Daily Plan 12/14/22
Folks-
An explosive session today where all of my longer term calls made in October-November in the S&P500 came to fruition today with 4150 level trading finally. On a longer term swing basis, I had been bullish in context of this counter trend rally from the 3500s and I reiterated this bias even on dips into 3900 earlier this week and the past weekly plans. Today’s action completes that call.
On the daily time frame basis for today, before the CPI I had expected we will dip into 3960 within the cash session, when the Emini was trading near 4020. This did not happen as the CPI came in lower than expected as called in my weekly plan and we rallied into 4100+ immediately even before the cash session could ring the bell!
We have at time of this post now traded all my longer term levels in the Spooz. I did not have any levels above 4200 in last 2 months or so of this counter trend rally.
This session at the open will predictably lead to a bit of FOMO and a bit more of short covering and short squeeze- leading us to the FOMC tomorrow.
From an admin note- the daily plans are geared more for the intraday auctions. The weekly plans are more suited for longer term swings from weeks to months. This is important because I do not have a lot of runway to talk about longer term trends in daily every one of these daily plans - so the levels are in context of the intraday sessions, unless specified otherwise.
I had drafted parts of this newsletter earlier in the AM and once we traded 4150 on the Emini , I sent out a Substack chat note that I expected this to be the resistance for the day session. This was an unforgiving session for any one who was bullish at the opening bell off the back of that weaker than expected CPI. We sold down more than 100 dollars off this level and closed the session near 4020. I finally managed to update my levels for the ES and NQ for March contract and will be using those going forward. The weekly levels which are based on December could be a little off due to timing of that publication but if any one is still using them, they can be updated by simply adding about 30 points to those (Rollover pains!) .
Levels for tomorrow
The FOMC minutes will be released at 1 PM CST followed by the conference half and hour later. My weekly plan had called for the CPI to come in lower than expected and I am anticipating that Powell will stick to a 50 BPS rate hike. This 50 BPS is widely held consensus view.
When I look at the CPI today and unless the rate hike is 75 BPS tomorrow, I really do not see any surprise either in the CPI today nor the 50 BPS rate hike tomorrow. So I think for me personally the “surprise” factor tomorrow will be either of the 2 below:
A 75 BPS rate hike
Or something in the statement or the conference that indicates going higher than a 5-5.25% neutral rate.
While the CPI has come down in this month’s report, the 7.1 % CPI still remains extremely high given historical averages. If the market senses the FED rates are going to remain at 5-5.25%, I would think this will be seen as dovish by this market atleast impulsively. There are other considerations about what an even 5% rate does to the economy over a period of time which was covered by me in the weekly plan, however, let us say that could take a backseat for now while the market digests the CPI and the FOMC tomorrow. I personally also think that we are nearing a low in the CPI here and we could soon see an uptick again - and a 50 BPS tomorrow does little if anything to make a dent in it!
My key level for tomorrow will be 3990.
Scenario 1: A close below 3990 tomorrow will be my signal that we may have seen the highs of this counter trend rally today. Until I see such a close , I think 3960, if tested could support the market for a move back into 4100-4110.
Scenario 2: I do think if we rally back into 4150-4160 off the backs of a perceived dovish FED, that level I think could prove resistance.
We traded near 4060 at time of this post. Updates and extra levels may be shared in the Chat room below.
Longer term thoughts and levels will be shared in my weekly plan over the weekend. So if you have not already, consider subscribing below for more.
To summarize, I think a 50 BPS hike tomorrow along with no mention of a higher than 5.25% terminal rate could be perceived as dovish in the short term. The FED will need to come in with verbiage to the effect that they could go higher, much higher than the current projections of the terminal rate if needed , for longer than currently forecasted. A growing belief is that the FED will cut rates next year; this needs to be quashed tomorrow by this FED. If not, this in my view will be a dovish FOMC.
This is it from me for now. I have been on the road but I try and send out at least some thoughts out for the folks every day. I do need to still catch up with some of the replies earlier and I will try to get all caught up in a day or so.
Be nimble, trade well!
~ Tic
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