Market Insights: Monday, November 11th, 2024

Market Overview:

The Dow and S&P 500 surged to close above key milestones Monday, driven by a post-election rally that continues to energize Wall Street. This "Trump trade" has reignited optimism, with Bitcoin soaring near $87,000 and Tesla stock climbing for the fifth consecutive session. Leading the charge, the Dow Jones Industrial Average gained nearly 0.7%, surpassing the 44,000 mark for the first time in history, while the S&P 500 broke past the 6,000 level. Both indices capped last week with record gains, marking their strongest performance of the year. Meanwhile, the Nasdaq Composite managed a slight gain, supported by tech stocks like Nvidia, Apple, and Meta, although they lagged overall. Small-cap stocks also joined the rally, with the Russell 2000 reaching its highest point since November 2021.

This bullish start to the week was bolstered by expectations of lower corporate taxes and deregulation under President-elect Donald Trump, alongside the recent Federal Reserve rate cut. Bitcoin, benefiting from high hopes for a crypto-supportive administration, reached new heights, while Dogecoin and other digital currencies followed suit, buoyed by Trump’s vision to position the U.S. as a global leader in cryptocurrency. This optimism spilled over into crypto-related stocks, with trading platform Coinbase jumping over 20% and Robinhood gaining more than 10%. Tesla, another beneficiary of the "Trump trade," saw an 8% increase, reaching its highest closing price in over two years as confidence in CEO Elon Musk’s rapport with the incoming president fueled investor enthusiasm.

However, some analysts are beginning to question the rally’s sustainability. Wall Street is eyeing October’s consumer inflation data due Wednesday, which could shape expectations for future rate changes. Federal Reserve Chair Jerome Powell remained silent last week on how Trump’s proposed policies, such as tariffs, might influence inflation, leaving the market speculating on the Fed's next moves in response to the new administration’s economic agenda.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) closed at $598.76, with a 0.10% gain from the previous session, on a trading volume of 31.33 million shares. SPY opened at $599.85, reached a high of $600.17, and a low of $597. This session marked another test of the critical $600 level, which remains a significant psychological resistance point for traders. Key support has been established at $597, providing a potential floor for further gains. Investor optimism and recent earnings have reinforced SPY’s upward trend, though a clear break above $600 could signal more bullish momentum in the sessions ahead.

Major Indices Performance:

The Dow Jones led Monday’s gains with a 0.69% increase, setting another record as it closed above the 44,000 mark for the first time. The Russell 2000 posted a notable gain of 1.50%, signaling renewed investor confidence in small-cap stocks, while the S&P 500 climbed above the 6,000 level, finishing the day with a 0.1% gain. The Nasdaq Composite trailed slightly, managing a 0.09% increase, with key tech names like Nvidia, Apple, and Meta seeing mixed performance. Despite fluctuations in tech, market sentiment remained bullish overall, supported by strong post-election momentum, though investors are starting to watch for signs of a possible consolidation.

Notable Stock Movements:

Tesla led the "Magnificent Seven" tech stocks with a significant gain, climbing over 8% as it extended its winning streak. This move pushed Tesla’s market capitalization above $1 trillion, with positive sentiment around President-elect Trump’s administration seen as supportive of the electric vehicle sector. Other tech giants in the group, such as Nvidia and Meta, experienced modest declines as profit-taking set in. However, the crypto-focused companies like Coinbase and Robinhood surged by over 20% and 10%, respectively, reflecting the bullish sentiment around cryptocurrency driven by Trump’s anticipated pro-crypto stance. This mixed performance reflects cautious optimism within the tech sector, with Tesla as the standout performer.

Commodity and Cryptocurrency Updates:

Crude oil prices declined sharply by 3.18%, reflecting ongoing investor uncertainty around global demand and China’s recent economic measures. Gold fell similarly, posting a 2.43% decrease, as risk-on sentiment led investors away from traditional safe havens. Bitcoin, however, surged nearly 10%, closing above $87,000 on optimism about favorable regulatory support from the incoming administration. This bullish sentiment for Bitcoin also spilled over into other cryptocurrencies, with assets like Dogecoin seeing similar gains, as confidence in crypto’s position in the U.S. continues to grow. We continue to forecast Bitcoin reaching $100K in the near term.

Treasury Yield Information:

The 10-year Treasury yield rose by 0.64% to close at 4.339%, hovering above the 4.3% mark, a threshold often seen as a point of concern for equities. The slight increase in yields suggests a cautious approach from investors as they await Wednesday’s Core CPI report for indications on inflation trends and potential Federal Reserve actions. The persistence of yields above 4.3% adds a degree of caution to the broader bullish sentiment, particularly as it affects sectors sensitive to interest rate fluctuations.

Previous Day’s Forecast Analysis:

Friday’s forecast projected a bullish continuation with a focus on the $595 support and potential movement toward the $600 level. Key resistance was expected around $600, with a cautionary note about profit-taking at this level. The forecast emphasized long trades with a potential target near $600, while discouraging short entries unless substantial reversals occurred. The bias remained bullish, allowing traders to capitalize on SPY’s upward momentum, particularly as it respected critical levels set out in Thursday’s analysis.

Market Performance vs. Forecast:

SPY’s performance aligned with Friday’s forecast as it tested the $597 level, peaking at $600.17 before settling at $598.76. This movement followed the anticipated trajectory, allowing traders to engage in long trades around the $596 support, with the upward range nearing the $600 resistance. Profit-taking near this level was anticipated and realized, underscoring the forecast’s accuracy in identifying pivotal support and resistance. The session’s orderly climb validated the forecast and its cautious approach, particularly as SPY respected the outlined trading range. We opened the door in the forecast to shorts once again from $600 and higher and this trade presented in the premarket at 8 am and again at the open.

Premarket Analysis Summary:

In the premarket today, SPY’s spot price was $600.25, with an upside target of $602 and a maximum expectation around $605. The analysis leaned toward long entries above the bias level of $599.75, with the expectation of further gains. If SPY lost this level, downside targets were set near $595.65. The strategy favored cautious long trades in a fragile market environment, prioritizing gains above the bias level while noting potential risks with short trades due to recent bullish momentum.

Validation of the Analysis:

Today’s market closely followed the premarket analysis, respecting key levels around $599.75 and testing the upside target near $602. SPY’s resilience at the bias level confirmed the accuracy of the premarket insight, with long trades yielding gains as the ETF moved closer to the $602 target. Traders following the analysis capitalized on controlled price action around support and resistance, validating the premarket’s guidance on trading behavior and reinforcing its reliability for navigating today’s market movement.

Looking Ahead:

The week’s economic calendar remains light until Wednesday when Core CPI data is set for release. This report will be crucial for assessing inflation trends and influencing the Federal Reserve’s future policy. Markets may remain cautious early in the week as traders await these figures, with an expectation of heightened volatility on Wednesday. The CPI data could provide direction for risk assets, particularly if it influences rate expectations.

Market Sentiment and Key Levels:

SPY’s current position around $600 reflects a bullish market sentiment, though the $600 mark remains a psychological resistance level. Key support lies at $595, with a sustained break above $600 potentially paving the way for new highs. Conversely, if resistance holds, SPY could retrace toward support at $595. The bulls currently dominate, underpinned by robust earnings and policy shifts, though traders remain mindful of potential reversals at these elevated levels.

Expected Price Action:

SPY is projected to spend most of its time on Tuesday between $596 and $602, with a bullish bias leaning towards continued gains. Should SPY break the $600 level, the target shifts higher to $603, while any failure to hold could result in a pullback toward $595. A dip below $594 would indicate potential consolidation, with heightened caution around Wednesday’s Core CPI release. This “actionable intelligence” suggests traders monitor key levels closely to capitalize on entry opportunities aligned with prevailing sentiment.

Trading Strategy:

Long entries should be considered around support at $595, with exits near resistance around $600. Should SPY fall below $595, it’s advisable to take a cautious approach, employing smaller positions and quick profit-taking strategies. Short entries are best reserved for levels near $600 and higher, with stop-losses tightly managed. The VIX remains low as the market consolidates and likely trades in a tight range until CPI. Position sizing should be conservative, with flexible stop-losses near support to minimize risk amid potential CPI-driven swings.

Model’s Projected Range:

Our model projects SPY’s range between $594 and $602.25, with a Call-dominated stance suggesting a slightly bullish outlook. SPY continues in a bullish trend channel from the September lows, anchored by support at $595, with $600 as a key resistance. Should SPY maintain its trajectory above $600, higher resistance levels may be tested, while a drop below $594 could prompt a move toward lower support levels. SPY is mid channel with room to move either way. External factors, like economic data releases, could impact this range, necessitating close monitoring for shifts in sentiment.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State with price closing just above mid-range below resistance. The range is quite large and there are no extended targets above. This indicates a solid bull trend but perhaps one that is slowing. The MSI rescaled higher several times during the premarket but did not rescale the entire session. There were no extended targets all day. MSI support is $592.79 and resistance is $600.96.
Key Levels and Market Movements:
The MSI rescaled prior to the open but without extended targets and price approaching major resistance at $600, MSI users knew MSI resistance would likely hold, which it did. It also opened the door to mean reversion shorts given no extended targets were printing. Premarket set up a perfect failed breakout but those who only trade the day session also had a short opportunity at the open to $597. A failed breakdown at this level at 1 pm and once again, MSI users knew to take a scalp long off of this support level. This was not an easy day to trade, given how tight the range was. But the MSI told you the trend was long and also told you it was safe to short major resistance at $600. Last week we advised caution against taking shorts until price reached our major level of $600. Friday, we had a weak short from this level and another, more substantial one today.
Trading Strategy Based on MSI:
The MSI's current state suggests the bulls remain in control with price moving sideways to slightly higher. Again we stress caution at these levels given the size of last week’s move. We forecast today would likely be a pullback or sideways day and that is precisely what transpired. But price barely pulled back after rallying overnight to new highs.  As such the market remains long until it isn’t. Shorts are still only recommended from major overhead resistance in the $600 to $602 range until price breaks below $585 where the bulls will lose some control to the bears. Between $585 and $595 we favor scalp longs toward $600. We would not sit for hours or days in any trade at this time. There is simply too much risk either way. Wednesday its likely we will see a resolution to today and tomorrows chop. But until then, Tuesday is setting up to be much like today with tactical longs toward $600 as the primary trade. The MSI range remains quite large which implies some uncertainty whether the bull trend will continue for much longer. Our model forecast a $10 or larger selloff to come at any time. $592 is a level the bulls want to defend and should we get a pullback that stalls in this area, we favor longs back toward $600.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $600 to $604 and higher strike Calls while buying $599 Calls implying a desire to participate in any upside to $603 with a likely ceiling at $604. To the downside, Dealers are buying $598 to $590 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying, implying a bearish view of the market for Tuesday. Dealers started positioning for lower prices last Friday and have maintained this posture with little change heading into Tuesday. We view this positioning as Dealers belief the market will move sideways on Tuesday more than fall off a cliff.   
Looking Ahead to Friday:
Dealers are selling $599 to $607 and higher strike Calls while also selling $594 to $598 Puts in small size, implying the Dealers belief that the market will continue to move higher this week. Dealers rarely sell Puts unless they believe the prices will move up. Most Dealers Puts are $594 so its likely Dealers see this level as a potential floor. Dealers are also lowering the strikes of the Calls they are selling which implies a ceiling at $605. To the downside, Dealers are buying $593 to $572 and lower strike Puts in a 4:1 ratio to the Calls/Puts they are selling implying a slightly bearish view of the markets. This hasn’t changed since Friday. We continue to advise watching this closely over the next few days as Dealers will provide clues as to what will happen in the near term.

Recommendation for Traders:

As we approach mid-week economic data, traders should balance optimism with caution. The post-election rally and rate cuts have provided momentum, but key support near $595 and resistance around $600 could create volatility. For Tuesday, long entries around support levels near $595, 590 and $585 are advised if these zones are tested. Below $585 and the market may be in for a much deeper pullback and we would not initiate long positions. Short trades should be limited to very strong resistance levels, particularly around $600 to $603. Tight stop-losses and disciplined risk management are essential to navigate fluctuations, particularly with the upcoming CPI data. We advise checking the premarket analysis before market open at 9 AM ET for updated guidance.

Good luck and good trading!