EB Daily Market Report - Quick Update - Tuesday, December 12, 2023
Max Pain Event
We will be hosting our December Max Pain event later this afternoon (room instructions will be mailed out separately). It's certainly going to be interesting this month as I've just calculated that there's more than $7.7 billion of net in-the-money call premium on just the SPY, QQQ, and IWM, as we approach options expiration Friday. The QQQ is currently trading at 397.70, which is 9.8% higher than its max pain level. While this doesn't guarantee us a big drop, or even any drop for that matter, we know that it definitely elevates the risk of a sudden drop. And managing risk is VERY important to a successful short-term trader.
We'll talk about this and much, much more during today's event. It starts at 5:00pm ET. I hope to see you there. If you can't make it LIVE, remember that we record all of our events. So you can check out the recording at your convenience.
ChartLists Updated
The following ChartLists have been updated today:
- Strong Earnings (SECL)
- Strong Future Earnings (SFECL)
- Strong AD (SADCL)
- Raised Guidance (RGCL)
- Bullish Trifecta (BTCL)
They are now available on our website for viewing/downloading.
Brief Market Update
The Fed has begun its last meeting of 2023. They'll release their announcement tomorrow afternoon at 2:00pm ET. There's an overwhelming consensus that the Fed will not adjust the fed funds rate at this meeting. But their wording changes are scrutinized carefully by market participants. Will Fed Chair Powell acknowledge that the Fed, barring unforeseen changes in the economic outlook, are done hiking rates? Or will he continue to emphasize that the Fed may not be done?
This morning, the November CPI was released. The numbers were as follows:
- November CPI: +0.1% (actual) vs. +0.0% (estimate)
- November Core CPI: +0.3% (actual) vs. +0.3% (estimate)
The slight miss on the headline CPI number hasn't seemed to have much effect on trading today as our major indices are at or near their session highs as I write this. It's important to keep in mind that we do have increasing risks in the short-term as a result of the following:
- Options expiration this Friday, given the TON of net in-the-money call premium
- A Fed meeting that concludes tomorrow with its rate decision at 2:00pm ET. We know the volatility that typically follows the Fed policy decisions
- Negative divergences on the daily charts of the S&P 500 and NASDAQ 100; the Dow Jones is starting to print a very slight negative divergence as well
- Historically bearish short-term period
Let's talk about that last one. December, overall, is a very good month for U.S. equities and we tend to see outperformance from small caps and, to some degree, more value-oriented stocks. But the December 11th through 15th period is a major exception. The S&P 500, NASDAQ, and Russell 2000 (IWM) have all shown the historical tendency to lose ground this week, especially the IWM. Also, December performance can be broken down between first and second halves of the month as follows:
S&P 500 (since 1950):
- December 1-15: +1.29%
- December 16-31: +34.73%
NASDAQ (since 1971):
- December 1-15: -8.21%
- December 16-31: +44.59%
Russell 2000 (since 1987):
- December 1-15: -6.20%
- December 16-31: +62.78%
We've already had a very nice start to December, but will the bearish December 11-15 period take over at some point this week? I have no idea, but I do know that history tells us to be careful. The numbers above present historical FACTS, not my opinion. I believe it's prudent to be extremely cautious the rest of this week - whatever that means to everyone.
No charts today, but lots of information to digest.
Happy trading!
Tom