Quad Witching, Santa Rally, and a Market That Refuses to Die

Our View

I think we all know that these are not our fathers’ markets and charts, nor will they ever be. One thing I can say about Friday's price action is that it was a great example of how program trading can spin out of control quickly — but the markets will have to drop a lot more to be considered a real FLASH CRASH. What I think is a better name for Friday is a micro-Flash Crash.

Late in the day, after the ES rallied, I had a feeling the decline was stalling. Had they not done that and closed on the lows, I would probably have a different opinion. But in most cases, after big-name stocks get beaten up like Oracle and Broadcom, they end up being buying opportunities.

Will that be the case today? Well, there could be some mid-month rebalancing, and Tuesday is an 85% up day.

Market Recap

After the close, Oracle's Q2 fiscal 2026 earnings disappointed investors due to a small revenue miss: $16.1B vs. $16.2B. The miss was driven by declining traditional software sales and negative free cash flow for AI infrastructure, which fueled concerns over rising debt and delayed returns on heavy spending. Shares plunged 11%.

Right after the Oracle earnings report, Broadcom beat estimates with record revenue, but shares dropped 10% amid worries about gross margin pressure from the growing mix of lower-margin AI business, a perceived shortfall in AI backlog growth or new major customers, and slight delays in certain projects.

Despite the earnings news, the ES closed up 43.50 points on Wednesday. On Thursday, the ES traded up to 6928.75, up 15.5 points. Additionally, the NQ closed up 98 points on Wednesday. On Thursday, the NQ traded up to 25,861.50 but lost most of the gains, closing down 85.50 points.

I voiced my concern about the Fed speakers (not as many as I wrote about), but just the same, the weight of the tech and AI weakness pushed the Nasdaq and S&P sharply lower during Friday's trade.

I’m not going to do a blow-by-blow, but here’s a quick recap: the ES made a Globex high at 6915.50 and opened Friday’s regular session at 6896.25, down -11.75 or 0.17%. It traded up to 6903.00 at 9:40 as the NQ poured lower, then sold off down to 6805.00 at 11:35. It made a higher low at 11:40, rallied 38.75 points up to 6843.75 at 12:20, pulled back to 6823.00 at 12:30, then rallied up to 6857.00 at 1:15.

From there, it sold off down to 6825.50 at 2:25, traded up to 6839.00 at 3:10, sold off again down to 6814.50 at 3:35, traded up to 6832.50 at 3:45, and was at 6827.50 as the 3:50 cash imbalance showed $3.1 billion to buy. It then traded up to 6837.25 and flatlined into the 5:00 futures close, settling at 6830.75 — down 76.50 points or 1.11%, the largest drop since November 12, 2025.

The NQ settled at 25,213.50, down 500 points or -1.94%, its worst day since the 590.25 point drop on November 20, 2025.

In the end, the longs got hoodwinked by the AI/tech weakness, as investors dumped growth/tech stocks while rotating into defensive and value areas. Utilities rose +1.8%, Energy +1.5%, and Financials +1.2%. The Dow rose +0.3% on broad participation. The move broadened market leadership, erasing -$200B in AI market cap.

In terms of the ES and NQ’s overall tone, it was like someone flipped the switch. As for the ES’s overall trade, volume was high at 2.45 million contracts traded.

In all honesty, I did not see that coming — but the PitBull warned me about a newsletter he gets that was calling for a FLASH CRASH. I got a little spooked. Did I believe it? Not really, but as the NQ and ES were falling, I started thinking it was possible. Then I started to reflect back to the May 2010 Flash Crash that cost my S&P 500 futures and options desk $9.6 million — and it didn’t really look like that.

Back then, I think the ES was down over 4% by midday and then dropped 6% from 2:30 to 2:45. The YM (Dow Jones future) dropped 600 points in 5 minutes or -9%. That’s when a hedge fund enters an order or gets out of the long-side protection of a 2,000-lot put spread, leaving the trader naked short.

From the low, and over the next 20 to 30 minutes, the market rallied sharply, recovering most of the crash losses within 20 to 30 minutes around 3:05 — regaining approximately 70% of the plunge, or +6% upward from the bottom.

While I believe there have been many ‘little’ FLASH CRASHES over the years, there hasn’t been anything like May 2010. I think it’s nearly impossible to predict the timing of a real flash crash — even if you are Michael Burry.

The Week Ahead

Key Upcoming Events (December 15–19, 2025)

Monday, December 15

• 8:30 AM ET: Empire State Manufacturing Survey (Dec)
  – Forecast: 10.0 | Previous: 18.7

• 10:00 AM ET: Home Builders' Confidence Index (Dec)
  – Forecast: 38 | Previous: 38

• Various Fed speeches (e.g., NY Fed President John Williams)

Tuesday, December 16 (High-impact: Delayed labor and retail data)

• 8:30 AM ET: Nonfarm Payrolls (Nov, delayed)
  – Forecast: +50,000 | Previous: +119,000

• 8:30 AM ET: Unemployment Rate (Nov)
  – Forecast: 4.5% | Previous: 4.4%

• 8:30 AM ET: Hourly Earnings MoM (Nov)
  – Forecast: +0.3% | Previous: +0.25%

• 8:30 AM ET: Retail Sales (Oct, delayed)
  – Forecast: +0.1% | Previous: +0.2%

• 8:30 AM ET: Retail Sales ex-Autos (Oct)
  – Forecast: +0.2% | Previous: +0.3%

• 9:45 AM ET: S&P Global Services & Manufacturing PMI Flash (Dec)

Wednesday, December 17

• Mostly Fed speeches
  (e.g., Chris Waller, John Williams, Raphael Bostic)

Thursday, December 18 (High-impact: Inflation data)

• 8:30 AM ET: Initial Jobless Claims (week ending Dec 13)
  – Forecast: 223K | Previous: 236K

• 8:30 AM ET: CPI YoY (Nov)
  – Forecast: 3.1% | Previous: 3.0%

• 8:30 AM ET: Core CPI YoY (Nov)
  – Forecast: 3.0% | Previous: 3.0%

• 8:30 AM ET: Philadelphia Fed Manufacturing Survey (Dec)
  – Forecast: 3.6 | Previous: -1.7

Friday, December 19

• 10:00 AM ET: Existing Home Sales (Nov)
  – Forecast: 4.1M | Previous: 4.1M

• 10:00 AM ET: Consumer Sentiment (Final, Dec)
  – Forecast: 53.8 | Previous: 53.3

BTS Levels - (Premium Only)

Polaris Trading Group Summary - Friday, December 12, 2025

It was a textbook Capital Preservation "FRYday", with PTGDavid guiding the team through a well-structured, disciplined session. The day delivered a classic Cycle Day 1 (CD1) decline, hitting multiple downside targets highlighted in the Daily Trade Strategy (DTS) Briefing, and finishing with an impressive reversal that offered lessons in patience, alignment, and market rhythm.

Key Market Action & Trade Highlights:

• Morning Alignment: Short Bias Confirmed Early

  • Price action began below the 6910 "Line in the Sand", fulfilling the initial downside target at 6890–6885, confirming early short bias.

  • PTGDavid stressed that FRYday is statistically unforgiving, reinforcing tight stops and low risk—a valuable lesson in discipline for all traders.

• Downside Targets Hit in Sequence

  • Market sold off through 6865–6860 structural support, then moved to the 6840 projected range low.

  • The Volume Trigger at 6850 offered a brief buy response, but the downside resumed, heading to 6817–6814, and even approached the 6802.50 D-level—a level several traders, including Bruce F and slatitude39, had marked.

• Afternoon Reversal – “Smash ‘em in the Morning, Buy ‘em in the Afternoon”

  • A classic reversal kicked off near midday as bulls launched a “Noon Balloon” from the Money Box lower edge (MB(2)).

  • Price rallied back toward 6824, which David marked as the line in the sand for bulls to defend.

  • Though David mentioned missing a good entry at 6824, the bias flipped Long in the afternoon, reinforcing the “Ready... Aim... Fire” mindset for late-day trades.

• 2 PM “Shake & Bake” & Closing Rotation

  • At 2 PM, price action rolled back down again, staying aligned with CD1’s broader structure.

  • A reported $3.1B MOC buy imbalance was absorbed with ease, leading David to call it “trickery” and Bruce to quip: “The market said ‘Is that all you got?’”

  • PTGDavid confirmed the Picture Perfect CD1 structure—lower targets fulfilled, reinforcing the strength of the DTS Briefing roadmap.

Lessons & Highlights:

• “The Prime Directive” of Capital Preservation was repeated multiple times—this was a day to survive, not force trades.

• DTS Briefing alignment paid off, especially for those who followed downside levels and respected the bearish alignment early.

• Adaptability: When structure shifted midday, the team was reminded to stay nimble—“Smash ‘em in the morning... Buy ‘em back in the afternoon.”

• Participation & Insights: Manny provided a robust trade plan; the group shared insights on levels like 6802.50, and PeterN observed ATR stacker alignment—fostering a collaborative learning environment.

Looking Ahead:

• Contract Roll to March (H26) happens Monday, so all traders are reminded to update their charts.

• Winter weather expected in the Northeast—another reminder that preparation is key, in trading and in life.

DTG Room Preview – Monday, December 15, 2025

Macro & Fed Outlook:

• Markets bullish post-Fed rate cut and Powell’s dovish press conference.

• Powell likely to be replaced in May by a Trump-appointed dove.

• Fed raised 2026 GDP forecast to 2.3% — bullish for revenue, margins, and earnings.

• Delayed employment and inflation data due this week; December jobs report to follow in early January.

• These releases will guide expectations for further Fed moves in 2026.

Corporate & Sector Highlights:

• CEOs view the rate-cutting cycle as a multi-year growth window.

• Global M&A rose 40% in 2025 to $4.5T — 2nd highest on record.

  • Positive readthrough for Big Banks.

• Analysts raising 2026 price targets across the board:

  • Tailwinds: corporate tax cuts, AI boom, sector broadening.

• Mag 7 = 25% of S&P 500 earnings; participation widening.

• Goldman Sachs sees faster earnings growth in the S&P 493.

• Sector standouts: transportation, homebuilders, healthcare, energy.

Company Spotlight:

• Alphabet (GOOG, GOOGL) set for a major paper gain:

  • SpaceX tender may value company at ~$800B.

  • Alphabet’s 2015 $1B investment (~10%) now implies huge unrealized gains.

  • April filing showed $8B in non-marketable equity gains — likely SpaceX.

Today’s Calendar:

• Economic Data:

  • Empire State Manufacturing (8:30am ET)

  • NAHB Housing Market Index (10:00am ET)

• Fed Speakers:

  • Gov. Stephen Miran (9:30am & 11:00am ET)

  • NY Fed’s John Williams (10:30am ET)

• No notable earnings today

Markets & Levels:

• Volatility climbing — ES 5-day ADR: 77.5 points

• No whale bias: overnight large trader volume light.

• New ES contract in short-term flag-like channel:

  • Resistance: 7017/25s, 7415/20s

  • Support: 6861/64s, 6850.25 (50-day MA), 6407/02s

Tone: Constructive heading into 2026 if incoming data supports Fed pause.