Market Insights: Thursday, November 14th, 2024

Market Overview:

US markets retreated on Thursday as Federal Reserve Chair Jerome Powell's comments suggested that the Fed is not in a rush to cut interest rates. The Dow dropped by 0.5%, losing over 200 points, while the S&P 500 fell 0.6% and the Nasdaq Composite declined 0.7%. This pullback signals a pause in the recent post-election rally as investors reevaluate their expectations. Powell underscored the resilience of the U.S. economy and noted that the Fed would be vigilant in keeping inflation within an acceptable range. A recent report showed wholesale inflation rising more than anticipated, which raised concerns about the Fed's future rate path. The post-election landscape has Republicans retaining control in the House, enabling President-elect Donald Trump to advance his economic agenda. This political unity supports expectations for pro-growth policies, yet some market sectors, particularly those reliant on federal support, like electric vehicles, are seeing mixed responses. Tesla fell over 5.5%, impacted by reports that the administration may eliminate the $7,500 EV tax credit. Meanwhile, Disney saw a 6% surge as strong streaming earnings bolstered confidence in the entertainment giant.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) recorded a 0.59% drop, closing at $593.65 with a trading volume of 31.98 million, below the average. SPY moved within a range between $592.65 and $597.81, reflecting the market's cautious sentiment amid Powell’s statements. Despite a brief push above $597, SPY retreated, aligning with the broader market's trend of subdued performance following inflation concerns and Fed policy updates.

Major Indices Performance:

The Russell 2000 was the weakest performer, down 1.40%, highlighting investor hesitance in riskier small-cap stocks. The Nasdaq Composite followed, falling 0.79%, weighed by tech sector pressures as future rate cuts remain uncertain. The Dow Jones decreased 0.54%, with blue-chip stocks facing resistance, while the S&P 500 registered a 0.6% loss. Defensive sectors saw relative strength, contrasting with weakness in growth-oriented sectors. Broadly, market sentiment has shifted to caution, underscored by Powell’s comments and ongoing inflationary signals.

Notable Stock Movements:

Among the "Magnificent Seven," Tesla led the declines, dropping over 5.5% amid speculation regarding potential EV policy changes. Nvidia, Microsoft, Netflix, and Apple recorded slight gains, while Alphabet and Meta were down modestly, reflecting the mixed sentiment toward tech. Disney was a notable gainer, surging over 6% following better-than-expected streaming revenue. This divergence in performance within the sector mirrors broader uncertainty, especially concerning policy-sensitive companies.

Commodity and Cryptocurrency Updates:

Oil prices edged up by 0.25%, signaling slight strength in commodities as the dollar remained steady. Gold declined by 0.49% as safe-haven assets lost appeal amidst a resilient economic outlook. Bitcoin dipped by 2.26%, closing below $88,000, as investor enthusiasm tapered off. Cryptocurrency markets are experiencing increased volatility as they digest both macroeconomic policy shifts and speculative swings, suggesting a need for caution as the sector remains sensitive to regulatory sentiment.

Treasury Yield Information:

The 10-year Treasury yield saw a minor dip of 0.04%, closing at 4.451%, yet staying above the critical 4.3% threshold that often pressures equity valuations. This elevated yield environment poses challenges for capital-intensive sectors like technology, as borrowing costs remain high. Rising yields continue to anchor cautious sentiment in equities, with the Fed’s policy outlook leaving little room for downside rate adjustments in the near term.

Previous Day’s Forecast Analysis:

Wednesday’s forecast projected SPY to trade within the $593 to $600 range, with primary support near $595 and resistance around $599-$600. Long entry opportunities were advised near $595, with profit-taking at resistance levels. The strategy highlighted a cautious approach due to anticipated low volatility and potential for consolidation around PPI data. Traders were advised to be vigilant if SPY fell below $595, as this could trigger further declines to $593, aligning closely with the observed price action.

Market Performance vs. Forecast:

SPY’s movement on Thursday closely adhered to the forecasted range, which anticipated trading between $593 and $600 with significant resistance around $599. SPY opened at $597.32, tested the upper levels by reaching $597.81, and ultimately closed lower at $593.35, aligning with the forecast's emphasis on resistance holding firm near $599. This predicted consolidation allowed traders to capitalize on pre-identified levels, particularly in initiating short positions near resistance as SPY retreated. The forecast's emphasis on a cautious approach and controlled entries near support at $595 proved beneficial, as this level demonstrated its strength by halting any deeper decline early in the session before SPY turned lower. The orderly price action within the forecasted range allowed traders to engage in well-timed long and short trades at both ends of the anticipated spectrum. Those who followed the forecast could capture profitable moves, particularly as SPY dipped below its opening price and tested the lower bounds. This adherence to forecasted support and resistance levels underscored the value of defined entry and exit points, highlighting the precision of the analysis. Traders who acted on the forecasted resistance and support levels benefitted from a disciplined approach, reinforcing the value of the forecast in capturing reliable market movements.

Premarket Analysis Summary:

In today’s premarket analysis, published at 7:53 AM, SPY’s spot price was noted at $597.83, with upside targets at $599 and $600, and downside support at $597, $595, and a potential extension to $591 if selling pressure intensified. A cautious tone prevailed, with expectations favoring downside if SPY failed to sustain levels above $599. Traders were advised to consider short entries on rejection of upside targets and to monitor support levels carefully, as losses below $597 could accelerate further declines.

Validation of the Analysis:

SPY’s performance on Thursday validated the premarket analysis remarkably well, especially in how it adhered to the key support and resistance levels identified before the market opened. The analysis called for cautious trading if SPY failed to break above $599, and this level indeed held firm as SPY met resistance multiple times throughout the session, confirming the premarket's bias toward downside momentum. The recommended short entries near $599 provided effective opportunities for traders as SPY consistently struggled to maintain gains above this level, eventually retreating and confirming the analysis's cautionary outlook. As SPY moved downward, it respected the downside targets identified, particularly around $597 and $595, which the analysis pinpointed as crucial levels for monitoring potential support. SPY’s inability to hold above these levels paved the way for further declines, with selling pressure intensifying as SPY approached the lower boundary targets outlined at $591. This precision in identifying both the upper resistance and lower support validated the analysis’s guidance and enabled disciplined traders to navigate the market’s movements with confidence. Traders who followed these levels captured key reversal points and capitalized on predictable pullbacks, underscoring the accuracy and reliability of the premarket analysis in defining actionable entry and exit points.

Looking Ahead:

Friday’s upcoming economic data, including Retail Sales and speeches from Fed members Collins and Williams, will be in focus. These data points, particularly Retail Sales, will provide insight into consumer spending amid higher prices. With the Fed’s current stance, any deviations from expected data could influence sentiment, especially as inflation remains in focus. Fed commentary may offer further clues on the potential for future rate adjustments.

Market Sentiment and Key Levels:

SPY closed around $593, indicating a cautious, slightly bearish sentiment as inflationary pressures persist. With resistance seen near $594 and support around $590, sentiment favors a pullback as traders brace for potential downside risks. A break above $594 could signal a short-term rally, but failing to decisively break this level may lead to further declines. The market appears ready to move with upcoming economic data poised to tip sentiment either way.

Expected Price Action:

The model projects SPY to trade within the $591 to $597 range on Friday, with consolidation likely to continue. While the bulls still drive the market, a bearish tilt is emerging suggesting potential for testing support around $590. Bulls may defend this level to stabilize price. Breaking below $590 could prompt a slide toward $588, while upside movement above $597 might drive SPY to test $600. This forecast offers actionable intelligence, emphasizing the levels to trade for Friday. Note economic data could drive volatility and as always, be prepared to trade what you see after any news release.

Trading Strategy:

For Friday, traders are advised to watch for long entries near support at $590, with exits near $594. Short positions are favored if SPY fails to break resistance at $597, with downside targets around $594. Elevated caution is advised, particularly around Retail Sales data, as it may prompt swift price changes. VIX remains low, yet volatility could increase with upcoming economic releases. As always, manage trades closely, ensuring flexibility with entries and exits.

Model’s Projected Range:

The model projects a maximum range for SPY of $589.75 to $600, with a slightly bullish outlook amid Call dominance, implying choppy two-way trading. Key support is identified at $590, with resistance at $594 and $597. SPY remains near the lower boundary of its bull trend channel, risking a break of the trend channel which will lead to lower prices.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bearish Trending Market State with price closing at MSI support. The size of the range is a bit narrow, implying a weak trend. The MSI opened in a Ranging Market State after PPI and rescaled lower after the open to a Bearish Trending Market State. MSI then rescaled back to a Ranging Market State before rescaling back to a Bearish Trending Market State printing extended targets below. After a quick drop, in the noon hour the MSI once again rescaled to a Ranging Market State flipping between a Bearish Trending Market State and a Ranging Market State. Finally in the last hour of the day, the MSI turned bearish and briefly printed extended targets reinforcing the move lower into the close. MSI support is $593.02 and resistance is $594.32.
Key Levels and Market Movements:
The MSI entering the day in a very narrow Ranging state, flip flopping from ranging to bearish in the premarket. This behavior continued for most of the day with an hour of selling mid-day with the MSI rescaling lower several times and printing extended targets below. This was a clear indication to get short and stay short to our lower target of $593. Once there price reversed briefly to $595 with support becoming resistance, and the MSI again flipped back to a ranging state. Finally in the last hour of the day the MSI turned bearish with price retesting the lows of the day, closing near the daily low. The best trade today was the short at the open once the MSI turned bearish. There was an opportunity for a bounce long at $595 which provided a couple of dollars profit but again, once the MSI turned bearish before noon, it was back short to the lows of the day. Two to three trades today which all turned out well for those with the MSI and our model’s levels. We highly recommend you incorporate these tools into your arsenal to achieve the best results.
Trading Strategy Based on MSI:
The MSI's current state suggests the bears are exerting their influence in the short term. But with a narrow range and lots of flipping back and forth, an “elevator down” bear market did not present itself today. Instead it was a grind down which keeps the bulls in control. We suggested today was a day to look for a break of our major levels and the break of $595 surely provided that today. For Friday the levels have shifted lower to $590 as major support and $597 as major resistance. Probabilities suggest we trade within these lower levels on Friday given there was little volume today supporting the move lower. We reiterate however, our model continues to forecast a $10 or larger selloff at any time. In fact its likely the market pulls back 5% or more at some point. The bulls did defend $593 as suggested they would but this level is now weak and if the market decides to move lower, the next level the bulls will defend is $590. To move back to higher prices, the bulls need to now overcome $594 and then $597…no small feat in the current environment. Smart money has pushed these levels down, indicating the market will likely stall on the way back up. As such we favor two-way trading between our model’s levels on Friday.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $600 to $605 and higher strike Calls while buying $594 to $599 Calls implying a desire to participate in any upside to $600. Once again, this level moved lower implying Dealers believe the market is topping out, at least this week. To the downside, Dealers are buying $593 to $585 and lower strike Puts in a 1:5 ratio to the Calls they are selling/buying, implying a very bullish view of the market for Friday. We would be very cautious with this view as its highly likely most of the Dealers positions today ended ITM and therefore positioning for tomorrow is inaccurate. Dealers use Futures to hedge when this happens and its very likely they have much more protection with Futures and will update their options positions tomorrow.  
Looking Ahead to Next Friday:
Dealers are selling $595 and $599 to $603 and higher strike Calls while also buying $596 to $598 Calls, implying the Dealers' have a split view of the market for next week. They are positioned for both higher and lower prices and are able to participate either way with their positioning. Selling $595 Calls which are very close to the money is bearish. Therefore Dealers believe the market may rally to $595 next week but believe it could also top out there and fall lower. But if price sustains a break above $595, Dealers believe price could continue to as high as $600. To the downside, Dealers are buying $593 to $575 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying, implying a less bearish view of the markets for next week. Again like today, it’s very likely this exposure shifted due to today’s pullback and Dealers will adjust their positioning tomorrow. 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 Friday’s market with a cautiously balanced to slightly bearish outlook. Consider initiating long trades near the support level at $590, aiming for exits around the resistance level at $594. For short positions, $597 is an optimal entry point if resistance holds, with downside targets at $593. With limited economic news expected until later next week, the market may experience some volatility around the Retail Sales data release, followed by a period of potential choppiness, offering two-way trading opportunities. While the broader market bias leans bullish, sentiment softened slightly today. Given the current low trading volume, today’s move might prove to be another isolated event, as has often been the case in 2024. A potential reversal on Friday could still be on the table. As context, last week saw the largest S&P rally of the year and the most significant post-election rally in history. Following such a strong push, it’s common to see a period of consolidation as the market prepares for its next direction, potentially over the coming week or longer. We recommend staying informed by reviewing the premarket analysis posted by 9 AM ET daily, allowing traders to adapt to any shifts in our model’s outlook and Dealer Positioning.

Bottom of Form

Good luck and good trading!