Market Insights: Thursday, October 3, 2024
Market Overview
The Dow led a slight decline in the markets today, as investors awaited the key jobs report and sifted through a variety of economic data. Meanwhile, oil prices surged by 5%, fueled by rising tensions in the Middle East. Stocks slipped, with the S&P 500 dropping 0.2% and the Dow Jones Industrial Average falling 0.4%. The Nasdaq Composite stayed relatively flat, just below the break-even point.
After a volatile week driven by concerns over potential Israeli retaliation against Iran's oil facilities, some calm returned to the markets. However, oil prices continued their upward trajectory for a third straight day. Brent crude and West Texas Intermediate futures both spiked by more than 5%, following comments from President Biden, who suggested that Israel may respond to Iran's missile strikes.
On the U.S. economic front, anticipation is building for tomorrow's September jobs report. After a surprise uptick in private payrolls, additional data today showed a slight rise in weekly jobless claims, while planned layoffs dipped from a five-month high. Challenger, Gray & Christmas described the labor market as being at an "inflection point," hinting at potential shifts in the near future. If job market conditions worsen, the Federal Reserve may reconsider its cautious approach and opt for a bigger rate cut, despite expectations of a smaller 0.25% cut next month.
In corporate news, Tesla continued to struggle, with its stock falling over 3% following disappointing delivery numbers. Reuters also reported that the company has halted U.S. online orders for its lowest-priced Model 3. This added to the pressure on Tesla, marking another rough day for the EV giant​.
SPY Performance
SPY opened at $567.36 and reached a high of $569.80 before slipping to a low of $565.49. By the end of the day, SPY closed at $567.82, reflecting a modest loss of 0.18%. Trading volume came in lower than average at 40.29 million shares, indicating cautious market participation. Today's action was largely driven by geopolitical tensions and investor anticipation of upcoming economic data releases, particularly Friday's Non-Farm Payrolls report. Key levels to watch moving forward include resistance at $570 and support at $565.49, as the market continues to exhibit range-bound behavior.
Major Indices Performance
All major indices ended the day in the red. The Nasdaq dropped by 0.19%, the Dow slipped 0.50%, and the Russell 2000 led the declines with a loss of 0.67%. Today's market sentiment was weighed down by ongoing geopolitical tensions, as well as anticipation of the upcoming Non-Farm Payrolls report. Defensive sectors like healthcare and utilities performed better, but overall market participation remained light.
Notable Stock Movements
The "Magnificent Seven" stocks experienced a mixed day. Tesla (TSLA) led the declines, dropping 3.35%, while Meta (META) and NVIDIA (NVDA) managed to hold their ground, ending the day in the green. Most of the tech-heavy Nasdaq saw declines, as the market faced pressures from broader geopolitical uncertainties and upcoming economic reports.
Commodity and Cryptocurrency Updates
Crude oil surged by 5.16%, driven by escalating tensions in the Middle East, pushing fears of supply disruptions to the forefront. Gold saw a modest increase of 0.22%, while Bitcoin remained relatively stable, closing just below $61K after a 0.26% decline. Market participants are closely watching the global landscape, particularly the energy market, for further cues.
Treasury Yield Information
The 10-year Treasury yield increased by 1.68%, closing at 3.851%. Concerns over inflation and uncertainty surrounding the Federal Reserve's next moves are keeping bond market participants cautious. As inflation pressures linger, bond yields are expected to remain elevated, with the market bracing for potential rate hikes in the future.
Final Thoughts
Today's market movement reflects a cautious stance as investors continue to monitor escalating geopolitical tensions and await key economic data, particularly the upcoming Non-Farm Payrolls report. While the S&P 500 and Dow posted slight declines, and the Nasdaq remained flat, the market still clings to critical support levels.
Oil prices saw a significant surge due to concerns over Middle East conflicts, further fueling inflationary worries, while gold posted modest gains. The energy market remains volatile, and traders should remain alert as any developments in the region could drive further price hikes. Meanwhile, Bitcoin and other cryptocurrencies showed slight losses but stayed relatively stable in a market clouded with uncertainty.
The spike in the 10-year Treasury yield suggests that inflation fears are still top of mind, and bond market participants remain wary of the Federal Reserve's next moves. With volatility expected to increase ahead of the jobs report, we recommend keeping an eye on SPY's support around $565 and resistance near $570 as the market navigates through these choppy waters.
Previous Day’s Forecast Analysis
Recap of Previous Forecast
In yesterday's forecast, we projected SPY would trade within the range of $566 to $574.75, with $570 serving as interim resistance and support at $566. We anticipated mean reversion trades from $570, and as expected, SPY tested this level early in the session, reaching an intraday high of $569.80 before encountering resistance. The forecasted volatility near $566 allowed for profitable long trades off support up to initial resistance at $570.
Market Performance vs. Forecast
Today's performance adhered closely to the forecast, with SPY testing $566 support before bouncing to resistance at $570. SPY opened at $567.36, hitting a high of $569.80 before pulling back to a low of $565.49. Support at $566 held firm, allowing for a great mean reversion long. The forecast’s key levels of $566 and $570 were critical for guiding trades throughout the day, and the lack of significant deviations confirmed the accuracy of these levels. Traders who followed the forecast were able to capitalize on both long and short trades from these key areas, resulting in a highly profitable day.
Final Thoughts
Today's market performance reaffirmed the significance of geopolitical risks and their influence on energy prices. SPY’s support level at $566 remains a crucial area, with the potential for downside risks if this level breaks. Resistance at $570 continues to limit upward movement, and traders should be cautious as we approach Friday’s Non-Farm Payrolls report. Increased volatility is expected, and traders should keep an eye on the upcoming economic data releases to adjust their strategies accordingly.
Premarket Analysis Summary
In today's premarket analysis at 8:10 AM ET, SPY was expected to trade within the range of $566.35 to $569, with the bias level set at $569. We anticipated some mixed behavior throughout the session, with the upside target range set between $571 and $573.50. On the downside, if SPY were to reject the bias level of $569, the target was set at $565.35, with a potential fall as low as $562.35 if sellers gained momentum. The session was expected to see some choppy price action unless momentum above the bias level could drive SPY toward higher targets​.
Validation of the Analysis
The analysis proved highly accurate as SPY rejected the bias level of $569 shortly after the open, providing a clean short opportunity down to $566.35. From there, a mean reversion long off the failed breakdown pattern was executed back toward $569.35. Throughout the day, SPY respected these key levels, giving traders multiple opportunities to short resistance near $569 and re-enter long positions near support at $566.35. The precise adherence to the projected trading range reinforced the reliability of the premarket analysis, allowing traders to capitalize on the day's movements while effectively managing risk.
Looking Ahead: Economic News Releases
Summary of Upcoming Economic Data:
Tomorrow, the key release will be the Non-Farm Employment Change report, crucial for assessing the labor market's strength. No other major economic data is expected for the rest of the week.
Anticipated Market Impact:
With the VIX at 20.49, volatility is already elevated. A stronger-than-expected jobs report could push inflation concerns higher, leading to further market jitters. Conversely, weaker data could ease fears, boosting equities.
Guidance for Traders:
Traders should remain alert for heightened volatility following the employment report. Key levels to watch include SPY's $566 support and $570 resistance. Tighten stop-losses to manage risk effectively.
Risk Management and Warnings
As we approach tomorrow’s Non-Farm Employment Change report, volatility is expected to increase significantly. Traders should tighten stop-losses, particularly around key support at $566 and resistance at $574.75. Be prepared for sharp price movements as the market reacts to the labor report, and consider reducing position sizes to mitigate risk. If SPY breaks below $566, we could see accelerated selling pressure with targets at $563 and $561.25. Conversely, if SPY approaches resistance at $574.75, it is crucial to lock in profits early to avoid potential reversals. With geopolitical risks still in play and critical economic data ahead, maintaining a flexible, disciplined approach to risk management will be essential for the remainder of the week.
Model’s Projected Range
Our model projects SPY to trade within the range of $558 to $576 for tomorrow’s session which has expanded significantly due to the impending Jobs report. The market is expected swing in a large range on Friday, particularly if the Non-Farm Employment Change report delivers a significant surprise. On the upside, if SPY holds above $565, we may see a retest of $570 and $574.75, with $577.75 serving as a secondary target if bullish momentum strengthens. Conversely, a break below $565 could lead to further downside, with the model pointing toward $563 and $561.25 as key lower levels to watch. The market is currently Put-dominated, with an increase in protective positions indicating elevated caution. This suggests that downside pressure may intensify if SPY fails to hold support levels, particularly near $565.
Market State Indicator (MSI) Forecast
Current Market State Overview: The MSI is currently in a Bearish Trending Market State, with price closing just above resistance. There are no extended targets below currently signaling a possible reversal to the day’s generally bearish trend. The MSI rescaled today from a Ranging Market State to its current state overnight. The range narrowed and intermittently during the day, printed extended targets below.
Key Levels and Market Movements: Resistance was found at $570.45, just above the MSI’s resistance level, aligning with our models $570 level. Just after the open this $570 level, mentioned in both the post market recap as well as the premarket analysis was an easy fade with MSI confirming the failed breakout pattern that developed. We love this pattern on sideways days. The market then moved to the other side of the MSI at $566.63 which held as support. After a double bottom and another two failed breakdown patterns, once extended targets ceased printing, the door was open to a long back to MSI resistance at $568.61. Another short at that level and the MSI rescaled lower with extended targets stopped exactly at MSI support at $565.63 which again was another level ($565.35) mentioned in the premarket analysis. And again without extended targets below, a nice mean reversion long took us into the close for a four for four day.
Trading Strategy Based on MSI: Given the current state, we favor shorts from overhead resistance at $567.80. That said, the MSI range is narrow and this level could give way easily. This is not a key level identified by our models therefore we only favor a short from this level on a failed breakout pattern. Otherwise we will look for price to retest $570 where we are much more comfortable shorting. It’s probable the MSI will rescale to a Ranging Market State and as our readers know, we do not favor trading in this state unless it is from our key levels. For shorts that is $570 and $575 and for longs these are $565 and $566. With the Jobs report coming out premarket, all this can change quickly so be sure to adjust and update your levels using the MSI in real time.
Dealer Positioning Analysis
Summary of Current Dealer Positioning: Dealers are selling $573 to $580 and higher strike Calls, while also buying $568 to $572 Calls. This implies Dealers do not believe price will move higher than $576 tomorrow but should there be a recovery, Dealers are positioned to participate in the rally. To the downside, Dealers are buying $567 to $560 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying implying a bearish view of the market for Friday. Dealers have increased their protection from yesterday where they were slightly bearish. Based on current positioning market participants will need to reclaim $570 and hold it before the market will accept higher prices. A break of $567 will bring in $565 and a break of $565 and the market will likely drop to $560. Dealers are very well positioned for this outcome should it develop after the jobs report in the morning.
Looking Ahead to Next Friday: Dealers are selling $573 and $580 and higher strike Calls while also buying $568 to $572 Calls. This implies the Dealers have a desire to participate in any market recovery by next Friday but do not believe prices will rally beyond $580. To the downside Dealers are buying $568 to $550 and lower strike Puts in a 10:1 ratio to the Calls they are selling/buying. This implies a very bearish view of the market heading into next Friday. This level of protection has doubled since yesterday and should give everyone reason to be concerned that the market may experience a sharp correction next week.
Recommendation for Traders
As we approach tomorrow’s highly anticipated Non-Farm Employment Change report, traders should brace for increased volatility. The current Put-dominated market indicates heightened caution, with potential for downside if support at $565 fails to hold. Given the elevated VIX of 20.4, it’s essential to tighten stop-losses and avoid overleveraging positions ahead of the jobs report. We recommend trading what you see tomorrow and staying out of the market until after the report is released. Consider long trades if SPY holds above $565, with targets around 567 initially, $570, and $574.75. A break below $567, however, could signal opportunities for short trades, with downside targets at $565, $563, and $561.25. Be sure to review our premarket analysis, which is posted daily before 9 AM ET, to account for any changes in Dealer Positioning.
Good luck and good trading!
