.

As a tactical update to the static models (based on the outcome of our live gamma map at the close today), the risk inflection point has moved up from 6000 to 6050. Why this matters is that there is a reasonable chance that SPX would rapidly fall over 100 points down to 5915 if 6050 breaks:

Ever on the hunt for new patterns, we are seeing renewed value in Mag7, given that it has QQQ as its underlying and also stands to compare very well directly to QQQ flows as a directional leader in itself.

Starting with Mag7, we can see that put flows were early, bearish, and persistent. It was not until about 1:20pm EST that we knew put flows were directionally correct here, as prices dipped back enough to give away the morning gains and then some. From here, however, put flows still continued to be bearish.

This spelled for bearish momentum flows as shown by the shaded region below where call flows joined in to be bearish directionally.

Shifting to QQQ flows for contrast, there is also that sharp V reversal at about 1pm, but the difference is that QQQ had bullish momentum flows helping with the morning’s opening drive. This created room for an even sharper bearish put flow reversal to end those bullish momentum flows.

Great time to Join the SpotGamma team and get on the right side of flow for 2024

Check out SpotGamma’s Products

Trading Room News:

Polaris Trading Group Summary: Wednesday, December 5, 2024

Overview:
Today’s session in the Polaris Trading Group room was characterized by measured patience, light volatility, and minimal opportunities for sustained momentum trading. Key takeaways included strategic alignment with the “Line in the Sand,” the importance of waiting for clean setups, and lessons on adapting to an algorithm-driven trading environment.

Morning Highlights:

Market Setup:
- PTGDavid set the “Line in the Sand” at 6100, defining the key scenarios:
  - Bullish: Sustaining above 6100 targets 6112-6118.
  - Bearish: Dropping below 6100 targets 6087-6080.
- Early focus on maintaining a two-way trading range, with little directional clarity.
Actionable Trades:
- PTGDavid took an A4 long setup, though the focus remained on maintaining discipline amidst scratch trades like the @CL OPR short.
- Calvin successfully exited a trade “around 97ish,” earning acknowledgment for precise timing despite operating on little sleep.
Key Lessons Shared:
- Barbara Lopez cited John Carpenter’s advice on the value of patience in trading.
- Discussion about timing reversals around 10:45 AM, correlating with European market closures.

Midday Developments:

Market Dynamics:
- Successful test of the overnight low (6090) confirmed the trading range.
- A “Peekaboo setup” (looking above prior highs and reversing) was observed and visually illustrated by PTGDavid.
Cycle Trend Insights:
- By early afternoon, the cycle trend shifted higher following the morning consolidation phase. PTGDavid noted a 100% ROI achieved on a “3-Day Cycle Call (608)” strategy, allowing position reductions.
Adaptation & Strategy:
- Veteran traders discussed adapting from traditional floor trading to algorithm-driven markets, emphasizing smaller position sizing and disciplined patience.

Afternoon Session:

Sidelined Approach:
- PTGDavid largely refrained from aggressive trades, citing a lack of “clean edge” opportunities. The session was described as a balancing/consolidation day (Cycle Day 2), likely building energy for a larger move.
Closing Observations:
- The session ended on a bearish note, with the bulls losing steam. The MOC (Market on Close) shifted from a $700M buy early on to a $1B sell into the final bell.
- PTGDavid reminded the room of the maxim: “Consolidation leads to expansion, so be prepared!”

Positive Outcomes & Lessons Learned:

Trade Management: Recognition of the value of small gains or scratch trades on low-volatility days.
Patience Pays: Traders reinforced the importance of waiting for ideal setups, even in a slow market.
Knowledge Sharing: Real-time strategy insights, such as the “Peekaboo setup” and managing trades around European market closures, added depth to the day’s learning.
Community Support: Calvin and others were commended for thoughtful exits and positive contributions, enhancing group morale.

Closing Thoughts:
Despite an uneventful session, the room remained constructive and educational, setting the stage for potential volatility in subsequent sessions. As PTGDavid noted, consolidation often precedes expansion—traders were reminded to stay vigilant and prepared.

DTG Room Preview – December 6, 2024

Morning Market Summary
1. Economic Focus:
  - Federal Reserve Chair Jerome Powell highlighted labor market downside risks at the NY Times DealBook Summit. Today’s Jobs Report at 8:30 AM ET is key to confirming or challenging December rate cut expectations.
  - Additional key data points include UoM Consumer Sentiment & Inflation Expectations (10:00 AM ET) and Consumer Credit (3:00 PM ET).
2. Market Performance:
  - Major indexes closed lower on Thursday: Dow Jones (-0.5%), S&P 500 (-0.2%), Nasdaq 100 (-0.2%).
3. Political and Leadership Context:
  - President-elect Donald Trump’s nominations include a high-net-worth collective of CEOs and billionaires, with a combined net worth of $359 billion. Additional prominent appointees bring varied expertise, hinting at a corporate-style governance approach.
4. Trading and Market Trends:
  - Volatility continues to drop with stocks near all-time highs, but the Jobs Report could inject some movement into the market today.
  - ES futures show resistance near intermediate uptrend channel tops (6113/16s, 6133/36s), with potential support levels identified (6000/05s, 5873/78s).
5. Notable Observations:
  - Overnight large trader volume was light, indicating no clear directional bias from whales.
  - Multiple Fed speakers scheduled today (Bowman, Goolsbee, Hammack, Daly), providing additional insight into economic conditions and policy perspectives.
Stay alert to potential market reactions following the Jobs Report and related economic updates.

ES – Week over Week

Shocking negative day. Wait for the NFP numbers, if too hot the market could get into a negative vibe. Right now the bulls are pleased with the hold and interested in getting above that 6100 level. Anything above 6092 is bullish, support on the downside is at 6062 and then 6053

NQ – Week over Week