Daily Market Review Dec 18, 2024 ( Hawkish hike and new SEP projection, Market getting smoked, breadth plunge across the aboard)
Market Meltdown Amid Lesser Rate Hikes
The Fed’s latest SEP forecast brought higher inflation and fewer rate hikes, with some board members even factoring in the uncertainty stemming from the incoming administration’s policy expectations— tariffs, deportation, reduced immigration, fiscal stimulus, and more. As a result, the market got absolutely smoked, and near-term optimism was utterly annihilated.
The market's response was nothing short of panicky, primarily due to:
1. The market expected a 3 rate cut and only got 2 from the Fed for 2025.
2. Liquidity has thinned out recently, as many participants are either on holiday or in a holiday "chillax" mode.
To re-examine the scenarios proposed in the previous blog entry, it’s safe to rule out Scenario 1, and we now need to focus on Scenario 2 and 3 to evaluate our near-term action plan:
Scenario 1 : Nasdaq consolidate while the rest of the market will catch up ( rotation trade )
Scenario 2 : Nasdaq fall along with other sectors ( how long and how deep is the current market fall ? )
Scenario 3 : Entire market retrace post Fed meeting or post Op-EX, suffer a few days of swoon before recovering on Boxing day (26 Dec )
A critique of my recent complacency and chillax approach
The signs of frothiness and recent bubble deflation have been evident for quite a while, yet I didn’t act defensively enough. Here’s a critique of my recent complacency and chillax approach:
I've been lazing around and chillaxing too much after work since early December. Things I could have done better:
· Although I reduced my stake gradually over the past 3-7 days, I didn’t do enough defensively to protect my gains.
· If I’m too busy or tired, I should write down important levels for a risk-on, risk-off approach and mentally commit to it. If time allows, mark them on the charting platform, walk through, and refine the risk-on, risk-off approach further.
Solace amidst the Chaos
Despite the chaos, there are areas I did well heading into this week:
· I've been working on behavioral restraint, which will be especially important heading into next year.
· I planned to buy into some exciting small-cap and mega-cap names but stuck to my Joy of Missing Out (JOMO) approach instead of succumbing to Fear of Missing Out (FOMO) for the past 7 days (e.g., Broadcom, Upstart, IWO). Upstart and Broadcom were down more than 10% and 7%, respectively, by market close, as growth expectations were dampened by higher-than-expected interest rates going forward (part of market reflexes).
Overall, I've been too complacent and need to tighten my game further, especially heading into next year. 2025 will be quite the crunch time for the market and won’t be as forgiving as the past two years. Conversely, if the market turns out better than expected, I need to be well-positioned to capture all the upside as well.
Now, let’s dive into the market review section.
Broad market overview
The malaise of the common market/army has finally spread to the leading mega-cap/General. There’s no escape hatch for anyone today; everything was dumped in response to the lesser rate cut expectation. Things are excruciatingly dreadful, you have to go down to the volume bar to find the bottom of the red bearish candle bar.
S&P 500 11 sectors overview
Under the hood, every sector was walloped, but defensive sectors like Utilities, Healthcare, and Staples weren’t hit as hard as others.
MOVE index
Move index is currently at 87.21, bond price implied volatility is expected to be around 8.72% per annum.
Lower MOVE points to (implied) lower bond market volatility going forward. Bond volatility moving lower translates into less haircut to bond, in which more liquidity can be extracted from the collateral pool.
Summary of Market situation
Trend and Momentum Section
SPX
NDX
Just an FYI note, why did I choose 63 Days for Bollinger band, because institutions balance their portfolio every quarter ( 1 quarter = +/- 63 trading days )
Fibonacci reference Section
SPX
From early November bottom to recent high, SPX is currently at 61.8% Fib retracement level ( around 5855 ), if this level does not hold, SPX likely will retrace the entire uptrend move since early November. As it stands, SPX needs to stabilize soon or else…
NDX
From early November bottom to recent high, NDX is currently at 50% Fib retracement level ( +/- 21020 ), if it does not hold, NDX next support level are at 61.8% Fib retracement level ( +/- 20760). If 61.8% Fib level are breached, NDXX likely will retrace the entire uptrend move since early November.
Market breadth section
% of SPX stocks above 20D 50D 200D moving average
SPX crash and breadth plunge, enough said.
% of SPX stock above 20D MA : 8%
% of SPX stock above 50Day MA : 20%
% of SPX stock above 200Day MA : 55.2%
NYSE & Nasdaq market internals
Breadth was absolutely crashed by new Fed SEP projection
On Dec 18 2024 trading session,
13.05 to 1 NYSE Decliner to Advancer ratio (2637/202 )
5.46 to 1 Nasdaq Decliner to Advancer ratio (3724/682 )
It’s a 90% downday as defined by NYSE volume ( 4,698,896,290/5,246,969,570)
FYI, the NYSE Advancer and decliner include ETF
Additional charts to show the current horrendous situation,
Here’s a version without NYSE common stock only volume ratio chart, without ETF,
8.84 to 1 NYSE common stock only DOWN/UP volume ratio
Here’s a SPX volume ratio charts, shockingly awful stats
25.86 to 1 S&P 500 DOWN/UP volume ratio
Sentiment
Sad to say the retail bullish sentiment has come crashing down, it’s getting to a more neutral stance now. We will reexamine and monitor retail and institutional in the next few days when things settle down.
Positioning
Pending for latest data by end of this week.
We still have to get through Op-Ex week by end of this week and reexamine all the clues to assess where market stands in the coming days.
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions on all time frame ( short, mid & long term )
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