Market Insights: Friday, October 4th, 2024

Market Overview
Stocks soared Friday, bolstered by a stronger-than-expected September jobs report that saw the U.S. economy add 254,000 jobs, reducing the unemployment rate to 4.1%. This strong labor market data eased some concerns around economic growth, driving the Dow up over 300 points (+0.8%) and pushing the S&P 500 (+0.9%) and Nasdaq (+1.2%) higher. Investors also welcomed the end of the U.S. port strike, which had contributed to supply chain concerns earlier in the week. However, geopolitical risks, particularly surrounding the ongoing Israel-Iran conflict, remain a focus for the markets. Despite President Biden's efforts to prevent Israeli retaliation against Iranian oil facilities, oil prices have surged amid fears of disruptions to global supply. Crude oil posted its largest weekly gain in over a year. With inflationary pressures looming, all eyes remain on the Federal Reserve’s next move, where a smaller 25-basis point rate cut is now more likely in the upcoming FOMC meeting.

SPY Performance
SPY opened at $572.35, reached a high of $573.36, and closed at $572.98, gaining 0.91% for the day. Trading volume was slightly lower than average, at 39.24 million shares. Despite brief dips to a low of $568.10, the SPY remained above key support at $570, with resistance at $573.35 holding firm. Today’s market action was characterized by cautious optimism as traders responded to the jobs data while continuing to monitor broader macroeconomic and geopolitical risks.

Major Indices Performance
The Russell 2000 was the strongest performer, rising 1.40%, driven by gains in small-cap stocks. The Nasdaq followed closely, adding 1.21%, as tech stocks saw renewed interest. The Dow climbed 0.81%, marking a new record, reflecting investor optimism in the wake of robust jobs data. Defensive sectors like utilities and healthcare underperformed relative to the broader market, as investors shifted focus to risk-on sectors.

Notable Stock Movements
Tesla (TSLA) led the "Magnificent Seven" with a strong 3.91% gain, driving much of the Nasdaq’s upward momentum. Most of the group saw positive movement, with Apple (AAPL) and NVIDIA (NVDA) contributing solid gains. Microsoft (MSFT), however, lagged behind the pack, remaining flat amid broader tech strength. The tech rally today reflects growing confidence in growth sectors, supported by the market's positive response to the jobs data.

Commodity and Cryptocurrency Updates
Crude oil prices rose by 1.00% today, continuing their upward trajectory amid Middle East tensions, while gold slipped by 0.22% as safe-haven demand decreased. Bitcoin surged 2.68%, closing just above $62,000, as cryptocurrencies remain a key alternative investment amid inflation concerns and volatility in traditional asset classes.

Treasury Yield Information
The 10-year Treasury yield fell slightly, closing at 3.969%, a 0.30% decline, as bond markets reacted to the positive jobs data and reassessed the likelihood of aggressive Federal Reserve rate hikes. While the labor market remains strong, inflationary pressures and market uncertainty keep yields elevated.

Broader Market Final Thoughts
Friday’s rally, fueled by a blowout jobs report, helped stocks recover from earlier weekly losses, suggesting resilience in the face of mounting geopolitical and inflationary concerns. The Dow's new record reflects strong market sentiment, though risks remain with the Middle East conflict and Federal Reserve policy still in play. As SPY trades near resistance levels, volatility is likely to persist heading into next week, especially as markets digest upcoming Fed commentary and global developments.

Previous Day’s Forecast Analysis
Recap of Previous Forecast
In yesterday’s forecast, we projected that SPY would trade within a range of $568 to $575, with $570 identified as the bias level. The analysis indicated that if SPY held above $570, we could expect an upward move toward resistance at $573.35, with $575 as a potential extended target if bullish momentum persisted. Conversely, if SPY failed to hold above $570, the forecast predicted a likely test of support near $566.35, with the possibility of deeper pullbacks to $563 should selling pressure increase. We also highlighted the heightened volatility expected around the Non-Farm Payrolls (NFP) report, which was released today, indicating that market reactions would likely dictate price movements in the early session.

Additionally, the forecast anticipated a bullish sentiment throughout the day, as long as SPY remained above $570, suggesting that dips toward this level would offer opportunities for long trades. The broader market was expected to exhibit cautious optimism, fueled by the anticipation of strong labor market data, but tempered by ongoing geopolitical concerns, particularly in the Middle East. The importance of the $570 support level was underscored, as a break below this key level was expected to shift sentiment bearish, triggering short opportunities with downside targets around $567.65 and $565.35. The forecast also emphasized that external factors, such as the jobs report and geopolitical developments, would significantly impact market direction, urging traders to remain flexible and adapt to emerging market conditions. Overall, the forecast leaned toward bullish price action above $570, but it also prepared traders for the possibility of a more volatile session, driven by key economic data and global headlines.

Market Performance vs. Forecast
Today's SPY movement closely followed the forecast, opening at $572.35 and testing the resistance at $573.35. The forecasted range of $568 to $575 was respected, with SPY bouncing between the key levels, allowing for profitable long trades as projected. Resistance at $573.35 held firm, and traders who followed the forecast could capitalize on the bounce off support around $570, confirming the accuracy of the premarket analysis.

Prior Day’s Forecast Final Thoughts
Yesterday's forecast was highly accurate, especially in identifying $570 as a key support level. As anticipated, SPY held above this point, confirming the forecasted bullish bias, and providing profitable opportunities for traders who entered long positions near support. The predicted resistance at $573.35 also played a significant role, capping the day’s gains as SPY struggled to break through, leading to consolidation below this level by the close. The forecast’s broader outlook on market sentiment was spot-on, with the strong jobs report driving optimism, though geopolitical risks continued to weigh on the market, as expected. Traders who followed the advice to buy dips toward $570 and target $573.35 saw solid gains, while those cautious of reversals near resistance were able to protect profits.

Looking ahead, the validation of these key levels—$570 support and $573.35 resistance—suggests they will remain important in future sessions. The forecast highlighted the importance of staying flexible, and this proved crucial as volatility around economic data releases offered both long and short opportunities.

Premarket Analysis Summary
Premarket analysis anticipated SPY trading between $570 and $575, with a positive bias above $570 following the strong Non-Farm Payrolls report. The day’s price action adhered to these expectations, with SPY finding support at $570 and resistance at $573.35. Traders who bought dips near $570 were rewarded, as predicted, with the market rallying on positive sentiment from the jobs data.

Validation of the Analysis
The premarket analysis was highly accurate, with SPY respecting the key levels identified. After a strong start following the positive Non-Farm Payrolls (NFP) report, SPY briefly tested the bias level of $570.19 before rallying toward the upside target of $575, reaching an intraday high of $573.36. As anticipated, dips below $570 were bought quickly, providing solid opportunities for long trades. The projected trading range of $570 to $575 held firm, with SPY showing consistent adherence to the premarket levels. Traders who followed the premarket analysis could have capitalized on both long and short trades, as the market behaved predictably within the identified range. The predicted scenario of SPY holding above $570 and moving toward upper targets was realized, while volatility from the jobs report created brief but manageable pullbacks. The session's movements reinforced the value of the premarket analysis, allowing traders to navigate the day's price swings with confidence and capitalize on the clearly defined support and resistance levels.

Looking Ahead: Economic News Releases
No major economic releases are expected on Monday, but several Federal Reserve officials are scheduled to speak. Traders should stay cautious, as any hawkish commentary on interest rates or inflation could impact market sentiment.

Anticipated Market Impact
Fed speeches on Monday could introduce volatility if officials signal further tightening or express concerns over inflation. Absent major economic data, the market may remain range-bound, but geopolitical developments could spark further movement.

Guidance for Traders
Traders should monitor SPY’s key support at $570 and resistance at $575 closely. Long trades are favored if SPY stays above $570, with potential upside targets at $573.35 and $575. If SPY breaks below $570, short trades toward $567.65 and $565.25 should be considered. Given the elevated volatility, tighten stop-losses and remain flexible, particularly around upcoming Fed commentary.

Market Sentiment and Key Levels
SPY is currently trading around $573, with the market sentiment leaning cautiously bullish after a strong reaction to last week's Non-Farm Payrolls report. The positive labor market data helped alleviate some concerns about economic slowdown, but inflationary pressures and the Federal Reserve’s stance on future rate hikes continue to weigh on market participants. As a result, traders are approaching the new week with a mix of optimism and caution. Overhead resistance remains at $575, a key level that the bulls will aim to break. A successful move above $575 could trigger further gains, with $580 as the next major target. However, breaking this resistance would likely require strong buying momentum, potentially fueled by positive commentary from Federal Reserve officials or other bullish developments. On the downside, $570 is critical support. A break below this level could lead to a quick drop toward $565, especially if market sentiment shifts due to negative economic outlooks or hawkish Fed remarks. Bulls have firmly taken control but their exists many potential pitfalls which could quickly derail the market’s momentum. As price approaches the all-time high, we advise caution, watching the market’s reaction at our key levels as any significant move through support or resistance could set the tone for the day and the rest of the week.

Expected Price Action
For the upcoming session, SPY is expected to trade within the $570 to $575 range, with a slightly bullish bias leaning toward a test of the $575 resistance level. If the bulls manage to push SPY above this critical resistance, we could see momentum build, driving prices toward the next target at $580. Breaking above $575 would signal renewed strength in the market, but it would require consistent buying pressure, possibly fueled by positive remarks from Federal Reserve officials or a shift in broader market sentiment. If SPY stalls at $575 and fails to break through, traders should be cautious of potential reversals. A rejection at this level could lead to a retracement, with the $570 support level being the first line of defense. Should SPY fail to hold this support, a move lower toward $565 is likely, with $563 as the next significant level if selling pressure intensifies. The direction of price action will likely depend on how the market reacts to any external news, particularly the tone of Fed speeches throughout the week. Traders should be prepared for potential volatility, as breaks above $575 or below $570 could lead to larger swings. Given the cautious but bullish sentiment, expect dips to be bought, but maintain flexibility in case of sudden market reversals.

Trading Strategy
For the upcoming session, we recommend a cautious but opportunistic approach. Traders looking to go long should watch for SPY to hold above the key support level at $570. This is the new line in the sand for the bulls and the bears. If this level remains intact, long entries targeting $573.35 and $575 offer a favorable risk-reward ratio. A sustained breakout above $575 could trigger further buying momentum, pushing SPY toward the next resistance level at $580. However, it's critical to tighten stop-losses as SPY approaches these resistance points to protect profits in case of sudden reversals. If SPY struggles to hold above $570, consider short positions as the market could quickly retrace to the next support level at $565. A break below $565 may see SPY testing lower levels around $563, especially if selling pressure builds throughout the session. In this scenario, look for quick scalps as volatility may create sharp price swings, making it essential to take profits promptly. While our model is still projecting a very large range and therefore a trending market, it’s much more likely the market slows more to a grind higher than 1 to 2% moves we have seen recently.

Given the uncertain environment with Fed commentary and external events potentially influencing market sentiment, maintaining smaller position sizes is prudent. Traders should stay flexible, reacting quickly to how the market behaves around key levels, while avoiding overexposure in either direction until a clearer trend emerges.

Risk Management and Warnings
With the VIX currently at elevated levels, closing at 19.21, traders should exercise caution, particularly around key support at $570 and resistance at $575. Fed speeches next week could heighten volatility, so remain flexible and prepared for rapid shifts in sentiment.

Model’s Projected Range
The model projects SPY to trade between $563.75 and $577.50 for Monday’s session, with a slightly bullish bias. This range is still quite large suggesting a trending market. Call dominance suggests that further upside is possible if SPY holds above $570, with $575 and $577.50 as potential resistance targets. On the downside, a break below $570 could lead to a test of support near $565.25 and $563.75, particularly if geopolitical tensions or Fed commentary weigh on the market.

Market State Indicator (MSI) Forecast

Current Market State Overview: The MSI is currently in a Bullish Trending Market State with price closing in the upper range near overhead resistance. There are no extended targets above currently signaling a possible reversal to the generally bullish trend. The MSI rescaled today several times and by the open was in and remaining in a Bullish Trending Market State. The range expanded with extended targets printing above price several times during the day.

Key Levels and Market Movements: Resistance is at $573.36 with support at $571.43. These levels remain key for Monday and align with our models levels. Just after the open price was well above MSI resistance with extended targets printing. We do not mean revert when extended targets are printing therefore, we did not fade the rally after the jobs report until these targets stopped printing with price at $571. This was our cue to get short to MSI support. MSI’s range was narrow so we were cautious to trade between support and resistance in the morning session. These trades worked quite well however and they price extended beyond overhead resistance, we favored mean reversion shorts back to support at $569.50. This trade set up four times before price finally broke higher later in the day and once extended targets started printing, it was long only into the close form $571 to the day’s highs. While it wasn’t what we would call an easy day to trade, the moves were clear and the MSI provided all kinds of valuable information for our users.

Trading Strategy Based on MSI: Given the current state, bulls are in control. The zone between $567 and $571.50 is the current battleground for the bulls and the bears. Be cautious in this zone and look for clues as to the strength of the trend with expanding MSI ranges and extended targets. A contracting range without extended targets is a weak trend so we favor quick profits and mean reversion trades from major support and resistance levels. We favor shorts from overhead resistance at $573 and $575 without extended targets above. We would like to see price retest $570 where we would certainly look for a failed breakdown to go long back to $573.

Dealer Positioning Analysis

Summary of Current Dealer Positioning: Dealers are selling $574 to $580 and higher strike Calls implying a belief that prices will not rally beyond $580 on Monday. That said, $575 is a major hurdle and Dealers have sold as many Calls at this level as they have at $580 which potentially puts a ceiling in for Monday at $575. To the downside, Dealers are buying $572 to $560 and lower strike Puts in a 6:1 ratio to the Calls they are selling/buying, implying a bearish view of the market for Monday. Dealers have added to their protection from Thursday. Dealers are very well positioned should the market decide to pullback.

Looking Ahead to Next Friday: Dealers are selling $573 and $590 and higher strike Calls. Dealers are selling in size $590 Calls so any break above the all-time highs is likely to be met with heavy resistance. To the downside, Dealers are buying $572 to $550 and lower strike Puts in a 10:1 ratio to the Calls they are selling. This implies a very bearish view of the market heading into next Friday. This level has remained constant this yesterday even with Friday’s rally. It seems Dealers are not convinced the market is ready to sustain new all-time highs. While we may briefly see prices above $575, Dealers seem to feel this may be a trap and the market will fail at these levels.

Recommendation for Traders
As we approach Monday, traders should be cautious around key levels like $570 and $575, particularly with potential volatility from Fed speeches. While the market is controlled by the bulls, and while they are likely to push price higher, they are also likely to set traps for the bears. SPY especially is trap filled so when in doubt, it’s a trap. We cautiously continue to favor long over short trades but are open to mean reversion shorts on failed breakout pattern from our major levels. Be sure to review the premarket analysis posted before 9 AM ET for any changes in Dealer positioning.

Good luck and good trading!