Market Insights: Friday, November 29th, 2024

Market Overview:

US markets soared to record highs during a shortened Friday session, reflecting robust investor optimism as November ended on a strong note. The Dow Jones Industrial Average rose 0.4%, hitting a new record, while the S&P 500 gained 0.6% to close at its highest level ever. Leading the way, the Nasdaq Composite surged 0.83%, marking its strongest post-Thanksgiving Friday since 2012. November proved to be the best month in a year for all three major indices, powered by resilience across sectors and a rebound in tech. Meanwhile, geopolitical concerns surrounding tariffs eased after Mexican President Claudia Sheinbaum expressed confidence in avoiding a trade conflict with President-elect Trump. This optimism, combined with a tempered outlook on Federal Reserve rate cuts, propelled markets to wrap up an impressive year-to-date performance. The S&P 500, up over 25% in 2024, is on track for back-to-back years of over 20% gains, a feat not seen since 1998-99.

SPY Performance:

SPY continued its upward trajectory on Friday, gaining 0.62% to close at $602.55. It traded within a range of $599.38 to $603.35, with a closing level near the session’s high reinforcing bullish sentiment. Although trading volume of 29.89 million shares was slightly below average due to the holiday-shortened session, the ETF displayed strength, closing firmly above the pivotal $600 support level. This performance underscores investor confidence heading into the final month of the year.

Major Indices Performance:

The Nasdaq Composite outperformed with a 0.83% rise, as tech stocks extended their rally. The Russell 2000 followed, adding 0.38%, while the Dow rose 0.42% to record highs. The S&P 500's 0.6% gain reflected a broad-based rally, with all sectors except energy contributing to the index’s strength. Defensive sectors like utilities showed modest gains, indicating steady safe-haven interest amid the holiday lull. Tech and growth stocks drove the rally, supported by easing inflation concerns and resilient economic data.

Notable Stock Movements:

The Magnificent Seven stocks mostly rose, reflecting sustained enthusiasm for the tech sector. Tesla and Nvidia led with gains of over 2%, while Amazon and Apple posted solid advances. Alphabet was the sole decliner in the group, slipping marginally as investors rotated into higher-growth names. Broadly, tech stocks benefited from reduced fears of aggressive monetary tightening, positioning the sector as a key driver for the market’s strength.

Commodity and Cryptocurrency Updates:

Crude oil slid 0.84% to $67.75 per barrel, as persistent demand concerns overshadowed OPEC's production cuts. Gold edged up 0.34%, maintaining its appeal as a hedge against geopolitical risks. Bitcoin continued its climb, adding 1.93% to close above $97,000. Renewed optimism about institutional adoption and bullish technical setups kept the cryptocurrency within striking distance of the key $100,000 psychological level.

Treasury Yield Information:

The 10-year Treasury yield dropped 1.15% to 4.195%, extending its decline below the critical 4.3% mark. This dip eased valuation pressures on equities, particularly growth sectors like technology. Lower yields also signaled growing confidence in the Fed’s ability to manage inflation without derailing economic growth, providing further tailwinds for risk assets.

Previous Day’s Forecast Analysis:

Wednesday’s forecast projected a tight trading range of $598 to $601, emphasizing consolidation amid light holiday volume. It identified $598 as a critical support level and $601 as a key resistance point. The forecast also recommended traders favor long positions above $598, targeting $600 and $601, while exercising caution given the subdued conditions. The emphasis on selective trading in low-volume environments proved prescient.

Market Performance vs. Forecast:

SPY exceeded expectations by breaking above $601 and closing at $602.55. The actual trading range extended slightly beyond the forecasted limits, reaching a high of $603.35. The model's identification of $601 as a resistance point proved accurate, but stronger-than-anticipated buying volume pushed SPY higher. Long trades from support levels around $599 delivered solid returns, validating the forecast’s bias toward bullish positions.

Premarket Analysis Summary:

The premarket analysis posted at 8:42 AM projected SPY to test $601.50 and $603 on the upside, with $599 and $597.30 providing support below. It anticipated muted volume but highlighted a bullish bias above $599. The call for dip-buying at support and targeting $601.50 aligned with the day’s action, as SPY rallied decisively above $601 and closed near $603.

Validation of the Analysis:

The premarket analysis proved accurate, with SPY respecting the identified levels. The ETF opened near $599.66, rallied to breach $601.50, and reached $603, consistent with the outlined targets. Traders capitalizing on dips near $599 enjoyed profitable opportunities, while the forecast's upper resistance levels provided precise exit points. The analysis demonstrated its reliability in guiding intraday trading decisions.

Looking Ahead:

Next week’s calendar includes critical economic reports such as the ISM Manufacturing PMI and the November Non-Farm Payrolls. These data points could significantly influence market sentiment, particularly regarding the Fed’s December policy stance. Traders should prepare for heightened volatility as liquidity returns to normal levels post-holiday.

Market Sentiment and Key Levels:

SPY’s close at $602.55 suggests a cautiously bullish sentiment, with critical support at $600 and resistance at $605. The market remains within a strong bull trend channel, with room to test new highs. A break above $605 could trigger further gains, while a dip below $600 might invite profit-taking and test $598 as the next support level.

Expected Price Action:

The model projects a trading range of $600 to $605 for Monday, with a bullish bias above $600. Long positions are favored if SPY sustains above $600, targeting $604 and $605. However, failure to hold $600 could shift momentum, potentially retesting $598 and $595. Actionable intelligence suggests watching for strong buying interest near support and resistance levels to gauge next steps. The week after Thanksgiving is seasonally bearish as market participants look to book profits from the strong holiday week. But do not let a pullback fool you. The market is strong and is likely to continue higher into year end, even if next week sees profit taking. 

Trading Strategy:

Long trades above $600 should aim for $603 and $605, with tight stops to manage risk. Short trades near $605 could target $603 and $600 if resistance holds. Traders are advised to scale back position sizes to navigate any post-holiday volatility effectively. VIX remains low, but sudden spikes in volatility could present trading opportunities. We continue to favor longs over shorts given the strength of the market. While we could see some profit taking early next week, it will likely be bought to set up next month’s Santa rally. Shorts should only be considered from major levels and short trades quickly book profits given the strength of this bull market. Next week’s price action will be driven largely by economic news so be careful to trade what you see.

Model’s Projected Range:

The projected maximum range for Monday of $599.75 to $606.75 indicates choppy, sideways action dominated by Call positioning. With SPY in a bullish trend channel from the September lows, traders should monitor $600 as the pivot point, with $605 as major resistance and $598 as critical support.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State with price closing well above MSI resistance and extended targets. The range is narrow, rescaling from a Ranging Market State premarket. Low volume kept the MSI from rescaling today so expect it to rescale by Monday. Extended targets printed virtually all day indicating the herd was participating in the bull trend and shorts were to be avoided all day. MSI support currently is $600.72 and lower at $599.86.
Key Levels and Market Movements:
After gapping higher in the premarket and with extended targets printing, the day set up as forecast with a strong bullish lean. A failed breakdown just after the open set up a long off MSI support at $599.85 to $600.72 as a first target. Once extended targets printed, the MSI clearly indicated this was not the top for the day and that the market was moving higher. And it did rising to as high as $603.35 before closing just off the highs. We knew to stay away from short trades, even from major resistance at $601 given extended targets clearly indicated the bulls were in complete control of the market. At the close the bulls still maintained control which could lead to higher prices on Monday. In a shortened holiday session one long winning trade is more than was expected and it was a good one moving from $599.85 to $603. Another Thanksgiving gift thanks to our model’s highly accurate and actionable levels and the visuals provided by the MSI. 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 bull trend which could push prices higher. While the range is quite narrow which indicates some weakness, extended targets tell us the herd is participating in the bull move toward $605, which is the next major resistance level. While $604 may pose some resistance as well, $605 is where the market is likely to top out on Monday. Given the narrow range of the MSI, we would be cautious initiating new long positions at these levels. The market may provide clues during the premarket with what will follow during the day session on Monday. A pop higher perhaps followed by MSI rescaling near or after Monday’s open with extended targets no longer printing and a mean reversion short would be in order. But without this type of price action, we continue to favor longs from support at $600 and $599 as the market makes its way toward $605. The week after Thanksgiving typically sees a 1% pullback which would move SPY as low as $597 where we would be buyers. $600 remains the pivot between higher and lower prices with $595 as a line in the sand for the bears. Below this level and they will begin to exert more pressure. December should see higher prices and new all-time highs and our model projects market participants will continue to buy dips. Yet the risk of a rug pull for longs is still present and shorts continue to pose risks given the strength of the bull trend. The market needs time to “reset” therefore we advise caution until SPY either sells off or consolidates for a day or two. The Monday after holidays often retrace much or all of the holiday move so be cautious and give the market time for price discovery, allowing the MSI to tell you the trend and levels to buy and sell. With the market’s narrow projected range, we continue to favor failed breakout/breakdown patterns for entries.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $603 to $605 and higher strike Calls implying Dealer’s belief that should price move higher, it will likely stall at $605. To the downside, Dealers are buying $602 to $580 and lower strike Puts in a 5:1 ratio to the Calls they are selling implying a bearish view of the market for Monday. This has changed from extremely bearish to simply bearish. Dealers understand what could play out from a seasonally weak period and have significant downside protection should Monday be the start of a deeper pullback.  
Looking Ahead to Next Friday:
Dealers are selling $603 to $610 and higher strike Calls implying the market may approach $605 but not exceed $610. To the downside, Dealers are buying $602 to $585 and lower strike Puts in a 3:1 ratio to the Calls they are selling, implying a neutral to slightly bearish view of the market for next week. This increased to slightly bearish from neutral. Given the half day today, its highly likely Monday’s positioning will be more reflective of actual Dealer beliefs for the week. We continue to advise watching Dealer positioning closely for clues of what is likely to develop in the near term.

Recommendation for Traders:

Traders are advised to exercise caution in Monday’s session, with an eye on key levels such as $600 support and $605 resistance. Long trades should target $604 and $605, with stop-losses tightened to lock in gains near resistance. Short trades from $605 could target $600, but should only be considered if bearish momentum emerges. While it’s entirely possible Monday sees a bull squeeze with the market retracing much of this week’s gains, seasonality is not a given. And with the current low VIX levels, market volatility is likely to remain contained. Monday should be a day where you seek only one or two perfect trades given the risks in both directions. Sudden spikes in both price and volatility should not be ruled out. Traders should monitor upcoming economic releases closely, as they could drive sentiment shifts. Remember to review the premarket analysis posted before 9 AM ET to refine your trading strategies.

Good luck and good trading!