Debrief · 30 December 2022 · First day of the trading year: stocks and bonds bid
Friday's year-end auction was a neutral extreme island day that settled on late short covering, at the end of a very balanced inside week. Then the first day of 2023: a wild ON session, stocks and bonds bid, and a tentative plan to be short below 3840 and long above 3885, with more patience than usual.
HIGH 3871 | LOW 3821.5 | CLOSE 3861 · 24-hour session
The session
A to G periodFriday's year-end auction opened at 3844, an area which had been a weekly pivot point. Opening out of value inside Thursday's lower range, A period singles sellers took the initial initiative to test Thursday's low at 3827, which found a responsive bid but ultimately failed to take out the opening swing high at 3854.
H periodThis weak failure higher to 3853 gave sellers confidence to have another try at Thursday's lows, breaking 3827 and swiftly sweeping through stops to set a daily low of 3821. The strong impulsive move lower quickly began to struggle, with successive higher lows frustrating late sellers into the final hours of the year's trading.
Any notion of increased activity into the weekly, monthly, quarterly and yearly end was put to bed by lacklustre volumes and unconvincing price action from both buyers and sellers.
L to M periodShorts covered into the last hour of the year, leaving us with a spike close to settle at 3861. It failed to trade back inside Thursday's VA. Don't be fooled: short covering. The daily candle looks strong.
A choppy session, as both buyers and sellers tried to establish control, but neither gained ground convincingly. That left us with a very balanced profile in what was a very balanced week, inside the prior week's profile and range.
Day typeNeutral extreme day (island, no overlapping value), both IB broken, POC 3844. H 3862.25, L 3821, VPOC 3844, MID 3842, VWAP 3864, SETTLE 3861.
The weekInside week. A balanced week following Xmas into week, month, quarter and year end, with volumes declining into year end. Weekly pivot 3844, POC 3862, VWAP 3849; the week's balance ran from 3804 to 3883.
- A balanced start to the week following the Xmas holiday.
- Wednesday closed weak: these lower prices were rejected.
- Thursday: shorts covered, but it did not draw in larger participants. Unlikely this late in the year.
- Friday: a very balanced profile. The early push to take Thursday's lows failed to the upside, resulting in late short covering. A typical island day.
- Volumes declined into the weekend.
Levels into the next session
The key areas of interest are 3885, 3861, 3854 and the overnight low at 3842. 3870, just above Friday's closing range high at 3868, is an area of significance I will be monitoring on the open. The rest are marked on the profile review and the key levels chart, above and below.
Data and news
The theme in markets for a significant portion of 2022 was 'buy the dollar, sell everything else'. As the year came to a close and the possibility of a Fed pivot increased, the tables began to turn.
To start the year off right, though, stocks and bonds are bid today. This is also leading to a higher dollar, as flows take precedence over the dominant narrative we became so accustomed to last year.
- Eurostoxx +1.4%
- Germany DAX +1.3%
- France CAC 40 +1.2%
- UK FTSE +2.0%
- S&P 500 futures +0.9%
- Nasdaq futures +0.9%
- Dow futures +0.8%
- 10-year Treasury yields down 8.7 bps to 3.745%
- 10-year German bond yields down 8.2 bps to 2.357%
- 10-year Italy bond yields down 10.5 bps to 4.447%
Data
- 08:55 EUR German Unemployment Change (Dec): -13K | 15K | 15K
- 08:55 EUR German Unemployment Rate (Dec): 5.5% | 5.6% | 5.6%
- 09:30 GBP Manufacturing PMI (Dec): 45.3 | 44.7 | 46.5
- 53 min: EUR German CPI (MoM) (Dec): -0.3% | -0.5%
- 53 min: EUR German CPI (YoY) (Dec): 9.1% | 10.0%
- 14:45 USD Manufacturing PMI (Dec): 46.2 | 47.7
Saxony December CPI +8.7% vs +9.9% y/y prior.
We only have Manufacturing PMI (Dec) to contend with today.
The plan
OvernightOvernight price action was nothing more than a dream for swing traders. The auction reopened for the new year at 3895, well above last week's balance highs, taking out stops, but quickly traversed back through the week's highs, VAH and POC to find support at 3842, which was a significant accumulation zone late Friday into the close, and the weekly pivot area mentioned.
3842 formed the ON low, and the auction then stepped higher to take out the overnight high at 3900 before finding stubborn resistance at 3907, the naked VPOC from the 21st of December. Frustrated buyers were then forced back to 3870, which is just above Friday's closing range high at 3868. This is an area of significance I will be monitoring on the open.
The ON session has been swinging wildly: levels are not being respected. Supply and demand at the 21/12 and 30/12 POCs.
PlanTraders seem to be taking impetus from news in Europe of slowing inflation, but I see very little to convince me that participants are sure, given the large and wide rotations. The key areas of interest are 3885, 3861, 3854 and the overnight low at 3842.
We will probably open with a gap higher. ON inventory has been crossing off, but I would still expect an attempt to close the gap to the close. I have no bias at this time, given it's the first day into the new year.
Tentative: I want to be short below 3840 and long above 3885. Going to be a little more patient today than usual.
Key lessons
Quote of the day
A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort.
Trade well and prosper.
Get the journal in your inbox
The daily journal, the week reviews and the Weekly Ahead, by email. Subscribers get the pre-market update first.