Why Did the S&P Rally So Much?

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I have a saying about the ES and its current price action: up a day, down a day during expiration week—and guess what? I’ve been counter to those days! I always say that when the ES closes weak, it tends to rally on Globex, but I didn’t mention that this time.

With fewer Trump tariff threats/headlines, the markets are trying to breathe—but for how long? After opening higher, both the ES and NQ pulled back but quickly recovered their lost ground and kept moving higher. TSLA was up almost $10.00, NVDA was up over $2.50, MSFT was up almost $5.00, and AAPL was up over $6.00 before it sold off but it remained positive on the day.

After hitting the highs, the ES sold off down to the 5685 level, and the NQ dropped to the 19,780 area before blasting higher as the Fed headlines hit the tape:

What does this mean?

At 2:30 PM, when Powell started speaking, the ES blasted off again despite a lack of clarity, rallying all the way up to 5770.50, up 1.7%, while the NQ gained almost 2%.

The main question: Why did the ES and NQ rally so much? Powell didn’t say anything particularly bullish—in fact, it was the opposite and he lowered the Fed’s growth forecast for the year. Yes, the Fed said two rate cuts for this year, but their batting average has not been very good. Some argue that the Fed wasn’t as hawkish as many investors feared, which added fuel to the upside. But I think it came down to two key factors:

Additionally, ES volumes were exceptionally low once you stripped out the spreads.

After almost three and a half weeks of selling and the ES breaching the down 10% level on the year, the buyers have shown up. I should have known when I posted the 10% and 20% drops and saw how rare they have been. Yes, there were some good selling opportunities along the way, but the ES was up 100 points.

One of the things that I think makes me different is that I admit when I’m wrong—and I’ve been on the opposite side of the up-a-day, down-a-day pattern during expiration week. I’ve been making money trading, but I’m not happy with my lean over the last few days.

Our lean is back to the basics: the ES tends to trade sideways to lower after a big up day. I know this goes against the recent price action, but the ES and NQ chopped a lot of wood yesterday and needs a rest before Friday’s Quad Witching and the $6 trillion in expiring options. I’ll leave it at that!

MiM and Daily Recap

The session opened with ES futures at 5687.75, showing a positive start compared to the previous close of 5670.50. Early strength pushed the market to a morning high of 5713.75 by 10:09 AM, reflecting a 36.25-point gain (+0.64%). However, this initial momentum faltered, leading to a pullback to 5692.75 at 10:54 AM, erasing 21 points (-0.37%).

The market then rebounded, reaching a new high of 5723.25 at 11:54 AM, adding another 30.50 points (+0.54%) from the prior low. A midday decline ensued, bringing ES to 5688.50 by 1:30 PM, representing a 34.75-point loss (-0.61%) from the session high. Shortly after, another lower low was established at 5682.00 by 2:00 PM, shedding an additional 20.25 points (-0.36%). This coincided with the FOMC interest rate decision, which initially triggered downward pressure before buyers stepped in.

Following the announcement, volatility increased, and ES rallied sharply to a fresh session high of 5770.50 at 3:09 PM, marking an 88.50-point increase (+1.56%) from the 2:00 PM low. This strong upward move was followed by a pullback to 5726.00 by 3:27 PM, a drop of 44.50 points (-0.77%). The market made a final attempt higher, reaching 5754.25 at 3:45 PM before closing at 5730.75, up 43 points (+0.76%) from the regular session open and 58.75 points (+1.04%) from the prior session close.

The overall sentiment was bullish, driven by post-FOMC buying, with the regular session volume reaching 1,117,182 contracts. However, late-session profit-taking tempered gains. The Market-on-Close (MOC) imbalance data showed a significant -$1.338 billion sell-side imbalance, with 61.1% of the dollar volume on the sell side and 52.1% of the symbol imbalance favoring selling pressure. This resulted in some weakness into the closing minutes, as evident from the dip into the 5730s.

Despite the late pullback, the market closed strong relative to the day’s lows, with a net positive gain from the prior session. The next session’s focus will be on whether the post-FOMC momentum continues or if sellers reassert control following the MOC-driven sell imbalance.

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Dan @ GTC Traders

The Worst Federal Reserve Chairman

Arthur Burns, who served as Federal Reserve Chairman from 1970 to 1978, is often cited as one of the worst in the role—not because he lacked intellect or experience, but because he failed at the most fundamental responsibility of a central banker: controlling inflation. His tenure is a textbook example of what happens when policy bends to political pressure instead of economic reality.

Burns, despite being a respected economist, allowed monetary policy to become erratic and inconsistent. Faced with rising inflation in the 1970s, he hesitated to raise interest rates aggressively, fearing the political backlash from then-President Richard Nixon. Instead, he pursued a path of loose monetary policy, believing that inflation could be controlled through wage and price controls rather than tightening liquidity. The result? Inflation surged into double digits, eroding purchasing power and leading to one of the most painful economic periods in modern U.S. history—culminating in the stagflation of the late 1970s.

His failure wasn’t just in action but in philosophy. Burns dismissed the idea that inflation was purely a monetary phenomenon, opting instead for ad-hoc solutions that failed to address the underlying issue. By the time Paul Volcker took over in 1979, inflation was out of control, requiring extreme measures—sky-high interest rates and a brutal recession—to undo the damage.

Burns’ legacy serves as a warning: a Federal Reserve that lacks independence and resolve can do more harm than good. Markets, economies, and history are unforgiving to those who mismanage the levers of monetary policy.

Jerome Powell: A Modern-Day Arthur Burns?

The Federal Reserve’s mandate is clear—price stability and full employment. And yet, despite inflation remaining stubbornly high since 2021, Jerome Powell’s Fed has pivoted toward rate cuts rather than maintaining the fight against rising prices. Since August 2024, the central bank has not only begun easing policy but has signaled further rate reductions, all while inflation remains well above target. This raises the question: is Powell repeating the same mistakes that made Arthur Burns one of the most infamous Fed Chairs in history?

Burns, under political pressure, failed to take the necessary steps to curb inflation in the 1970s, leading to stagflation and an economic crisis that only Paul Volcker’s extreme tightening could correct. Now, Powell faces different pressures—rising government debt and political scrutiny—but risks making the same miscalculation. Despite strong GDP growth and persistent inflationary signals, the Fed appears more focused on market reactions than long-term economic stability.

If inflation re-accelerates while rates are being cut, Powell may not be remembered as the leader who tamed inflation, but as the one who let it spiral further out of control.

Everyone praises Paul Volcker for his decisiveness in finally bringing an end to the Inflation of the 1970’s by firm, bold action after the famous 1981 plane trip, raising interest rates and intentionally causing a recession.

It seems everyone loves to praise Paul Volcker. Until it’s time to actually do Paul Volcker like things.

Until next time, stay safe and trade well …

Trading Room News:

Polaris Trading Group Summary: Wednesday, March 19, 2025

Morning Session: Cautious Start with Bullish Lean

Midday: Sideways Action Before the Fed Decision

FOMC Release & Powell’s Press Conference

Afternoon Session: Target Fulfilled & Reversal

Key Takeaways & Lessons Learned

Overall, a solid day of disciplined trading with key lessons on market reactions to Fed events and target-based trading strategies. See you back in the AM! 🚀

DTG Room Preview – Thursday, March 20, 2025

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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!