Market Insights: Wednesday, November 13th, 2024

Market Overview:

US stock markets ended Wednesday with mixed results as the latest Consumer Price Index (CPI) report delivered inflation data that closely aligned with forecasts, reinforcing expectations of a Federal Reserve rate cut next month. The Nasdaq Composite, heavily weighted in tech, slid by 0.3% after earlier gains, while the S&P 500 closed slightly above break-even. The Dow Jones managed a modest 0.1% gain. Bitcoin surged to a new high, briefly topping $93,000, before pulling back slightly. October’s inflation report showed a year-over-year CPI increase of 2.6% and a monthly rise of 0.2%, both meeting expectations. The “core” inflation rates also met forecasts, with a 3.3% year-over-year and a 0.3% monthly increase, affirming market views on inflation’s steady pace. Investors are weighing potential inflationary impacts from President-elect Donald Trump's policies, as well as the likelihood of higher Treasury yields, which could elevate borrowing costs. With over 80% of market participants now anticipating a December rate cut, markets are carefully monitoring the Fed’s signals, as a higher-than-expected inflation reading in future reports could prompt a reassessment.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) edged up just 0.05% to close at $597.18, trading within a familiar range on Wednesday. Volume was steady at approximately 41.51 million shares. SPY began the day at $597.39, reached a high of $599.23, and dipped to a low of $594.96. This price action reaffirms the market's current consolidation phase, with resistance around $599 to $600 holding firm, while support is steady near $595, allowing for orderly two-way trading amid cautious investor sentiment.

Major Indices Performance:

The Dow Jones Industrial Average emerged as the strongest performer with a 0.1% gain, supported by stable moves in blue-chip stocks. The S&P 500 barely edged above the flatline, reflecting investor caution and a balanced stance as they weighed inflation data and future Fed decisions. The Nasdaq Composite experienced a 0.23% decline, led by subdued tech performance and slight profit-taking in growth stocks. Small caps, as represented by the Russell 2000, lagged significantly with a 0.98% drop, underscoring investor hesitance toward higher-risk segments. Sectors varied, with defensive stocks showing resilience, while tech and consumer discretionary stocks faced mild pressure, a signal of growing caution as investors anticipate potential shifts in policy.

Notable Stock Movements:

Among the "Magnificent Seven" tech giants, Amazon led gains, advancing on investor optimism about upcoming holiday season sales. Alphabet, Meta, and Nvidia posted modest losses while the others gained slightly reflecting broader uncertainty around inflation’s impact on tech spending. The mixed results across these stocks mirror market caution as investors recalibrate tech sector valuations in light of sustained inflationary pressures and rising Treasury yields.

Commodity and Cryptocurrency Updates:

Oil prices slipped slightly, losing 0.22%, while gold prices dropped more notably by 0.95%, as investors moved away from safe-haven assets following the inflation report. Bitcoin remained in focus, recording a 0.07% increase, and closing above $89,000. The cryptocurrency briefly surged to a new all-time high earlier in the day, fueled by optimism surrounding pro-crypto policies expected under the Trump administration. Despite minor fluctuations, Bitcoin’s upward trend remains intact, underscoring its appeal in an inflation-sensitive environment.

Treasury Yield Information:

The 10-year Treasury yield rose by 0.41% to 4.453%, maintaining levels above the critical 4.3% mark. This increase indicates sustained investor caution, particularly in the face of inflation data, as rising yields tend to pressure equity valuations. Growth-sensitive sectors remain vulnerable to further yield climbs, as persistently high borrowing costs could impact corporate earnings, especially within tech and other capital-intensive sectors.

Previous Day’s Forecast Analysis:

Tuesday’s forecast anticipated SPY would trade within the $593 to $602 range, emphasizing resistance around $600 and support near $595. The recommendation highlighted opportunities for tactical long entries near support and suggested profit-taking at resistance levels. The strategy was to remain vigilant for potential pullbacks amid consolidation, with a focus on disciplined exits around key levels, especially if volatility picked up around CPI data. Traders were advised to be cautious in case SPY dipped below the $595 level, potentially triggering further declines.

Market Performance vs. Forecast:

Wednesday’s performance aligned closely with the forecast’s projected range, with SPY moving from an open of $597.39 to test the upper end of the range near $599. Although the index reached a high of $599.23, it ultimately fell back, staying within the anticipated consolidation band. The day’s low of $594.96 demonstrated the forecast’s accuracy in identifying $595 as a critical support level. The steady price action allowed traders to capitalize on pre-identified levels, with controlled upward moves providing an opportunity to engage in tactical long entries and timely exits.

Premarket Analysis Summary:

In today’s premarket analysis, published at 8:58 AM, SPY’s spot price was recorded at $597.33, with expected upside targets of $598, $599, and $600. A projected maximum target of $602 was outlined, while downside support focused around $597 and $595.50. The bias leaned slightly bullish, provided SPY could reclaim $598. The analysis advised cautious optimism, with potential profit-taking recommended at higher levels, especially if SPY struggled to clear $598 sustainably. The forecast urged traders to remain adaptable, ready for potential downside moves if SPY faltered below $597.

Validation of the Analysis:

The premarket analysis proved highly accurate as SPY respected key levels, notably the $598 bias point and support around $595. SPY briefly dipped below $598 after an initial jump, validating the recommendation to approach longs cautiously until a reclaim of $598. The day’s trading respected the anticipated resistance near $600, with pullbacks remaining within the defined range. This adherence to forecasted levels enabled disciplined traders to capitalize on both long and short opportunities, demonstrating the effectiveness of the analysis.

Looking Ahead:

With upcoming PPI and Unemployment Claims as well as Retail Sales data and scheduled remarks from Fed members Collins and Williams on Friday, market attention will remain on inflation and spending trends. These releases, particularly if they diverge from expectations, could steer market sentiment ahead of Friday. PPI allows policymakers to gauge economic health and also servers to inform monetary policy decisions. Retail sales will offer insight into consumer resilience in the face of elevated prices, while Fed commentary may clarify policy stance, influencing expectations for future rate adjustments.

Market Sentiment and Key Levels:

SPY’s current price action around $597 indicates a slightly bullish bias, although traders remain cautious as inflation remains a central concern. Resistance around $600 remains a pivotal point, with $602 as an upper boundary for bullish movement, while support at $595 and further at $593 will be closely watched by market participants. Sentiment favors a balanced approach, with bulls maintaining a slight edge but facing resistance at higher levels. A break above $600 could trigger a broader move upward, while a breach below $595 might catalyze further downside, particularly if inflation concerns intensify. Our models sees more resistance building at $599, which increases the probability of a pullback near term.

Expected Price Action:

SPY is anticipated to trade within the $593 to $600 range on Thursday, with continued consolidation likely. A bullish bias suggests the potential for testing resistance at $600, provided support near $595 holds firm. Breaking above $600 could push SPY toward $602, while a failure to maintain $595 may open a path toward $593 or lower. External influences, such as PPI and Unemployment Claims, may prompt sharp price swings on Thursday. Traders are encouraged to monitor these key levels closely, as they offer actionable intelligence for the next session.

Trading Strategy:

For Thursday, traders are advised to watch for long entry opportunities around the $595 support level, targeting exits near $600. Short positions could be considered if SPY approaches $600 and shows signs of resistance, with downside targets near $595. Given the current low volatility, as indicated by VIX at 14, maintaining smaller position sizes and tightening stop-losses near resistance is prudent. A flexible approach will be essential, with disciplined entries and exits ensuring controlled risk exposure in a range-bound market. We continue to favor failed breakout/failed breakdown trades and today was no exception. A perfect failed breakdown at 10 am once again trapped shorts at major support at $595 which led to a greater than $4 move back toward $600. This is classic behavior and one every trader should learn to master.

Model’s Projected Range:

The model projects SPY to trade between $594.25 and $602.75, a narrow range suggesting two-way trading opportunities. With Call dominance, a bullish outlook is slightly favored within this range. SPY is near the lower end of the bull trend channel that began in September with major support at $595 and $594, with resistance at $599 and $600. Traders should be prepared for range-bound trading, as sentiment appears evenly balanced with the potential for breakout on favorable or unfavorable PPI.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Ranging Market State with price closing mid-range. The range size is average implying some potential to rescale to a trending state after PPI. Until then the market likely continues to consolidate until an external catalyst moves price. The MSI opened in a Ranging Market State, rescaled lower after the open to a Bearish Trending Market State, briefly printing extended targets before reversing course and moving through a Ranging State to a narrow Bullish Trending Market State which eventually gave way with price settling in its current ranging state. MSI support is $596.58 and resistance is $598.33.
Key Levels and Market Movements:
The MSI entering the day in a ranging state, and even after the pop from CPI, MSI clearly indicated price would not continue to rise. While you could have shorted when the MSI rescaled to a Bearish Trending Market State after the open, price was at $597 and somewhat in no mans land. A better strategy was to wait for price to reach $595 and look for a failed breakdown, as long as there were no extended targets below. While we got one bar with an extended target at 10 am, this quickly faded at major support and price set up a textbook failed breakdown, trapping shorts. The squeeze set in and price ripped right back to major overhead resistance near $600. A double top at that level without extended targets and price gave most of the rally back reaching $597 which was MSI support. Two solid trades once again and enough to support a trading career. Again combing our model’s levels with a failed breakout/breakdown pattern with MSI levels, enables you to fine tune entries and exits to assume less risk while securing maximum gain. We always recommend taking first profits at MSI levels given these are proven to be successful 70% of the time and suggest scaling the balance of your position at the next MSI level while leaving 10% of your position to trail to major support or resistance. And if your day starts in the green, we never let it turn red. This is something every trader should try to employ daily. Trade management and scaling logic are important to being a successful trader. Incorporating the MSI in your trading process adds a bias, trend, and target dimension most are simply unable to determine on their own. We highly recommend you incorporate this tool into your arsenal to achieve the best results.   
Trading Strategy Based on MSI:
The MSI's current state suggests a sideways market until a catalyst moves price one way or the other. The range is about average, which implies uncertainty. Another big down move today followed by a big up move is the definition of a trading range and therefore uncertainty. For Thursday look for a break of major levels and use the MSI to determine the direction and scale of the move. It’s likely the market will provide some trending opportunities tomorrow after PPI so get with the MSI trend and ride it level to level. Our model continues to forecast a $10 or larger selloff is due at any time. $593 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 $599 to $601 and higher strike Calls while buying $598 Calls implying a desire to participate in any upside to $601. This level has lowered this week from $602 implying Dealers believe we are topping out, at least this week. To the downside, Dealers are buying $597 to $588 and lower strike Puts in a 4:1 ratio to the Calls they are selling/buying, implying a slightly bearish view of the market for Thursday. Dealers reduced their bearish posture a bit today heading into PPI. Dealers are ready for a move either way.   
Looking Ahead to Friday:
Dealer are selling $598 to $605 and higher strike Calls while also selling $594 Puts, implying the Dealers belief the market will continue to move higher into Friday, remaining above $594. Dealers rarely sell Puts unless they believe prices will move up. To the downside, Dealers are buying $597 to $572 and lower strike Puts in a 7:1 ratio to the Calls/Puts they are selling implying an increasingly bearish view of the markets. We advise watching Dealer positioning closely over the next few days as Dealers will provide clues as to what will develop in the near term.

Recommendation for Traders:

Traders should approach Thursday’s market with a balanced perspective, looking to initiate long trades near support at $595 while targeting exits at resistance levels like $600. Short positions are suggested around $600 if resistance holds, with profit-taking targets near $595. Caution is advised around the PPI release as volatility could spike, requiring tighter stop-losses and smaller positions. This strategy should help manage risks effectively while navigating expected price swings. Review the premarket analysis posted before 9 AM ET for updates on market direction, bias, and levels to trade.

Good luck and good trading!