Market Insights: Wednesday, November 20th, 2024

Market Overview:

US stocks rebounded from earlier losses on Wednesday, with Nvidia’s earnings taking center stage as a potential game-changer for market sentiment. The Dow Jones Industrial Average rose 0.35%, while the S&P 500 closed nearly flat, reflecting a cautious tone among investors. The Nasdaq Composite slipped 0.11%, weighed down by profit-taking in tech shares after recent gains. Nvidia, the world’s most valuable chipmaker, was poised to deliver its eagerly awaited earnings report, which could determine the next phase of the AI-driven tech rally. The stock, which has soared 200% this year, was down slightly after Tuesday’s rally. Investors remained on edge, anticipating significant market swings following Nvidia's report. On the corporate front, Target slumped over 21% after weak earnings and reduced holiday-season forecasts. Bitcoin climbed above $94,000 during the day before pulling back, reflecting continued enthusiasm for digital assets amid shifting macroeconomic expectations.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) edged up 0.04%, closing at $590.54. It traded within a range of $584.63 to $590.79 during the session, with slightly below-average volume at 41.64 million shares. SPY’s flat performance mirrored the cautious market sentiment ahead of Nvidia’s earnings, as traders held positions near critical resistance levels. The ETF’s close above $590 suggests lingering bullish undercurrents, though it faces notable resistance in the $590 -$594 range.

Major Indices Performance:

The Dow Jones Industrial Average led the day’s gains with a 0.35% increase, supported by strength in industrial and consumer staples sectors. The Russell 2000 followed with a modest 0.13% rise, signaling resilience in small-cap stocks despite broader uncertainty. The S&P 500 remained nearly unchanged, reflecting a balance of gains and losses across sectors. In contrast, the Nasdaq Composite underperformed, slipping 0.11% as profit-taking in tech stocks weighed on performance. Defensive sectors showed relative strength, while tech and growth-oriented names faced headwinds ahead of Nvidia’s earnings.

Notable Stock Movements:

The "Magnificent Seven" stocks experienced mixed performance as investors locked in gains. Nvidia’s shares retreated slightly, reflecting pre-earnings jitters, while Apple, Meta, and Netflix bucked the trend with small gains. Tesla, Amazon, and Alphabet saw minor declines, highlighting broader caution within the tech sector. Target was the day’s major laggard, plunging 21% after disappointing earnings and a subdued holiday forecast. Meanwhile, Bitcoin surged 2.03%, briefly topping $94,000 before settling slightly lower.

Commodity and Cryptocurrency Updates:

Crude oil fell 0.26%, reflecting mixed signals on demand as geopolitical tensions eased slightly. Gold rose 0.78% to close above $2,600 per ounce, drawing support from ongoing concerns about global stability. Bitcoin led the cryptocurrency space, gaining over 2% and setting a new record above $94,000 before retracing some gains. The digital asset’s rally highlights growing optimism for crypto in a potentially crypto-friendly regulatory environment.

Treasury Yield Information:

The 10-year Treasury yield increased by 0.87%, closing at 4.417%. Despite the rise, yields hovering above 4.3% continue to pose challenges for equity valuations. The move reflects cautious optimism among bond traders, who are awaiting clarity from upcoming Federal Reserve speeches. Rising yields may keep pressure on interest-sensitive sectors while signaling a broader reassessment of economic growth prospects.

Previous Day’s Forecast Analysis:

Tuesday’s forecast projected SPY to trade within $585 to $594, with critical resistance at $590 and $594. The analysis highlighted opportunities for long trades near $585 with targets at $590 and $594, while suggesting shorts near resistance. This forecast captured the day’s range, as SPY tested and held key levels, validating the anticipated cautious upward bias.

Market Performance vs. Forecast:

SPY adhered closely to Tuesday’s forecast, trading within a range of $584.63 to $590.79. The ETF respected key resistance at $590 and rebounded from support at $585, aligning with the forecasted trading strategy. Traders who entered long near $585 and targeted $590 had profitable setups, while the absence of a failed breakout at $591 limited opportunities for shorts. The model called for a bit more trending price action today and advised traders to prepare for sudden reversals and the market delivered on both fronts. The model’s accuracy reinforced its utility for navigating volatile markets.

Premarket Analysis Summary:

Today’s premarket analysis, posted at 7:48 AM, highlighted a bullish bias above $590, with upside targets at $592 and $596. It also identified downside support at $588.45 and $586. SPY’s actual trading aligned with these projections, as it hovered near $590 throughout the session.

Validation of the Analysis:

Wednesday’s trading validated the premarket analysis, as SPY respected the bias level at $590 and briefly tested upside resistance near $592. Traders who focused on long entries were rewarded with steady gains, confirming the reliability of the projected levels and market bias. While the market sold off at the open, combining the premarket with the post market report allowed traders to accurately capture the market’s range and momentum, providing actionable insights for traders.

Looking Ahead:

Thursday’s focus will shift to Unemployment Claims and speeches from Federal Reserve members. These events could provide fresh clues on the economic outlook and influence market direction. Nvidia’s post-earnings reaction will likely set the tone for the day’s trading, particularly for tech stocks. With such lofty valuations any weakness in high-flying tech stocks will see an overreaction to the downside.

Market Sentiment and Key Levels:

SPY’s current position near $591 reflects cautious optimism. Key resistance levels from $590 to $592 remain formidable barriers, while support at $585, $583, and $581 offers a safety net for the bulls. Nvidia’s earnings could act as a major catalyst, either fueling a rally above $592 or triggering a pullback toward $585.

Expected Price Action:

The model forecasts a trading range of $585 to $592 for Thursday, with a very slight bullish bias targeting resistance at $592. If SPY holds above $589, traders should look for a continuation of the upward drift. A break below $589 could open the door to retesting $585 and potentially lower levels.

Trading Strategy:

For Thursday, long trades are favored near $588 with targets at $592. Shorts can be considered near resistance at $592 and higher, targeting $588 and $585. Nvidia’s earnings and Federal Reserve commentary could spark heightened volatility, so traders are advised to use tight stop-losses and stay alert for sudden reversals. We continue to favor failed breakout and failed breakdown trades as triggers to entry. Today at 10:20 am ET is a good example of a failed breakdown. While not textbook, the market rarely delivers perfect set ups. Its up to the trader to determine which set ups have the highest probability of success.

Model’s Projected Range:

The model projects SPY to trade in a maximum range of $578.25 and $595.50, with a slightly bearish outlook. Put dominance suggests a pullback potentially. The presence of formidable resistance at $590 to $592 could cap gains while a similar level of support exists at $585, 583 and $581. The bulls still maintain a greater level of control over the market than the bears so longs continued to be favored off major support. But shorts are also viable given the wall of resistance at the current levels. Traders should prepare for volatile price action as markets digest Nvidia’s results and upcoming economic data.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bullish Market State with price closing above MSI resistance. The size of the range is quite narrow, implying a weak bull trend for Thursday. There are extended targets above, likely due to NVIDIA earnings after the close. The MSI rescaled to a Bearish Market State prior to the open and the market sold off to major support as well as MSI support at $585 by 10:30 am ET. There was a brief extended target which quickly faded and the MSI stayed in a bearish state until the last hour of the day, rescaling to a Bullish Market State with extended targets above, indicating a strong trend with the herd participating. MSI support is $590.41 and $589.29.
Key Levels and Market Movements:
Just after the open, the MSI entered the day in a Bearish Trending Market State and true to form, sold from MSI resistance to MSI support. The MSI rescaled lower briefly but price set up a solid failed breakdown at the major support level of $585 and reversed to MSI resistance at $588.29. Price then spent the bulk of the day moving in a tight range between MSI support and resistance until late in the session when the MSI rescaled to a Bullish Trending Market State with extended targets above. This indicated a strong bull trend and price quickly reached our model’s major resistance level of $592 with price closing above MSI resistance (now support). While there were short opportunities in the premarket at $592, we only highlight trades available during the day session so today’s one trade was a long off MSI support and the model’s major level of $585 on a failed breakdown pattern. This played out extremely well for those who took first profits at MSI resistance and scaled out in the last hour as MSI rescaled higher. Today showcased how the MSI supports the model and vice versa, providing traders the information necessary to know when to enter, in what direction and where to take profits. This was another trade which delivered a high reward to risk off major support, which again, is sufficient to build significant wealth over time. 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 weak bull trend with price closing at major resistance. This implies the market could move either way on Thursday. $592 now appears to be the likely peak for Thursday should momentum continue to drive the market higher. The market is likely to take direction from NVIDIA earnings so we suggest watching NVDIA in the premarket to get an idea of how Thursday will play out. Unemployment Claims will also influence the market on Thursday so it may be a day to trade what you see. Absent both of these pieces of information, its likely the market drifts slightly higher toward $592 and pulls back to retest lower levels such as $588. A failure of $588 to hold will make $585 a viable target and below $585, $581 is a spot the bulls will work hard to defend. We also continue to favor mean reversion shorts from overhead resistance until the bulls can successfully overcome and hold $595. And like yesterday, we favor longs from $585 or $588 on a failed breakdown pattern. The bulls continue to take a little control day after day from the bears. But the bears are still present and the next two days will likely provide more information which our model and the MSI will use to determine the markets next most likely path.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $591 to $600 and higher strike Calls implying a belief that a move higher on Thursday is likely limited to $595. To the downside, Dealers are buying $590 to $577 and lower strike Puts in a 4:1 ratio to the Calls they are selling, implying a slightly bearish view of the market for Thursday. This bearish view has increased slightly from yesterday.
Looking Ahead to Friday:
Dealers are selling $591 to $600 and higher strike Calls implying a rally into Friday will likely not exceed $595. This level has come down since yesterday implying Dealers believe the market may be topping out this week. To the downside, Dealers are buying $590 to $575 and lower strike Puts in a 3:1 ratio to the Calls they are selling, implying a slightly bearish view of the market this week. This has not changed from yesterday. The Dealers maintain plenty of downside protection yet they are not buying Calls nor selling Puts. Therefore it appears Dealers are unsure which way the market will move as we head into Friday. But with a 3:1 ratio in Puts to Calls they are not overly bearish. Certainly Dealers are not positioned for new all-time highs this week. As we have stated previously, Dealers need price to move above $595 which would give the bulls complete control of the markets 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 Thursday, focus on trades around key levels, particularly $581, 585, $588, $590, and $592. Long trades near $581, $585, and $588 are favored with targets at $590 and $592. Short trades can be considered near $590 and $592 with targets at $588 and $585. Nvidia’s earnings and upcoming economic data could drive significant volatility, so traders should manage risk carefully. Review the premarket analysis posted before 9 AM ET for updated insights and any shifts in the model’s outlook.

Good luck and good trading!