Market Insights: Monday, November 18th, 2024

Market Overview:

US stocks began the week with a mixed performance, as the tech sector showed early signs of recovery, buoyed by a sharp rise in Tesla shares. The Nasdaq Composite led the day's gains, rising 0.6%, while the S&P 500 climbed 0.4%. Meanwhile, the Dow Jones Industrial Average lagged behind, slipping 0.13%. Investors remained cautious, navigating through uncertainty surrounding Federal Reserve policy and awaiting Nvidia’s earnings report on Wednesday, a critical indicator for the AI-driven market. Tesla surged over 5%, propelled by reports that the incoming administration plans to ease regulations on autonomous vehicles, adding momentum to the electric vehicle space. Elsewhere, Bitcoin rebounded strongly, topping $91,000 as the cryptocurrency market stabilized after a weekend dip. The broader sentiment reflects optimism tempered by caution, with key upcoming events, including Nvidia's earnings and Federal Reserve commentary, poised to set the tone for the week.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) gained 0.40%, closing at $588.11. The trading range was relatively narrow, with SPY reaching a high of $589.49 and a low of $585.34 on below-average volume of 30.32 million shares. This modest increase reflects the market’s tentative recovery, supported by Tesla’s rally and early strength in the tech sector. However, SPY’s struggle to sustain momentum above $588 underscores lingering caution.

Major Indices Performance:

The Nasdaq Composite was the top performer, up 0.6%, as Tesla’s surge and anticipation around Nvidia's earnings buoyed the tech-heavy index. The S&P 500 followed marking a positive start to the week. The Russell 2000 posted a 0.2% increase, reflecting moderate optimism in small-cap equities. Conversely, the Dow Jones Industrial Average slipped, weighed down by losses in defensive sectors. While tech stocks rebounded, broader market sentiment remains cautious amid concerns over interest rate policy and geopolitical uncertainties.

Notable Stock Movements:

Tesla led the day’s gains within the Magnificent Seven, soaring over 5% on optimism surrounding regulatory easing for self-driving technology. The rest of the group posted more modest gains, with Nvidia and Amazon trailing behind. Nvidia’s upcoming earnings added an element of suspense, with investors closely watching for updates on its AI initiatives and chip production. These movements indicate a selective rebound within the tech sector, highlighting divergent investor sentiment across high-growth equities.

Commodity and Cryptocurrency Updates:

Crude oil prices jumped 3.23%, reversing recent declines as demand outlooks stabilized amid geopolitical tensions. Gold also advanced, rising 1.91%, as investors sought safe-haven assets despite modest equity market gains. Bitcoin climbed 1.90%, closing above $91,000, signaling renewed confidence in the cryptocurrency space. These trends reflect a blend of risk-on and risk-off dynamics, shaping the commodities and digital assets markets with Bitcoin targeting $100K in the near term.

Treasury Yield Information:

The 10-year Treasury yield edged down 0.20%, closing at 4.418%. Despite the slight decline, yields remain above the critical 4.3% threshold, maintaining pressure on equity valuations. The pullback in yields provided some relief to interest-sensitive sectors, yet the persistent proximity to high levels underscores ongoing uncertainty about Federal Reserve policy.

Previous Day’s Forecast Analysis:

Friday’s forecast anticipated SPY to trade within a range of $580 to $590, highlighting $585 as a pivotal bias level with resistance near $590 and support at $585 and $583. The analysis suggested that holding above $585 would favor a move higher, potentially testing $590, while a breakdown below $585 could lead to a slide toward $580. The strategy recommended focusing on long trades at support levels, especially around $585, and short trades near resistance at $590. Traders were also advised to manage positions tightly, given elevated volatility and the likelihood of choppy price action. This cautious but actionable approach provided a balanced outlook, preparing traders for both bullish and bearish scenarios amidst a consolidating market.

Market Performance vs. Forecast:

SPY’s actual performance closely mirrored the forecast, with the ETF opening at $586.22 and trading within the projected range of $580 to $590. It dipped to a low of $585.34 early in the session, reaffirming the $585 bias level as a critical support. From there, it climbed to a high of $589.49 before closing at $588.11, just below the $590 resistance level. The session’s price action validated the forecast’s emphasis on $585 as a strong support level and $590 as formidable resistance. Traders who entered long positions near $585 captured gains as SPY moved higher, while those who took short positions near $590 found opportunities as the upward momentum waned. The day’s movements reinforced the reliability of the analysis, particularly its guidance on key levels and the likely consolidation within the range. This adherence to predicted levels not only demonstrated the forecast's precision but also provided clear, actionable opportunities for traders.

Premarket Analysis Summary:

In today’s premarket analysis, published at 7:53 AM, SPY was expected to consolidate with an upward bias, targeting $588.50 and $590 on the upside, with key support levels at $585 and $580. The analysis emphasized that holding above $585 would favor long trades, aiming for initial resistance levels, while a break below $585 would signal bearish opportunities targeting $580. This guidance was identical to that provided in the post market on Friday. Today’s premarket also highlighted the need for traders to monitor momentum carefully as the session unfolded, anticipating either an upward consolidation or a resumption of selling pressure. The guidance offered a clear and strategic framework for approaching Monday’s market, addressing potential risks and opportunities for both bullish and bearish scenarios.

Validation of the Analysis:

Monday’s trading closely adhered to the premarket analysis, with SPY opening at $586.22 and respecting the bias level at $585 as a strong support, again precisely in line with the post market report. Readers of this newsletter know when confluence exists between the two reports, traders should size up and trade with increased confidence given the probabilities the levels and bias stated will provide the desired outcome. Today was no exception. The ETF climbed to $589.49, testing the upper resistance levels outlined in the premarket, before consolidating near $588.11 by the close. This price action validated the predicted upward consolidation and reinforced the analysis's accuracy in identifying key levels and momentum dynamics. Long trades near $585 provided profitable opportunities, aligning with the projected upside targets of $588.50 and $590 and shorts from the day’s highs also provided profits into the close. The day’s behavior demonstrated the effectiveness of both the post and premarket guidance in navigating the session, showcasing how traders could leverage these insights to capitalize on predictable market movements. The adherence to key levels and forecasted scenarios underscored the premarket analysis's value in providing actionable, reliable trading strategies.

Looking Ahead:

The economic calendar remains light until Thursday’s Unemployment Claims report, leaving markets focused on technical levels and Nvidia’s earnings. Fed Member Schmid’s commentary could provide further clues on interest rate policy, influencing sentiment heading into the midweek.

Market Sentiment and Key Levels:

SPY’s close at $588.11 positions it near resistance at $590, with support at $584 and $582. The market leans cautiously bullish, but elevated Treasury yields and geopolitical uncertainties may limit upside potential. A decisive break above $590 could pave the way to $591 where it’s likely to find material resistance, while a drop below $584 might trigger further downside toward $580.

Expected Price Action:

The model forecasts a trading range of $584 to $591 for Tuesday, with a slight bullish bias favoring tests of resistance at $590 and $591. Failure to hold above $588 could lead to a retest of $584 and potentially $582. Volatility is expected to remain moderate, with traders advised to stay alert for sharp reversals.

Trading Strategy:

Traders should look for long entries near $584, targeting $590 and $591, with tight stops to manage risk. Short trades are viable at $590 resistance and higher, aiming for $585 or lower if selling pressure intensifies. As volatility remains moderate, smaller position sizes and disciplined stop-loss management are recommended. While the market is tenuously bullish, this can change without notice and the market could easily drop to $580 or lower. There is a gap which the market will look to close at $575. When markets trade sideways, they consolidate and build energy for the next move. Be cautious in the current environment and use tighter stops that you might otherwise.

Model’s Projected Range:

The model predicts SPY will trade within a maximum range of $582.75 to $592 on Tuesday. The range is relatively narrow, suggesting choppy, sideways price action. Call dominance indicates a slightly bullish outlook, with the market trending within the lower half of its bull trend channel in place from the September lows. There is room to the downside to $580.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bearish Trending Market State with price closing below MSI support. The size of the range is extremely narrow, implying a weak bear trend. The MSI did not rescale today but did print extended targets below in the premarket indicating a strong bear trend with the herd participating. Extended targets stopped printing before the open and price found a support at the models $585 level and rallied in the morning session. MSI support is now resistance at $589.97 and higher at $592.03.
Key Levels and Market Movements:
The MSI entered the day in a Bearish Trending Market State which carried over from Friday. It was clear from the open when extended targets stopped printing that price was ready to mean revert off major support at $585. A failed breakdown before the open set up a long trade to today’s highs. Once there, given the MSI was still in a bearish state with price approaching both MSI resistance and the models $590 major resistance level, a mean reversion short was initiated into the close. An extremely narrow range day which provided both a long and short opportunity for material profits. We often state, two trades a day is more than enough to earn a substantial living from trading. We highly recommend incorporating the MSI into your arsenal to achieve the best results.
Trading Strategy Based on MSI:
The MSI's current state suggests the bears are in control in the short term. But with such a narrow range and without a rescale lower, and without extended targets below, probabilities favor a continuation of the short squeeze on Tuesday which moves price back toward MSI resistance at $592.03. We favor longs on any test of today’s lows or on a failed breakdown pattern. We also favor shorts from MSI resistance again, looking for a failed breakout pattern near $591 major resistance. There is still room to the downside should the bears want to push price to $580 but with NVIDIA earnings upcoming and Tesla likely continuing to rally, Tuesday probabilities suggest the market will attempt to push price at least a little higher. $591 is setting up as a hard ceiling for the bulls and one the bears will attempt to keep the bulls from breaking above on Tuesday. But short squeezes can be violent so take profits quickly, take longs on any failed breakdown and retests of today’s lows, and short any rally from $591. The bulls still need to get price solidly above $590 before they resume full control.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $591 to $594 and higher strike Calls while buying $589 to $590 Calls implying a belief that any rally is likely to stall at $591. Dealers want to participate up to $591 and see the market continuing to move slightly higher on Tuesday. To the downside, Dealers are buying $588 to $576 and lower strike Puts. They are no longer selling Puts. As we stated Friday Dealer positioning implied “Dealers believe a short squeeze will ensue on Monday, pushing price back to at least $590” which is precisely what happened today. Dealers are buying Puts in a 5:1 ratio to the Calls they are selling/buying, implying a bearish view of the market for Tuesday. The range of Dealer positioning is quite narrow so their positioning signifies more sideways action than any heavy directional bias for Tuesday. This is in line with our model’s forecast.
Looking Ahead to Friday:
Dealers are selling $593 to $600 and higher strike Calls while also buying $589 to $592 Calls, implying the Dealers' belief the market is likely to rally this week to at least $595. To the downside, Dealers are buying $588 to $575 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a slightly bearish view of the market this week. As we mentioned Friday, we did expect Dealer positioning to change and it did to a bit more bearish from bullish. We advise watching Dealer positioning closely over the next several days for clues of what is likely to develop in the near term.

Recommendation for Traders:

For Tuesday, focus on trades around the key levels of $584/585 and $590/591. Long trades are recommended near $585, with upside targets at $590 and $591, a likely ceiling for Tuesday. If the market tests $591 and reverses, short trades targeting $585 to $584 are ideal. Volatility remains moderate, so maintain tight stop-losses and manage risks carefully. Traders should remain cautious of sharp reversals near resistance or support levels, especially as Nvidia's earnings approach. Review the premarket analysis before 9 AM ET to incorporate updated insights into your strategy.

Good luck and good trading!