Market Insights: Tuesday, November 19th, 2024

Market Overview:

US markets closed mixed on Tuesday as Wall Street navigated a complex trading day shaped by optimism in the tech sector and lingering geopolitical concerns. The Nasdaq Composite surged over 1%, driven by a near 5% rally in Nvidia shares, which gained momentum ahead of its highly anticipated earnings report. Nvidia’s performance was bolstered by positive analyst commentary, overcoming recent negative headlines about its flagship AI chip overheating. The S&P 500 climbed 0.4% after early struggles, while the Dow Jones Industrial Average dropped 0.28%, reflecting losses in defensive sectors. Traders largely brushed off escalating tensions in the Russia-Ukraine conflict, despite unsettling developments regarding nuclear doctrines. Meanwhile, gold and US Treasury bonds gained as safe-haven assets saw renewed interest. Bitcoin extended its rally, reaching new heights above $93,500, indicating sustained confidence in digital assets despite broader market caution.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) edged up 0.37%, closing at $590.30. During the session, it hit a high of $591.04 and a low of $584.03, with trading volume slightly below average at 39.42 million shares. The upward move reflected the tech sector's strength, led by Nvidia’s rally, as well as overall resilience in the broader market. SPY’s ability to close near the day’s highs hints at cautious optimism among traders, though resistance near $591 remains a critical hurdle.

Major Indices Performance:

The Nasdaq Composite led the day with a 1.02% gain, fueled by Nvidia and broader tech optimism. The Russell 2000 followed with a 0.74% increase, signaling confidence in small-cap equities. The S&P 500 posted a 0.4% rise, benefiting from its diverse sector exposure. Meanwhile, the Dow Jones Industrial Average underperformed, slipping 0.28%, weighed down by weakness in defensive sectors such as utilities. These mixed performances underscore divergent market sentiment, with growth-oriented sectors outpacing defensive plays amid geopolitical uncertainty.

Notable Stock Movements:

The Magnificent Seven stocks experienced a strong day, spearheaded by Nvidia’s nearly 5% surge. The rally was attributed to upbeat analyst notes and optimism surrounding the company’s earnings. Other tech giants, including Amazon and Alphabet, posted solid gains, reinforcing the Nasdaq’s leadership. Tesla continued its upward momentum, adding to recent gains spurred by regulatory tailwinds for autonomous vehicles. This selective strength in high-growth names reflected investor appetite for risk within the tech sector despite broader caution.

Commodity and Cryptocurrency Updates:

Crude oil edged higher by 0.2%, stabilizing after recent fluctuations, as demand concerns eased slightly. Gold advanced 0.84%, surpassing $2,600 per ounce as investors sought safety amid geopolitical tensions. Bitcoin extended its record-breaking rally, climbing 1.17% to close above $92,000. These movements highlight a mixed sentiment, with safe-haven assets and risk-on cryptocurrencies simultaneously drawing attention.

Treasury Yield Information:

The 10-year Treasury yield declined by 0.41%, settling at 4.397%. Despite the slight drop, yields remained above the critical 4.3% level, maintaining pressure on equity valuations. The decline in yields offered some relief to interest-sensitive sectors, but the market continues to grapple with uncertainties surrounding Federal Reserve policy and broader economic outlooks as the odds of a December rate cut continue to fall.

Previous Day’s Forecast Analysis:

Monday’s forecast projected SPY to trade within a range of $584 to $591, highlighting $590 as critical resistance and $584 as a pivotal support level. The analysis emphasized an upward consolidation bias, particularly if SPY held above $585, suggesting long trades at support levels near $584, with profit-taking at $590. The forecast also identified $582 as secondary support, cautioning that a break below $584 could lead to downside moves. Additionally, short opportunities near resistance at $590 were advised, with tight risk management to protect against sudden reversals. The strategy reflected a balanced approach, accounting for the potential of choppy price action in a consolidating market.

Market Performance vs. Forecast:

Tuesday’s price action aligned closely with the forecast, as SPY traded between $584.03 and $591.04, respecting the anticipated range. The ETF held support at $584, rallied to test $590 and $591 resistance, and closed near the upper end of the range. This forecast accurately captured the cautious optimism of Monday’s market conditions, providing actionable guidance for traders navigating both bullish and bearish scenarios. By focusing on the key levels of $584 and $590, the forecast prepared traders for the day’s actual market movements, reinforcing the value of a disciplined approach to trading around critical support and resistance. The emphasis on observing momentum around $585 ensured traders could align their strategies with the market's evolving dynamics, offering profitable opportunities regardless of the direction. These precise levels not only anchored the forecast but also underscored the reliability of the analytical framework for anticipating market behavior. The session’s movements validated the analysis, highlighting its precision in identifying key levels and likely market behavior.

Premarket Analysis Summary:

Tuesday’s premarket analysis, released at 7:49 AM, highlighted SPY’s spot price at $586.60 and forecasted a slightly bearish bias with critical resistance at $587.55 and targets at $589 and $590 on the upside. The analysis outlined that SPY’s ability to break and sustain above $587.55 would be necessary to shift the bias to bullish, opening the door for a potential rally toward $590 and even $593. Conversely, it anticipated rejection at $587.55 as a favored scenario, signaling downside moves targeting $585, with further potential declines to $583 and $581.25. The guidance also emphasized selling rallies at resistance levels and seeking long entries only if SPY demonstrated strength by holding above $589. This setup provided a clear framework for traders to navigate the session, focusing on high-probability scenarios tied to SPY’s interaction with key levels. Additionally, the premarket analysis underscored the importance of monitoring momentum around these levels to identify failed breakouts or breakdowns, offering traders a tactical advantage in capturing reversals. This strategic preparation ensured actionable insights tailored to the market’s evolving behavior throughout the day.

Validation of the Analysis:

Tuesday’s trading confirmed the premarket analysis, as SPY respected the $587.55 resistance early on in the premarket before breaking higher to test $590. While the bias leaned bearish, the market’s eventual rally reflected the outlined scenario of bullish momentum above key resistance. The analysis accurately identified critical levels and trading opportunities, providing actionable insights for traders.

Looking Ahead:

With no major economic reports due until Thursday, the market’s focus will remain on Nvidia’s earnings and Federal Reserve speeches. These events are likely to influence sentiment and set the tone for the remainder of the week.

Market Sentiment and Key Levels:

SPY’s close near $590 signals a cautiously bullish sentiment, though significant resistance at $590 and $594 may limit further gains. Key support lies at $585 and $584, with a break below these levels potentially triggering downside momentum. Traders should remain alert to Nvidia’s earnings and any unexpected geopolitical developments.

Expected Price Action:

The model forecasts a trading range of $585 to $594 for Wednesday, with a slightly bullish bias targeting resistance at $594. A failure to hold above $590 could prompt a retest of $585. The forecast anticipates moderate volatility with a bit more trending price action, advising traders to prepare for both upward momentum and sudden reversals.

Trading Strategy:

For Wednesday, traders should look for long opportunities near $585, with targets at $590 and $594, and consider short trades at $590 and $594 resistance, aiming for $585. Tight stop-losses are essential given the potential for sharp reversals. The VIX remains moderate, suggesting manageable volatility, but caution is advised as Nvidia’s earnings could trigger significant price swings. We continue to favor failed breakouts and failed breakdowns as a trigger to entries. Today in the premarket just before the open the market delivered a textbook failed breakdown just below our models $584 major support level. The long from this level was available at the open and moved to our model’s forecasted major resistance level of $591.

Model’s Projected Range:

The model projects SPY to trade in a maximum range between $582.75 and $596.50 on Wednesday, with Call dominance indicating a slightly bullish outlook. Resistance at $590 and $594 could cap gains, while support at $585 and $584 remains pivotal. The market continues to trend within the broader bull channel established in September with price mid channel with room to both the upside and downside. There is a gap above price which has a high probability of closure on Wednesday or Thursday after NVIDIA earnings.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Ranging Market State with price closing above MSI support. The size of the range is wide implying uncertainty for Wednesday. The MSI rescaled lower several times today in the premarket and printed extended targets below before reversing at 9 am, moving to its current state. MSI support is $588.63 and resistance is $594.99.
Key Levels and Market Movements:
The MSI entered the day in a Bearish Trending Market State on news out of Russia threatening once again to use nuclear weapons on Ukraine and its allies. While the market sold off on the news, price reached major support at $584 and a failed breakdown set up just prior to the open. Extended targets stopped printing at 9 am giving MSI users the all clear to enter long at the open with the goal of reaching $591. This played out perfectly and once price reached this level, the MSI had rescaled to a ranging state and set up a quick mean reversion short for a scalp profit. We did not take this short trade given we tend to avoid trades in a MSI Ranging Market State. The odds of success in this state are less than 50% therefore we prefer to pick our spots with MSI trending states where the odds are closer to 70%. Again, one or two trades per day which can deliver the reward to risk of today’s long off major support is sufficient to build material wealth over time as a day trader. 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 a bit of confusion with price closing at major resistance. This implies the market could move either way on Wednesday. $594 is likely the top the bulls will be able to achieve on Wednesday, should momentum continue to drive the market higher. It’s also likely the market will tread water and move sideways to slightly down, testing MSI support at $588.60 prior to NVIDIA earnings release. Yesterday we stated, “probabilities favor a continuation of the short squeeze on Tuesday which moves price back toward MSI resistance at $592.03” and once again, this is precisely what was delivered. We favored longs on any test of yesterday’s lows or on a failed breakdown pattern and once again, the pattern we love to trade proved its value once again. We also favored shorts “from MSI resistance again, looking for a failed breakout pattern near $591 major resistance”. While price reached $591, there was no significant failed breakout. We suggest looking for this pattern tomorrow in this same general area or higher toward $594. We still like a mean reversion short until the bulls can successfully overcome and hold $595. We also favor longs from $585 or $588 on a failed breakdown pattern. The bulls have wrestled back more control from the bears with today’s rally but the bears are likely to stick around until price settles above $595.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $591 to $600 and higher strike Calls implying a belief that a rally on Wednesday is likely to fail at $596. To the downside, Dealers are buying $589 to $577 and lower strike Puts in a 2:1 ratio to the Calls they are selling, implying a neutral view of the market for Wednesday. We mentioned yesterday the range of Dealer positioning was quite narrow signifying more sideways action and this did not materially change today. Therefore while we believe Wednesday may have periods of trending price action, sideways to slightly up will likely rule the day and the market will have a difficult time breaching $594 and will certainly stall at $596.
Looking Ahead to Friday:
Dealers are selling $596 to $601 and higher strike Calls while buying $591 to $595 Calls, implying a belief the market is likely to rally into Friday to at least $595 with a likely ceiling at $597. To the downside, Dealers are buying $589 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. This has not changed from yesterday. While the Dealers maintain plenty of downside protection, and are not selling Puts, it does appear they are optimistic believing the market will push higher into Friday. While not positioned for new all-time highs, Dealers are looking for a move above $595 which would give the bulls complete control as we head into the end of November. We advise watching Dealer positioning closely for clues of what is likely to develop in the near term.

Recommendation for Traders:

For Wednesday, focus on trades around the key levels of $585, $588, $590, and $594. Long trades are recommended near $585 and from $588 on a failed breakdown with upside targets of $590 and $594. Short trades should be considered near $590 resistance on a failed breakout and higher from $594 targeting $588 and $585. Traders should remain vigilant for volatility around Nvidia’s earnings and any geopolitical developments. Make sure to review the premarket analysis posted before 9 AM ET to incorporate updated insights into your strategy.

Good luck and good trading!