Live Trading System Signals on 12/16/2024

Market Update: Nasdaq Bulls Drive Strong Rally Ahead of FOMC

The Nasdaq bulls displayed renewed confidence as the market surged ahead of today's FOMC meeting. Notably, the rally exhibited a classic trend pattern, with higher highs and higher lows observed on the 60-minute bars from 7 AM to 3 PM EST—a rare occurrence in recent times. This remains one of the most technically contrarian markets we have encountered. By the end of November, more than 100% of the annual gains had occurred during the overnight session. So far in December, market breadth has been weak, with only one trading day showing positive internals. Even within the Nasdaq 100, today’s internals revealed only five more advancing stocks than decliners, while the Volume Difference remained relatively lackluster considering the strength of the rally.

It remains unclear whether today’s rally represents a breakout move with further upside or an exhaustion move likely to reverse. Will technicals align with price, or will price eventually converge with technical signals? Coincidentally, today aligns with the December 16, 2021 high from three years ago for the overnight long strategy that enters at 4 PM and exits at 9:30 AM.

Key Drivers and Sector Divergence

Tesla surged approximately 8% today, nearly doubling since the recent election. A small basket of tech stocks continues to drive extreme divergence between the Nasdaq 100 and the broader market. Additionally, MicroStrategy is joining the Nasdaq 100, further fueling the shift toward growth and AI-focused stocks. This rotation has been marked by a selloff in value and industrial sectors in favor of technology.

While the Nasdaq reached new highs, the Dow Jones Industrial Average closed lower for the eighth consecutive session, aligning more closely with broader market internals. The divergence between indices highlights the underlying weakness in breadth, even amid Nasdaq strength.

Market Pattern: Lack of Continuation and Memory Resets

We continue to observe frequent “memory resets” in the market, where trends—both upward and downward—fail to sustain momentum. In the One Million MNS, our focus was on Nasdaq short strategies targeting rallies, a prominent pattern in this market. These are not “call the top” trades but strategies aligned with current conditions. Friday's sharp reversal, coupled with negative breadth today, set up a familiar scenario: overnight gains (often mean-reverted during 2024’s day sessions) combined with signs of exhaustion. However, today’s session continued to climb, with the Nasdaq rallying steadily into the close.

We also saw a higher VIX, as well a recent rise in longer yields and inflation. We traded some of our best strategies from 2024 along with this information on a trading day that rallied instead offering opportunities to short rallies in the Nasdaq 100. Today looked more like an exhaustion move up before FOMC. It is a move that could reverse at some point this week but FOMC is the wildcard. The One Million MNS was down -0.75% and we were down -$1500 in the 250K Portfolio in live trading as the Nasdaq went straight up. The One Million MNS 99 with all 99 strategies (instead of the focused setup that we described and traded live) had hypothetical results of +0.16%.

The Stock Index Portfolio 18 hypothetical results were +$1,680 per E-mini and +$194 per Micro.

The Top 50 Select hypothetical results were +$3,090.

The 50K Portfolio hypothetical results were +$1,180

There were not a lot of long signals in our stock index strategies on a day like today where we see "stealth" bull market rallies give many mixed signals with the divergences we discussed above. We have seen some larger than average pullbacks on bullish market internals and today we saw a larger than average rally on weak market internals.

Bitcoin had a nice rally today and the new strategies that we have not implemented yet showed some positive signals on the day.

Some additional sentiment data shows that American's have never been more bullish on the stock market. Based on contrarian investing, this is typically bearish, but not a great way to "time" the market. Historically, this survey has shown Americans to be more pessimistic. Currently optimism is at all-time highs.

We are looking at just the 17 E-mini Nasdaq strategies in the One Million MNS 99 minus the 3 SR CounterTrends since they don't trade as much. Here is the Multicharts Portfolio Trader setup.