Market Insights: Monday, November 25th, 2024

Market Overview:

The Dow Jones Industrial Average climbed more than 400 points to set a fresh record on Monday, fueled by optimism surrounding President-elect Donald Trump’s nomination of Scott Bessent for Treasury Secretary. This decision has provided a sense of stability as investors anticipate a more predictable economic policy. The S&P 500 rose 0.3%, while the Nasdaq Composite matched that performance, though the latter faced pressure from Nvidia’s steep 4% decline. The Russell 2000 outperformed with a 1.6% gain, nearing record levels after touching new intraday highs. The positive market sentiment comes as investors gear up for a holiday-shortened week. Treasury yields dipped below the crucial 4.3% level, alleviating inflation concerns for the moment, while Bitcoin retreated below $95,000 following a month-long surge that brought it close to the milestone $100,000 mark. The markets are closed Thursday and close early on Friday.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) rose 0.34% on Friday to close at $597.54 after hitting an intraday high of $600.86. Despite flirting with the $600 resistance level, it failed to maintain traction above it. Trading volume increased slightly to 37.91 million shares, though still below the average, reflecting cautious optimism ahead of the Thanksgiving holiday week. SPY’s movement signals a consolidation phase as it tests critical resistance levels within a broader bullish channel.

Major Indices Performance:

The Russell 2000 led the day with a robust 1.52% gain, buoyed by strong risk-on sentiment and renewed interest in small-cap stocks. The Dow followed closely with a 0.99% increase, marking a record high driven by gains in industrials and financials. The S&P 500 rose 0.34%, continuing its march toward new highs. The Nasdaq trailed with a 0.27% increase, dragged down by Nvidia’s sharp drop, though other tech heavyweights offered modest support. Defensive sectors lagged, underscoring a rotation into growth and cyclical sectors as investor confidence builds.

Notable Stock Movements:

Among the "Magnificent Seven," Nvidia’s 4% decline stood out, driven by concerns about valuation and supply chain disruptions. Tesla also slipped, while Amazon posted a notable 2% gain, leading the group for the day. Other tech names showed mixed performance, reflecting market uncertainty in the sector. The divergence within this elite group highlights the shifting sentiment and selective risk-taking as the broader market trends upward.

Commodity and Cryptocurrency Updates:

Crude oil prices fell sharply by 3.36%, closing at $68.83 per barrel amid concerns over slowing global demand and robust supply. Gold fell 1.25% as the market rotated into small caps. Bitcoin reversed sharply, losing 5.01% to close just above $93,000. After weeks of rapid gains, profit-taking and resistance at the $100,000 level contributed to the cryptocurrency’s pullback, underscoring its volatile nature.

Treasury Yield Information:

The 10-year Treasury yield dropped 2.88% to close at 4.277%, retreating from the critical 4.3% threshold that has weighed on equity valuations. This decline provided a tailwind for interest-sensitive sectors such as real estate and technology. The softening yields reflect tempered inflation concerns, though markets remain vigilant for any hawkish signals from the Federal Reserve.

Previous Day’s Forecast Analysis:

Friday’s forecast projected a trading range of $592 to $597, with a bullish bias above $594. It emphasized resistance at $597 and $600, and support near $595 and $593. With the market opening above $597, $600 was the next test of resistance which held firm. The forecast stated the bulls would defend $595 which they did virtually to the penny. The forecast also called for choppy trading in a consolidating range.

Market Performance vs. Forecast:

SPY’s actual range of $595.20 to $600.86 largely adhered to the forecasted levels. The $595 support held firm, and resistance at $600 proved challenging, as anticipated. The consolidation around $597 both in the morning and afternoon session offered opportunities for both long and short trades based on resistance and support dynamics. The forecast accurately highlighted the pivotal nature of $595, providing actionable insights for traders navigating a choppy yet bullish market. A textbook failed breakout after the open provided a perfect opportunity to short major resistance at $600 to major support at $595. The day unfolded as predicted, with SPY testing the upper bounds at $600 but failing to sustain levels above this psychological barrier. Short trades from this level worked well as did long trades from $595, validating the setups outlined forecast.

Premarket Analysis Summary:

In Monday’s premarket analysis, the bias favored the upside above $597.45, targeting $600 and $601.50. Resistance at $599 was expected to pose a challenge, while support at $597.45 and $594 was highlighted as critical for maintaining bullish momentum. The call for cautious long entries near support levels proved prescient, as SPY managed to rebound off intraday lows despite volatility near resistance zones.

Validation of the Analysis:

Monday’s trading respected the premarket roadmap, with SPY testing and holding above $597.45 before challenging $600. Key moments included a sharp rejection at $600 and multiple successful bounces near $597.45, affirming the accuracy of the bias levels and targets provided. The premarket guidance offered clear entry and exit points, enabling traders to capitalize on predictable price movements.

Looking Ahead:

Key economic reports this week include CB Consumer Confidence on Tuesday and a slew of data on Wednesday, including Preliminary GDP, Unemployment Claims, and Core PCE. These releases, alongside the Thanksgiving holiday’s reduced liquidity, are likely to heighten market volatility. Traders should remain prepared for sudden price swings driven by economic updates and light trading volumes.

Market Sentiment and Key Levels:

SPY closed at $597.54, cementing a cautiously bullish sentiment. Resistance remains at $600, with $598 also providing a level of resistance for Tuesday. Support has shifted slightly to $594. Bulls appear to have the upper hand but must sustain momentum above $595 with a break of $600 to push higher. A failure to hold $597 may prompt a retest of $594, opening the door to further downside risks. Traders should watch these levels closely for directional cues.

Expected Price Action:

For Tuesday, the model forecasts a range of $594 to $598 with consolidation likely. A bullish bias above $594 suggests a potential test of $597 and $600, while a failure to hold $597 could see SPY retrace toward $594 and lower. Actionable intelligence indicates a cautious approach, with tight stop-losses and smaller position sizes recommended in light of elevated volatility risks and sudden price reversals as was evidenced today.

Trading Strategy:

Long trades on failed breakdowns near $594 with targets at $598 and $600 are favored if SPY maintains upward momentum. Conversely, short trades near $598 and $600 may target $595 and $594 on pullbacks. Given the choppy nature of holiday weeks, traders should be alert for failed breakout and failed breakdown patterns to maximize returns. The VIX continues to signal reduced fear, though caution remains essential amidst potential volatility spikes.

Model’s Projected Range:

The model projects a narrow maximum range of $595 to $601, suggesting a consolidation phase dominated by Call activity. This implies a moderately bullish outlook, though resistance at $600 and support at $594 will likely define trading opportunities. SPY remains in the middle of a bull trend channel, with room to test new highs if momentum sustains or push to $584 on a test of the lows from last week.

Market State Indicator (MSI) Forecast:

Current Market State Overview: The MSI is currently in a Bullish Market State with price closing just above MSI support. The range is extremely narrow and as such implies a very weak bullish bias for Tuesday. There are no extended targets above, again reinforcing the implication of a weakening bull trend without the herd participating. The MSI rescaled several times today both lower and higher indicating a choppy and unsustainable trend. There were extended targets above price at the open but these quickly faded and there were no other extended targets throughout the session. MSI support currently is $597.42 and resistance is $598.15.
Key Levels and Market Movements: Just after the open with price trading above MSI resistance (which became support) and with extended targets above, price rallied to our major resistance level of $600 and set up a perfect failed breakout pattern. The MSI quickly stopped printing extended targets at this level, indicating the herd did not believe prices would move higher. This set up a perfect mean reversion short to our first target of MSI support at $598.15 with further targets below to major support and MSI support  at $595.24. A failed breakdown presented which trapped shorts at this level and price moved back into an MSI Ranging State reaching resistance at $597.47. There were no extended targets below price as price fell so once again, both for the mean reversion short at 10 am ET and the long at 12:45 pm ET, the MSI cleared the way for both trades which worked to perfection. Once again a boring trading day as it should be with two solid trades which took no heat and provided little stress. Both trades provided material profits and this is all we need to do daily to showcase the power of the MSI when combined with our model’s levels and vice versa. The MSI provides traders the necessary information to know when to enter, in what direction and where to take profits. High reward to risk trades for the MSI is the norm and most are fairly easy to take and easy to let play out. If you desire 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 very weak bull trend with price teetering on the verge of moving into an MSI Ranging state. Our belief is that while price may move a bit higher, it will likely run into resistance at $598 and fall to test today’s lows. A break of $595 will visit $594 and a failure of this level could lead to significantly lower prices. $595 remains a critical pivot level and once again the market can move either way on Tuesday. Without several days where the market closes solidly above $595 its unlikely the market makes new highs. This week the market will trade on low volume with lots of economic news to digest. While the model projects a tight trading range, larger than anticipated price swings should be expected. Tuesday is still likely a consolidation day with brief periods of trending action but watch the critical $595 level and be cautious committing any capital long term at these levels. We stated Friday “$595 is sufficiently weakened now that it’s likely the market has enough energy to test higher toward $600” and again this is exactly what transpired today. Now once again the bulls need to prove they have total control as the bears are ready to push prices lower on any sign of weakness.  Expect sideways price action but be cautious around economic reports due out tomorrow and Wednesday. We continue to favor mean reversion shorts from overhead resistance in the $598 to $600 range and longs from $594 on a failed breakdown pattern. The bulls still have control above $595 but again, for our liking price is too close to losing this level and moving to $594 which will bring the bears back in the fold.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning: Dealers are selling $598 to $601 and higher strike Calls implying any move higher on Tuesday is likely limited to $600 with $595 as the pivot between higher and lower prices. To the downside, Dealers are buying $597 to $589 and lower strike Puts in a 4:1 ratio to the Calls they are selling, implying a bearish view of the market for Tuesday. This is slightly more bearish than today but not overly so.  
Looking Ahead to Friday: The markets are closed on Thursday with an early close on Friday so Dealer positioning is likely to change and not be as reliable as it might be otherwise. Dealers are selling $599 to $605 and higher strike Calls while buying $598 Calls implying a desire to participate in any rally this week which could see prices reach new all-time highs. That said the wall of resistance at $600 continues to grow which will likely keep prices contained. To the downside, Dealers are buying $596 to $575 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a neutral to slightly bearish view of the market for the rest of this week. This has not changed from today. Dealers own plenty of downside protection but believe the market will likely move in a range this week between $592 and $601. New all-time highs for SPY for this week look less likely based on current Dealer positioning. We continue to be of the view that Dealers need to see price hold above $595 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 Tuesday, focus on short trades around the major levels of $598 and $600 with long trades from $594, $595 targeting $598 and $600. The bulls continue to dominate so we continue to favor long trades over shorts but are open to two-way trading, particularly with our favorite pattern present. Holiday periods often exaggerate market moves, so traders must manage risk tightly and remain vigilant for sharp reversals. Review the premarket analysis posted before 9 AM ET for updated insights and shifts in the model’s outlook.

Good luck and good trading!