Market Insights: Tuesday, November 26th, 2024

Market Overview:

The S&P 500 and Dow Jones Industrial Average notched fresh records on Tuesday as Wall Street demonstrated resilience despite new trade threats from President-elect Donald Trump. The S&P 500 rose nearly 0.6% to close at an all-time high, while the tech-heavy Nasdaq Composite mirrored the performance with a 0.6% increase. Meanwhile, the Dow, after a choppy session, managed a 0.3% gain to secure back-to-back record closes. The market’s optimism emerged despite early jitters sparked by Trump’s announcement of tariffs targeting China, Canada, and Mexico, reigniting trade war concerns. While automotive stocks, including Ford and General Motors, faced downward pressure from the “America First” rhetoric, the broader indices were buoyed by strength in other sectors. Adding to the market’s focus was the release of Federal Open Market Committee minutes, which hinted at a gradual pace of rate adjustments should economic conditions remain stable. Investors remain watchful of Wednesday's economic data releases, which are poised to provide further insights into inflation and employment trends.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) rose 0.52% on Tuesday, closing at $600.65 after hitting a high of $601.33 during the session. The ETF continued to hover around the critical $600 resistance level, with slightly below-average trading volume at 36.86 million shares. SPY's upward momentum reflects the market's ongoing strength, even as resistance at $600 remains a formidable challenge.

Major Indices Performance:

The Nasdaq led the day's gains with a 0.62% increase, supported by strong tech performance. The S&P 500 followed with a 0.52% gain, marking its own record close. The Dow added 0.28%, overcoming early losses thanks to a late-session rally. Conversely, the Russell 2000 underperformed, declining 0.73% as small-cap stocks faced selling pressure. Sector-wise, technology and consumer discretionary were standouts, while defensive sectors lagged, highlighting a continued risk-on sentiment.

Notable Stock Movements:

The "Magnificent Seven" had a strong day overall, led by Amazon, which surged over 3%, continuing its upward momentum. Most other members of the group also posted gains, showcasing resilience in the tech sector. Tesla was the lone exception, slipping slightly in a session that otherwise favored growth stocks. The divergence in performance highlights ongoing selective investor confidence, with leadership concentrated in high-growth names.

Commodity and Cryptocurrency Updates:

Crude oil edged lower by 0.46%, closing at $68.51 per barrel as concerns over global demand weighed on prices. We are buyers of Crude as it approaches $65. Gold rebounded with a 0.57% increase, finding support as investors sought safe-haven assets amidst trade concerns. Bitcoin extended its retreat, falling 4.10% to close just below $91,000. The cryptocurrency's sharp decline reflects continued profit-taking after its recent run toward $100,000.

Treasury Yield Information:

The 10-year Treasury yield rose 0.77% to close at 4.296%, flirting with the critical 4.3% threshold. The increase reflects ongoing concerns about inflation and its implications for equity valuations. Rising yields pose challenges for interest-sensitive sectors, though the broader market's strength suggests investors remain cautiously optimistic.

Previous Day’s Forecast Analysis:

Monday’s forecast projected a range of $594 to $598, with a bullish bias above $594 targeting $597 and $600. Support at $594 was expected to hold, with consolidation around $598. These levels were pivotal for the session. The model forecast a retest of yesterday’s lows which came in the overnight session in a choppy session with periods of bullish trending behavior. The model stated the market was likely to retest resistance at $600, providing actionable insights for both long and short trades near key levels.

Market Performance vs. Forecast:

By the open with SPY trading at major resistance at $598 the market followed the forecast by trading in a tight range between $598 and $600 until late in the session when SPY broke out to the upside and pushed to new all-time highs. While SPY's actual performance largely aligned with Monday's forecast, the move to new highs was driven largely by the release of FOMC minutes. The ETF opened at $598.89 and traded within a range of $598.07 to $601.33, respecting the projected key levels. Resistance at $600 remained a significant barrier, and the bias for cautious long entries proved accurate. Traders capitalized on predictable price action, with opportunities around $600 resistance and $598 support validating the forecast.

Premarket Analysis Summary:

In Tuesday’s premarket analysis, posted at 7:59 AM, SPY was projected to target $601.50-$602.30 if it remained above the bias level of $598. A reversal below $598 was expected to test support at $596.40 and $594. SPY’s early strength aligned with the bullish bias, pushing price toward $601.33 before consolidating.

Validation of the Analysis:

Tuesday’s trading adhered closely to the premarket projections, with SPY testing and holding above $598 before nearing the $601.50 target. Resistance at $600 played a critical role, as anticipated, while support near $598 provided a reliable floor. The forecast's accuracy highlighted the strength of the analysis, enabling traders to navigate the session with confidence while updating the post market report with valuable and highly accurate actionable intelligence.

Looking Ahead:

Upcoming economic data includes the release of Preliminary GDP, Unemployment Claims, and Core PCE on Wednesday. These reports are likely to shape market sentiment heading into the Thanksgiving holiday, with potential for heightened volatility as traders react to inflation and employment updates. Thanksgiving week is seasonally bullish therefore its likely the market will continue to move higher making new records. Be careful to trade what you see as these reports are released.

Market Sentiment and Key Levels:

SPY closed at $600.74, signaling cautious optimism. Resistance remains at $601, $602, and $605, with support now $600 and $599. The bullish trend persists with the bulls in complete control. But traders should monitor critical levels closely, as a break below $598 could shift momentum and bring the bears back into the fold. We expect next week will provide a bigger challenge for the bulls where the market is likely to experience profit taking.

Expected Price Action:

The model forecasts a range of $598 to $602 for Wednesday, with a bullish bias above $598. A move above $602 will attempt to reach $605, while a drop below $598 may lead to further downside. Traders are advised to remain flexible, as light holiday trading volumes could amplify volatility.

Trading Strategy:

Long trades are favored above $598, targeting $601 and $602. Short trades may be considered near $602, with downside targets of $600 and $598. Traders should employ tight stop-losses and be prepared for abrupt reversals, particularly given the week’s economic data and reduced liquidity. We expect a fairly narrow trading range on Wednesday which could change depending on the release of economic data. This will be a day to trade what you see. But absent this data, price is expected to move in a narrow range as it drifts higher toward $605. In these conditions we favor failed breakout and failed breakdown patterns as triggers to entries.

Model’s Projected Range:

The model projects a maximum range for Wednesday of $594 to $603.75, narrowing from today suggesting a consolidation phase. Call dominance indicates a bullish outlook, with room for SPY to continue to challenge new highs. Key levels include support at $600 and $599 and resistance at $601, $602, and $605, shaping the day’s trading opportunities. Price is solidly in the middle of the bull trend channel in place from the September lows with room both higher and lower.

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 range has expanded and a rescale late in the day implies a solid bullish bias for Wednesday. There are no extended targets above, which may imply a pullback is needed for the market to build the energy required to push toward $605 and new highs. The MSI rescaled only once today as price spent most of the session trading around extended targets above a narrow MSI Bullish Market State. Extended targets printed for most of the day implying significant participation by the herd. MSI support currently is $599.69 and resistance is $601.27.
Key Levels and Market Movements: At the open with price trading above MSI resistance (which became support) and with extended targets printing virtually all day, it was only a matter of time before the herd stepped on the pedal and pushed prices higher. Shorts had no chance today and the MSI did its job in keeping our traders from attempting any short trades. There were few set ups and no failed breakout/breakdown patterns to trigger entries so we had to rely solely on MSI support and our model’s levels to get long mid-morning at $598, riding it to our first target of $600. But we stayed long into the close given the presence of extended targets. When the MSI rescaled late in the session, $601.26 became a viable exit for this solidly profitable long trade. One and done and while it was not an easy session to trade, the MSI did its job keeping us safe and away from shorts and put us long right at the major support level noted in the premarket report. In a shortened holiday week one trade is enough to pay the bills and set us up for what is likely to be more action next week.  Again high reward to risk trades for the MSI are typical with most fairly easy to see and execute. The MSI provides the information needed to give users the confidence required to let trades play out. We highly recommend incorporating the MSI into your arsenal to achieve your best results.
Trading Strategy Based on MSI: The MSI's current state suggests a solid bull trend. But after making new highs and moving up against material resistance, we suspect at least a pullback is in order to drive prices higher on Wednesday. Of course with the slew of economic reports due on Wednesday this forecast can change in a flash. But assuming there are no surprises in the date to be released, the MSI is telling us price is likely to drift slightly higher, perhaps breaking resistance and testing $602 before finding any material weakness. After a day like today trading becomes exponentially harder given longs have the risk of a rug pull and shorts are extremely dangerous. The market needs a day or two to consolidate and given volume is likely to dry up by midday tomorrow, we suggest caution on Wednesday. It’s been a very strong week with all winners so it makes sense to hold onto profits and consider starting your holiday a day early. But for those of you who insist on trading, we favor longs from support at $600 to as low as $599 below which we would exercise extreme caution. We also favor mean reversion shorts from $602 and higher as long as the MSI is not printing extended targets. We will continue to look for failed breakout/breakdown patterns for entries. The bulls maintain complete control above $600. But the week after Thanksgiving is typically a negative week with profit taking from the holiday week so it’s likely the markets take a breather and pullback next week, setting up the Santa rally still to come.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning: Dealers are selling $601 to $605 and higher strike Calls while also selling $599 and $600 Puts implying Wednesday price is likely moving higher to as high as $602. Dealers rarely sell Puts so close to the money and when they do, they are confident price will move higher. This typically puts a floor in the market which for tomorrow is $599. To the downside, Dealers are buying $598 to $590 and lower strike Puts in a 2:3 ratio to the Calls/Puts they are selling, implying a strongly bullish view of the market for Wednesday. This is a complete change from today’s bearish stance. Thanksgiving week is almost always bullish (75% of the time in an election year) while the week after Thanksgiving is seasonally bearish. It seems Dealers like these odds and are heavily bullish heading into tomorrow.  
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 $603 to $605 and higher strike Calls while also buying $601 to $602 Calls, as well as selling $600 Puts implying the Dealers belief the market will remain above $600 into Friday and push as high as $605. This is extremely bullish positioning. As the market tests and moves above $600 each attempt has weakened this level and the Dealers now believe $600 is sufficiently weakened as resistance that is now support and that new highs will continue. To the downside, Dealers are buying $599 to $580 and lower strike Puts in a 5:1 ratio to the Calls/Puts they are selling/buying, implying a bearish view of the market for the rest of this week. This has become more bearish from today. But again, we would not read much into this particular ratio given there is no trading Thursday and Friday is a half day. We believe the more accurate account is tomorrow’s positioning which is very bullish. Dealer positioning cannot be overly bullish and bearish at the same time so we expect Dealers will adjust their positioning next week to reflect their actual belief. We continue to advise watching Dealer positioning closely for clues of what is likely to develop in the near term.

Recommendation for Traders:

For Wednesday, traders should focus on long trades around support at $600 and $598, targeting upside levels at $602 and $605 if bullish momentum persists. Short trades may be appropriate near resistance at $602, with downside targets of $600 and $598 on pullbacks. Given the holiday-shortened week, managing risk is critical. Traders should remain vigilant, particularly around key economic reports which may change this guidance materially. We suggest avoiding overexposure given most institutional traders will be off come noon tomorrow and the market will likely be more challenging in the afternoon session. Always review the premarket analysis posted before 9 AM ET for updated guidance.

Good luck and good trading!