Market Insights: Friday, November 8th, 2024

Market Overview:

The Dow and S&P 500 capped the week with record-setting highs as post-election enthusiasm and a Federal Reserve rate cut propelled stocks upward. On Friday, the S&P 500 (^GSPC) briefly hit the 6,000 level, ultimately closing up 0.4%. Meanwhile, the tech-heavy Nasdaq Composite (^IXIC) held steady near flat. The Dow Jones Industrial Average (^DJI) gained 0.6%, crossing the 44,000 mark for the first time during the session. This momentum continued after the election victory of President-elect Donald Trump, with investor confidence buoyed by optimism around anticipated economic boosts from his administration’s policies. Volatility was high, with the dollar and Treasury yields losing some post-election gains, yet all major indices closed near record highs. Despite headwinds from China’s recent fiscal stimulus efforts, the AI leader Nvidia (NVDA) officially replaced Intel (INTC) in the Dow, marking another milestone for the AI sector. Tesla (TSLA) surged over 9%, crossing a $1 trillion market cap, and Trump Media & Technology Group (DJT) jumped over 10%, following Trump’s commitment to maintain his shares in the company.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) closed at $598.22, marking a gain of 0.44% with a trading volume of 39.16 million shares, slightly below average. SPY reached an intraday high of $599.63, setting an upward target near $600—a critical level investors are closely monitoring. Key support levels have shifted upward, with the $596 region offering a potential launching point for further gains, while the $590 area remains a strong floor. Should momentum stall, SPY could dip back towards these supports, although investor optimism and strong earnings have so far bolstered SPY’s upward trajectory.

Major Indices Performance:

The Dow Jones led Friday's gains, rising 0.6% and achieving a new record as it crossed the 44,000 mark for the first time. The Russell 2000 also posted a solid gain of 0.73%, reflecting renewed investor interest in small-cap stocks. The S&P 500 (^GSPC) edged up by 0.4% as it briefly crossed the 6,000 threshold, adding to its best weekly performance this year. The Nasdaq (^IXIC) was the weakest performer, slipping 0.04%, as profit-taking dampened the tech rally's momentum. Energy stocks lagged with a drop in oil prices, while tech and consumer discretionary sectors showed relative strength amidst Friday’s mixed performance. Market sentiment remains upbeat with bullish projections heading into next week, though investors are on guard for potential reversals.

Notable Stock Movements:

Tesla led the "Magnificent Seven" tech stocks with a remarkable 8% gain, pushing its market capitalization beyond $1 trillion, driven by speculation on Trump administration policies supporting the electric vehicle sector. The rest of the group, however, faced broad-based profit-taking, with all other stocks ending in the red as the market digested a week of significant gains. Nvidia saw added attention as it officially joined the Dow, replacing Intel, marking a symbolic shift in the tech landscape. Overall, the mixed performance within this elite group reflects some investor caution but does not signal a broad trend reversal.

Commodity and Cryptocurrency Updates:

Oil prices saw a pullback, dropping 2.69% amid uncertainty around China’s latest fiscal measures, which left many investors skeptical about their potential impact on global demand. Gold edged down 0.45%, reflecting a more risk-on sentiment as investors moved away from traditional safe havens. Bitcoin held steady, posting a 0.23% gain and closing above $76,000, supported by sustained institutional interest. This stability suggests confidence in cryptocurrencies as alternative assets, with Bitcoin continuing to benefit from its perception as a hedge against inflation.

Treasury Yield Information:

The 10-year Treasury yield fell 0.95%, closing at 4.301%. While this decline temporarily alleviates pressure on equities, yields above the 4.3% threshold remain concerning for market stability. Sustained declines below this level could encourage growth-oriented stocks, though the potential for a return to higher yields may keep investor sentiment cautious. As markets digest the implications of the recent rate cut and weigh upcoming economic data, the movement of Treasury yields will remain pivotal to risk assets, particularly for sectors sensitive to interest rate fluctuations.

Previous Day’s Forecast Analysis:

Thursday’s forecast emphasized a bullish continuation, anticipating that SPY could climb if it broke resistance levels near $595. Key support was expected at $590, with the potential for upward movement toward $600 if strength continued. The forecast advised caution around profit-taking and possible volatility, particularly around $596, identified as a pivotal level for long entries. Suggested long positions aimed to capitalize on a break above resistance, while short entries were discouraged unless a substantial reversal occurred. This balanced approach provided a roadmap for traders to navigate potential fluctuations while favoring long trades amid a bullish trend.

Market Performance vs. Forecast:

Friday’s performance aligned closely with Thursday’s forecast, as SPY opened above the $596 level, hitting an intraday high of $599.63 before settling at $598.22. This movement respected the forecasted range, with the market testing but not breaching the $600 threshold. Traders who followed long trades near $596 capitalized on a controlled, upward trajectory that matched projected levels. Profit-taking and consolidation near resistance zones reflected the anticipated caution, underscoring the accuracy of the forecast in identifying key support at $590 and resistance near $600. The orderly climb validated a cautiously optimistic strategy and reinforced the forecast’s guidance.

Premarket Analysis Summary:

In the premarket, SPY was positioned at $595.59, with anticipated resistance levels at $596 and a projected ceiling between $599.15 and $600. The analysis favored long positions if SPY could conquer the $596 level. Should SPY stall near this threshold, a reversal toward $594.15 or $590 was expected. The session leaned toward controlled gains, and traders were advised to capitalize on long trades if the $596 level held, while staying alert for potential consolidation or reversals if resistance proved insurmountable. The premarket levels provided clear guidance for trading ranges, which largely held throughout the day.

Validation of the Analysis:

Friday’s market performance affirmed the accuracy of the premarket analysis, with SPY rallying past the $596 level and moving toward $599, a key upper target identified in the analysis. The expected upward momentum materialized, and support levels held firm, allowing for profitable long entries. This price action verified the projected resistance zones, with minor consolidations around the $596-$600 range. The reliable adherence to forecasted levels reinforces the premarket analysis as a valuable tool, equipping traders with actionable insights and confirming the analysis’ dependability.

Looking Ahead:

Next week’s economic calendar is light until Wednesday’s release of Core CPI data, which will be crucial for assessing inflation trends. This release may impact Federal Reserve expectations, as the CPI reading provides a direct gauge of consumer price changes. Markets may exhibit cautious trading early in the week as traders await these figures, with expectations of increased volatility on Wednesday. The CPI report will be critical in shaping the trajectory of risk assets, particularly given its influence on Fed rate policy expectations.

Guidance for Traders:

With the strong post-election rally likely to face technical resistance, traders should focus on key levels, notably $595 as support and $600 as potential resistance. Long positions are recommended on pullbacks to the $590-$595 range, with additional entries on confirmed breaks above $596. Short positions remain unfavorable until SPY reaches higher resistance points near $600, where brief, responsive trades may offer quick profits. Due to elevated market positioning, tighter stops and cautious risk management are advised.

Market Sentiment and Key Levels:

With SPY trading around $598, market sentiment remains bullish, though profit-taking may slow momentum. Key support is at $595, while resistance at $600 represents a major psychological level. A sustained break above $600 could push SPY into new highs, though if resistance holds, retracement to support near $595 may follow. The bulls appear firmly in control, with sentiment anchored by strong earnings and recent policy shifts.

Expected Price Action:

The projected trading range for SPY is $594 to $602.25, with a bullish bias that favors continued gains. A move above $600 could target higher resistance levels, while failure to hold this range may prompt a pullback toward $595. Any dip below $594 would indicate potential consolidation, especially with Core CPI data on Wednesday. Traders should be alert to sharp reversals and capitalize on entries aligned with strong price levels.

Trading Strategy:

Traders are advised to enter long positions around key support levels, such as $595, with potential exits near resistance at $600. If SPY breaks below $595, a cautious approach is recommended, with smaller position sizes and quick profit-taking strategies. Short entries are discouraged unless the market reaches the $600 range, where tighter risk management and swift reversals could provide profitable setups. Adjust trades based on prevailing price action, using stop-loss orders for efficient risk management.

Risk Management and Warnings:

With the VIX hovering near recent lows, market complacency may set the stage for sudden swings. Traders should prioritize tight stop-losses near critical support levels, particularly in the face of upcoming economic data. Elevated VIX levels could signal increased volatility, warranting reduced exposure to mitigate potential downside risks.

Model’s Projected Range:

The model projects a range for SPY between $594 and $602.25, with a Call-dominated landscape suggesting bullish sentiment in a sideways market. SPY remains in a solid uptrend, anchored by support at $595, remaining in the bull trend channel that has been in place since the September lows. A break above $600 would confirm upside momentum, while failure to hold above $594 could signal a move toward lower support. Staying within this range is likely unless influenced by economic releases or unexpected market news. We expect to more two-way trading opportunities to present next week.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State with price closing just below resistance. The range is quite large and there are no extended targets above. This indicates a solid bull trend but perhaps one that is set to slow over the next few days. The MSI rescaled several times during the afternoon session and printed extended targets for most of the morning session. MSI support is $591.40 and $599.64.
Key Levels and Market Movements:
The MSI began printing at the open which indicated the herd was pushing the market to new highs. MSI resistance became support and long entries were favored out of the gate toward our model’s major level of $600. Price continued to push higher all morning and even though extended targets stopped printing at 1:38 pm PT, with the MSI rescaling higher we held our longs and used MSI resistance at $599.64 as our target exit. A monster trade right from the open, displayed perfectly by the MSI once again. And without extended targets above at the $600 resistance level, the door was open to a quick mean reversion short into the close. We have been advising caution against taking any shorts until price reached our major level of $600. This short in the afternoon was clearly laid out well in advance and provided the most profit on the day for mean reversion traders. But long was the mantra and that continued from the open with the MSI leading the way.   
Trading Strategy Based on MSI:
The MSI's current state suggests the bulls remain in control with price moving sideways to slightly higher over the weekend. We stress caution at these levels given the size of these moves. Monday market participants are highly likely to take a step back and trade sideways or even pull back to $590. The MSI range is quite large, which implies some uncertainty whether the bull trend will resume on Monday. Our model suggests the market may sell off $10 or more at any time and with little notice. And this would be perfectly normal. $592 looks like a spot the bulls want to defend so we continue to favor longs from MSI support from lower levels. And we are also more willing to look for failed breakout shorts from these elevated levels.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $599 to $602 and higher strike Calls implying a likely ceiling at $602. Dealers are no longer selling Puts. Yesterday we stated the Dealers had “extreme confidence by the Dealers that prices are moving higher on Friday” and sure enough they delivered on that today. To the downside, Dealers are buying $598 to $588 and lower strike Puts in a 5:1 ratio to the Calls they are selling, implying a bearish view of the market for Monday. While coming into today they were less bullish than yesterday, today their positioning suggests concern that prices may retreat next week.
Looking Ahead to Next Friday:
Dealers are selling $599 to $610 and higher strike Calls while also selling $590 to $598 Puts in size, implying the Dealers believe the market will continue to move higher next week. Remember Dealers rarely sell Puts unless they believe the prices will move higher. Dealers have also started selling Calls above $600 in size so its possible Dealers see the market topping next week @ $605. To the downside, Dealers are buying $589 to $572 and lower strike Puts in a 4:1 ratio to the Calls/Puts they are selling implying bearish positioning. It appears Dealers have added protection for next week but are not overly bearish. Seeing a ratio above 5:1 or higher will be a warning that Dealers believe the top in is. We continue to advise watching this closely over the next few days as Dealers will provide clues as to what will happen in the near term.

Recommendation for Traders:

As we head into Friday, traders should continue approaching the market with a balanced mix of optimism and caution. The post-election rally, coupled with the Fed's recent rate cut, has set a strong bullish tone, but key support around $595 and the psychological $600 mark may introduce volatility as profit-taking or end-of-week adjustments come into play. For Monday, it’s recommended to prioritize long positions on pullbacks to support near $590 and $585, provided these zones continue to hold. However, with the market already elevated, entry points should be well-timed to manage potential fluctuations as the week closes out. Short entries should only be attempted near very strong resistance points, ideally around $600 and higher, as these levels could serve as potential reversal zones if bullish momentum stalls. We favor a failed breakout pattern to trigger an entry. Due to the heightened optimism, shorts may be short-lived, with a focus on quick profits and clear exit strategies. Traders may also benefit from reducing position sizes and limiting overnight risk, as any shift in sentiment could prompt a pullback. As always, disciplined risk management is key, with a preference for responsive trades that align with observable price action around support and resistance levels. Staying adaptable and prepared for rapid adjustments will be essential, particularly as markets digest the latest policy impacts and prepare for upcoming economic data. We recommend checking in with the premarket analysis which is posted daily before the open by 9 am ET.

Good luck and good trading!