Market Insights: Thursday, November 21st, 2024
Market Overview:
US stocks fluctuated on Thursday as investors processed Nvidia's much-anticipated earnings report and a legal blow to Alphabet. The Dow Jones Industrial Average surged over 450 points, gaining 1.12%, as strong performances in industrials and utilities drove the rally. The S&P 500 rose 0.5%, while the Nasdaq Composite narrowly finished in positive territory, struggling amid a steep decline in Alphabet’s shares. Nvidia’s blockbuster quarter showcased continued AI leadership, but supply chain constraints tempering chip deliveries muted the market's enthusiasm, leaving its shares up less than 1%. Alphabet suffered a significant hit, falling on news of the Department of Justice seeking to force divestiture of its Chrome browser. Meanwhile, macroeconomic data offered mixed signals, with a drop in weekly jobless claims to 213,000, bolstering hopes for a resilient labor market. Bitcoin extended its rally, nearing $99,000 as optimism around crypto regulation surged following SEC Chair Gary Gensler's resignation announcement.
SPY Performance:
The SPDR S&P 500 ETF Trust (SPY) advanced 0.52% to close at $593.59, climbing from an intraday low of $587.46 to a high of $595.11. Trading volume remained slightly below average at 41.58 million shares, reflecting cautious optimism. SPY’s ability to recover intraday lows and approach $595 indicates sustained bullish momentum, though strong resistance remains in this area.
Major Indices Performance:
The Russell 2000 led Thursday’s gains, surging 1.55% as small-cap stocks benefited from improved risk appetite. The Dow followed with a 1.12% rise, propelled by strength in industrials and financials. The Nasdaq eked out a 0.41% gain, weighed by Alphabet's steep losses. The S&P 500 posted a moderate 0.5% increase, supported by a rotation into utilities and value-oriented sectors. Tech underperformance highlighted investor caution despite Nvidia’s earnings boost. The divergence across indices underscores a market transitioning between defensive and growth-oriented themes.
Notable Stock Movements:
Nvidia captured attention with a modest 0.8% gain after reporting record-breaking quarterly earnings but warning of supply challenges that could extend into 2026. Alphabet tumbled as the DOJ intensified its antitrust crackdown, dragging its shares down significantly. Netflix outperformed among the "Magnificent Seven," gaining on improved subscriber growth expectations. The broader group saw mixed performances, reflecting sector rotation as investors weighed growth prospects against valuation concerns.
Commodity and Cryptocurrency Updates:
Crude oil rebounded 1.06%, closing at $70.12 per barrel, buoyed by tightening supply forecasts. Gold added 0.84%, climbing to $2,672 per ounce, as investors sought hedges against economic uncertainty. Bitcoin extended its rally with a 3.85% gain, closing just below $98,000, as regulatory optimism and institutional interest surged. Cryptocurrencies continue to gain momentum, with Bitcoin nearing the psychological $100,000 milestone.
Treasury Yield Information:
The 10-year Treasury yield edged up 0.39% to close at 4.423%, maintaining pressure on interest-sensitive equities. Rising yields reflect a complex macro backdrop as investors weigh economic resilience against the Federal Reserve's tightening stance. Persistent yields above 4.3% may challenge equity valuations, particularly in high-growth sectors.
Previous Day’s Forecast Analysis:
Wednesday’s forecast accurately projected SPY to trade within a range of $585 to $592, with a slight bullish bias. The call for resistance at $592 and a lower bound near $585 was validated, as SPY tested and exceeded these levels intraday before closing above $593. The emphasis on caution around Nvidia’s earnings and potential volatility was well-founded, as the session saw sharp moves around key levels.
Market Performance vs. Forecast:
SPY respected the prior forecast, trading between $587.46 and $595.11, aligning with the projected range of $585 to $592 with an upward drift. Long trades as suggested from support near $588 and $590 were rewarded as SPY rebounded strongly during the session, underscoring the accuracy of the pre and post market bias. Shorts were also favored from $592 which played out to the penny at the open. The market's responsiveness to Nvidia's results and broader economic sentiment further validated the forecast’s insights.
Premarket Analysis Summary:
The premarket analysis on Thursday at 7:42 AM emphasized a bullish bias above $590.70 with targets at $592.70 and $594.20. The call for caution below $590.70 was prudent, as the index showed resilience around this threshold. Traders following the analysis had clear opportunities to capitalize on the day’s movements.
Validation of the Analysis:
Thursday’s trading closely mirrored premarket expectations. SPY adhered closely the premarket levels, testing and holding key support at $590.70 before rallying toward $595. SPY’s upward trajectory was supported by Nvidia’s post-earnings sentiment, while resistance at $594.20 and $595 provided key decision points. The session's dynamics reinforced the premarket’s actionable intelligence, highlighting the importance of adherence to identified support and resistance levels for successful trading outcomes.
Looking Ahead:
Friday’s market will focus on Flash Manufacturing and Services PMI reports and commentary from Fed Member Bowman, offering clues on economic health and monetary policy direction. These releases could further shape expectations for Federal Reserve rate decisions, potentially driving market volatility. Be sure to trade what you see after these reports are released.
Market Sentiment and Key Levels:
SPY’s close near $593 signals ongoing bullish sentiment but faces very strong resistance at $595 with further resistance at $597 and $600. Key support levels remain at $588 and $585. Bulls have increased their edge, but downside risks persist amid macro uncertainties. Breaking $595 could trigger a rally toward $600 and give the bulls complete control, while failure to hold $588 would likely lead to a retest of $585 or lower.
Expected Price Action:
The model forecasts a range of $589 to $597 for Friday, leaning slightly bullish. Holding above $590 could propel SPY above $595 to potentially $597, while slipping below $590 may lead to a retest of $588 or lower. Traders should prepare for potential reversals as the market digests PMI data and Fed commentary.
Trading Strategy:
Long trades are favored near support at $588 and $590, targeting $595 and $597. Shorts near resistance at $595 and $597 may aim for pullbacks toward $590 and $588. Tight stop-losses are advised, given expected volatility around economic releases. VIX fell over 1.6% today and appears to be heading lower, indicating bull strength. While the market is gaining momentum to the long side, after another monster move higher and closing right at major resistance, set ups will be scarce or nonexistent. Longs are risky given the move this week and with price at major resistance, the possibility of a “rug pull” to the downside is now elevated. And shorts are risky given the strong uptrend. The highest probability for Friday is a choppy session with two-way price action testing the bounds of the current $588 to $595 range. There may be brief moments above and below these levels which will present opportunities with the bulls clearly targeting $600. Sitting on the sidelines tomorrow to allow price discovery after a very strong week where every trade worked extremely well is something to seriously consider as we continue to caution around sudden reversals at these levels.
Model’s Projected Range:
The model projects SPY to trade in a maximum range between $588.25 and $600, narrowing significantly indicating choppy, sideways action for Friday. Call dominance suggests bullish undercurrents, while key support at $588 and resistance at $595 will guide trading opportunities. SPY is now mid channel from the September lows and looks like it will in fact retest the all-time highs as we enter the Christmas rally season.
Market State Indicator (MSI) Forecast:
Current Market State Overview: The MSI is currently in a Bullish Market State with price closing just below MSI resistance. The size of the range is average, implying a bullish bias for Friday. There are extended targets above, which indicate the herd is participating in the long trend. The MSI rescaled overnight to this state and while it rescaled briefly to a Ranging Market State in the first 90 minutes of today’s session, once price moved above $590 the MSI rescaled to a bullish state with extended targets above and rescaled higher a second time during the afternoon session. MSI support is $591.87 and resistance is $594.17.
Key Levels and Market Movements: Just after the open with price well above extended targets and in a bullish state, extended targets stopped printing and our traders knew to get short from our model’s major resistance level of $592, trading to major support at $588. This was an easy and quick trade. Once there the MSI flipped from bullish to ranging and to bearish. With extended targets below, we waited for a failed breakdown to set up for a long trade from major support. We got this at 10:48 am ET and entered long just above $588 to $592 for our first target. Another opportunity set up in the afternoon to add to our long off MSI support (resistance that became support) at $591 for a push to $595 where we called it a day. Three great trades which were all outlined the prior day in our newsletter and confirmed by the MSI. Once again 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. Very high reward to risk trades which were easy to take and easy to sit through with very high reward to risk. This is how you build material 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 fairly strong bull trend with price closing just below major resistance. This implies the market may attempt to move higher on Friday but given price is at major resistance, we recommend caution to see if extended targets continue to print or stop printing. A continuation and we look for longs off MSI support. Should extended targets stop printing, consider a mean reversion short. That said, tomorrow is likely a consolidation day and the market may move sideways to give participants a day to digest gains at these levels. Institutional traders have been building long positions on every test of lower levels (just look at how many times $585 held this week) but now that price has pushed higher, closing the gap from last Thursday and at major resistance, probabilities suggest a few days of consolidation is likely before the market breaks and remains above $595. Yesterday we told you the market would peak at $592 and test $588 and we got both today. Tomorrow, we expect a similar test of lower levels to perhaps $590 where the market is likely to bounce back toward $595. A break of $595 will be met with heavy selling so we do not expect price to remain above this level all day. But the market wants to test $600 and again, probabilities suggest once the bulls close above $595, the market will push to $600. We 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 $590 or $588 on a failed breakdown pattern. The bulls have taken even more control from the bears and soon will completely dominate the market. But the bears may have a bit left before they are sidelined permanently. The next few days will likely provide the information our model needs to forecast the market’s most likely path and for the MSI to display it once again.
Dealer Positioning Analysis:
Summary of Current Dealer Positioning: Dealers are selling $594 to $600 and higher strike Calls implying a move higher on Friday is likely limited to $600 with very heavy resistance at $595. Price may pop above $595 but may not stay there. To the downside, Dealers are buying $593 to $580 and lower strike Puts in a 2:1 ratio to the Calls they are selling, implying a neutral view of the market for Friday which changed from a bearish view yesterday. This implies sideways price action for Friday which concurs with our model.
Looking Ahead to Next Friday: Thanksgiving is next week so Dealer positioning is likely to change and not be as reliable as it might otherwise be. But as of today, Dealers are selling $599 to $605 and higher strike Calls while buying $594 to 598 Calls implying a desire to participate in any rally next week which could see prices reach $600. To the downside, Dealers are buying $592 to $575 and lower strike Puts in a 4:1 ratio to the Calls they are selling/buying, implying a bearish view of the market for next week. This has changed to slightly more bearish from yesterday. The Dealers own plenty of downside protection and likely believe the market may top out next week once it reaches $600. Dealers are not selling Puts so they are not bullish. But with a 4:1 Puts to Call ratio they are also not overly bearish. We continue to be of the view that Dealers need to see price move above $595 and stay there before they materially adjust their positioning. We continue to advise watching Dealer positioning closely for clues of what is likely to develop in the near term.
Recommendation for Traders:
For Friday, we would be cautious and give the market a day to settle before trading too intently. If you do trade tomorrow, focus on trades around key levels such as $588, $590, and $595. Long trades are favored near $588 with targets at $593 and $595. Short trades can be considered near $595 and higher with targets at $590 and $588. Use tight stop-losses given the heightened volatility expected around economic releases. 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!