Dow Jones: Defenses 🍵When it’s cold outside, it’s always important to strengthen your body’s defenses. To boost its own immune system, Dow Jones is currently taking an invigorating sip of hot turmeric-ginger tea in the form of the orange zone between 33 283 and 31 689 points. We expect the index to expand this healthy swig to finish wave iv in orange. Afterwards, it should be bolstered enough to tackle the resistance at 34 707 points. There’s a 30% chance, though, that the warm beverage might relax Dow Jones too much so that the index could slip through the orange zone. In that case, it should drop into the blue zone between 30 955 and 29 934 points first before climbing upwards again.
YM1! trade ideas
Takeaways from the Fed Chair SpeechCBOT: Micro E-Mini Dow Futures ( CBOT_MINI:MYM1! )
The Fed’s 2022 Rate Decisions
While we reflect on 2022, an eventful year full of “the unexpected”, rate hikes have undoubtedly dominated the headlines. In eight rate-setting Federal Open Market Committee (FOMC) meetings, the US central bank hiked the Fed Funds rate seven times, taking it up from 0.25% to 4.50%.
The US Consumer Price Index (CPI) was 7.0% in December 2021. After a quick runup to 9.1% in the first half of the year, it came back down to 7.1% in November 2022. If the trend continues, we may end the year with an inflation below our starting point.
However, current level is well above the 2% policy target. While the Fed emphasizes the need for on-going tightening, it expects inflation to be above 3% at year-end 2023. The Fed is on the right track, but there might be more to do.
How did the Dow Jones Industrial Index React to Fed rate hikes?
The Dow (DJIA) reached all-time high of 36,952.65 on January 5th. It pulled back 22% to 28,852 by September 30th on the back of three consecutive 75-bp rate hikes. DJIA closed at 32,920.46 on December 16th, down 10.9% year-to-date (YTD). The Dow’s Price/Earnings (P/E) was 20.49 on last Friday, down 6.9% from 22.01 year-over-year (YOY), according to Birinyi Associates/Dow Jones Market Data.
For a comparison, S&P 500 hit 4,766 at year-end 2021 and closed at 3,852 last Friday, down 19.2% YTD. The P/E ratio for S&P was 18.91 now, down 35.1% YOY (28.69).
Nasdaq 100 closed at 15,645 at year-end 2021 and settled at 11,244 last Friday, down 28.1% YTD. The P/E ratio for Nasdaq was 23.52 now, down 32.2% YOY (34.71).
What do the datasets tell us? The Dow experienced a smaller correction (-10.9%) this year, compared to the S&P (-19.2%) and the Nasdaq (-28.1%). Its valuation, as measured by P/E ratio, is in line with the S&P and Nasdaq, all in the range of 19-24. However, the Dow’s P/E declined less than 7% from its top, vs. over -30% drop for both the S&P and the Nasdaq.
Any trading opportunities?
On December 14th, DJIA opened flat at 9:30AM. It began to fall after the Fed released its rate decision at 2:00PM. The index nosedived when Fed Chair Powell delivered his speech at 2:30PM Eastern Time. By the end of the following trade day, as investors fully digested the Fed’s policy, DJIA lost 884 points, or -2.6%.
I put together a cheat-sheet to decode how DJIA anticipated and reacted to Fed Chair speeches throughout 2022. I denote T as FOMC date and T+1 the next trade date; Market Open at 9:30am, Market Close at 4:00pm; Rate decision release at 2:00pm, and Fed Chair Speech starts at 2:30pm; all the above in eastern time zone. Market reactions are represented by Up and Down.
From Market Open (T) to Market Close (T+1), the changes in DJIA value were January -342, March +829, May -174, June -643, July +665, September -743, November -575, and December -884. All market data on DJIA is from Yahoo! Finance.
Market anticipation and reaction were mixed in the early stage of this rate hike cycle. However, more recently, investors tended to have a rosy picture going into the FOMC, trading on the assumption of Fed Pivot. Each time, the Fed Chair speech brought them back to the reality of continued monetary tightening.
DJIA declined six out of eight times. Average two-day change for DJIA during the last three FOMC meetings is -734 points. If we were to place a Short Futures order for Micro Dow Futures (MYM) for two days, we would have made a very nice Christmas bonus.
MYM contract notional value is $0.50 per index point. Initial margin is $750 per contract. Hypothetically, if we captured 400 points, our 2-day payoff would be $200, or +27%.
What’s the takeaway?
Trading opportunities exist because the market is not aligned with the Fed. While Chair Powell made the point of fighting inflation forcefully over and over, investors did not take him seriously and kept dreaming of reasons for the Fed to end monetary tightening.
While the Fed moderates rate hike to 50 bp, Chair Powell states that 4.25-4.50% Fed Funds is not restrictive enough. He emphasizes the “on-going” need for tightening. Policy target for inflation is 2% and there was never a discussion to raise it. It’s very clear that the Fed’s overarching goal is to bring inflation down to 2%. Pausing is premature.
Next Fed meeting is on Jan. 31st - Feb. 1st. If DJIA repeats itself and moves up ahead of the rate decision, we may explore day-trading opportunities.
In addition to the DJIA futures, similar strategies can be applied to Micro S&P 500 Futures (MES). MYM traded 285,803 lots with an open interest of 48,564 last Friday. Micro S&P is even more liquid, with daily trade volume exceeding 2 million lots.
An alternative to the futures strategy is Options on futures. Put options on the March MES contract is currently quoted at $24.00. Options have bigger upside potentials if your market forecast is correct.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trade set-ups and express my market views. If you have futures in your trading portfolio, check out on CME Group data plans in TradingView that suit your trading needs www.tradingview.com
ES1! / YM1! Trade AlertThought I would share my trades:
Long on YM1! and ES1! ,
TP in chart above.
Currently short on SPY as well from post FOMC and added in the AM today.
Green box is the max of the range I anticipate for tonight and tomorrow.
Red box is the low range.
Overall bias is neutral to bearish .
E-mini Dow Jones ( YM1! ), H4 Potential for Bullish ContinuationTitle: E-mini Dow Jones Futures ( YM1! ), H4 Potential for Bullish Continuation
Type: Bullish Continuation
Resistance: 34707
Pivot: 34199
Support: 33675
Preferred case: Looking at the H4 chart, my overall bias for YM1! is bullish due to the current price being above the Ichimoku cloud , indicating a bullish market. If this bullish momentum continues, expect price to possibly head up towards the resistance at 34707, where the previous swing high is.
Alternative scenario: Price could head back down to retest the pivot at 34199, where the 61.8% Fibonacci line is.
Fundamentals: There are no major news.
E-mini Dow Jones ( YM1! ), H4 Potential for Bullish ContinuationTitle: E-mini Dow Jones Futures ( YM1! ), H4 Potential for Bullish Continuation
Type: Bullish Continuation
Resistance: 34707
Pivot: 34199
Support: 33675
Preferred case: Looking at the H4 chart, my overall bias for YM1! is bullish due to the current price being above the Ichimoku cloud, indicating a bullish market. If this bullish momentum continues, expect price to possibly head up towards the resistance at 34707, where the previous swing high is.
Alternative scenario: Price could head back down to retest the pivot at 34199, where the 61.8% Fibonacci line is.
Fundamentals: There are no major news.
The Entry - Sell Today, we will do a few case studies on how we can make a market entry, this technique can be applied both the long-term or the short-term trades.
Today’s content:
1. 25 Nov 21 - Entry signal to short (transiting into today’s bear)
2. 13 Oct 22 - Entry signal to go long (for this bear rebound)
3. Today – Entry signal – Sell
If you have been following, today’s is the 5th tutorial in our Trading Series:
1. “The buy strategy”
2. “The sell strategy”
3. “Developing long & short-term view”
4. “Choosing between the time frame”
5. “The entry”
E-Mini Dow Jones Futures
Minimum fluctuation
1 point = $5
10 points = $50
100 points = $500
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
US30USD YM1! DOW 2022 Dec 12
US30USD YM1! DOW 2022 Dec 12
Scenario3 Long at 33800 and Scenario1 short @ 34246 were fruitful.
This shows the importance of waiting for price reaction at the
price levels.
I'll be off trading for the holiday season, see you in 2023.
Possible scenarios:
1) Have a good break and return in 2023
2) Short on rejection at 34607 / 33455
3) Long if supported at 33455
Price reaction levels
Short on Test and Reject | Long on Test and Accept
35750 35330 34605-34283
33455 31848 30513
28635
Weekly: Ave vol down bar close off low = minor weakness
H4: Supply observed
Remember to like and follow if you find this useful.
Have a profitable week ahead.
money rotations,"the dow bones, the og index has already shown us what the market is about to do.
those who know, shall prosper, those who don't will be left behind in the winds."
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i'm theorizing that all the dow money is going to rotate into big tech, small caps, and the spx500 in the next 3-4 months.
it's more probable for the dow to just chop while everything else runs up big time.
don't get caught in the distribution phase, seek opportunity elsewhere.
---
dow bones, expanded flat target sits between 36.1~36.8k.
---
happy holidays ♥
YM1! 2W BEAR CYPHER, Steep drop expected DEC/JANThe 2W chart for DJI futures has entered trade for bear cypher harmonic pattern. The shape of this pattern typically retraces at pt1 back toward initial pattern entry/SL, then progresses sharply to pt2/3/4. I've indicated what the path typically looks like in red.
Best wishes for trading the holidays! -Worm
Dow Jones Weekly Volatility Analysis 5-9 Dec 2022 Dow Jones Weekly Volatility Analysis 5-9 Dec 2022
We can see that currently the implied volatility for this week is around 2.82%, down from 3.06% last week according to VXD data
With this in mind, currently from ATR point of view we are located in the 7th percentile, while according to VXD, we are on 8th percentile.
Based on this, we can expect that the current weekly candles ( from open to close ) are going to between:
Bullish: 2.6% movement
Bearish: 1.9% movement
At the same time, with this data, we can make a top/bot channel which is going to contain inside the movement of this asset,
meaning that there is a 19.5% that our close of the weekly candle of this asset is going to be either above/below the next channel:
TOP: 35473
BOT: 33370
Taking into consideration the previous weekly high/low, currently for this candle there is :
79% probability we are going to touch previous high of 34750
21% probability we are going to touch previous low of 33370
Lastly, from the technical analysis point of view, currently from
Weekly timeframe indicates 77% BULLISH trend
Daily timeframe indicates 80% BULLISH trend
4H timeframe indicates 53.3% BULLISH trend
Dow mini futures - volume resistance aboveOne of the best preforming parts of the stock market in recent weeks has been the Dow Jones Industrial average. On this mini futures chart I can see that this could be the time where we see a serious pull back because there is a high volume zone right above where we are now.
US30USD YM1! DOW 2022 NOV 28
US30USD YM1! DOW 2022 NOV 28
Scenario1 continuation long was in place from Nov 07's analysis.
Weakness are appearing on all timeframes. Tighten stops on
long positions. Volume was thin due to US holidays. Expected
to remain thin as year end approaches.
Possible scenarios:
1) Temporary short if 34246-33800 is rejected
2) Stay out of market since volume is thin
3) Continuation long if 34246-33800 is supported
Price reaction levels
Short on Test and Reject | Long on Test and Accept
35750 35330 34246-33800
33106 31793
30513 28635
Weekly: ND on uptrend = minor weakenss
Daily: Declining volume + narrow spreads = weakness
H4: Supply observed
Remember to like and follow if you find this useful.
Have a profitable week ahead.