Market Insights: Wednesday, December 11th, 2024

Market Overview:

The Nasdaq crossed the 20,000 mark for the first time ever as Big Tech stocks soared, buoyed by favorable inflation data that reinforced expectations of a Federal Reserve interest rate cut. The Nasdaq Composite jumped 1.76%, propelled by a blistering rally in the "Magnificent Seven" tech stocks. Alphabet hit a record high with a gain of more than 5%, while Tesla surged over 5%, recording its first all-time high close in over three years. Meta and Amazon also reached record levels, reinforcing the tech sector's dominance. Meanwhile, the S&P 500 rose 0.77%, but the Dow Jones Industrial Average slipped by 0.22% as defensive stocks lagged. Inflation data revealed a 2.7% annual increase in the Consumer Price Index for November, aligning with expectations and suggesting the Federal Reserve is on course for another rate cut in December. Bitcoin also staged a dramatic rally, climbing above $101,000, driven by renewed risk-on sentiment across digital assets.

SPY Performance:

SPY climbed 0.77% on Wednesday, closing at $607.46 after reaching an intraday high of $608.43 and a low of $605.50. Trading volume was significantly below average at 23.61 million, reflecting a quieter session as markets processed inflation data. The session marked a continuation of the rally, with SPY nearing key resistance levels and hinting at further bullish momentum.

Major Indices Performance:

The Nasdaq led the day's gains, surging 1.76% and crossing the historic 20,000 threshold, driven by tech giants. The S&P 500 followed with a 0.77% increase, reflecting broad market strength. The Russell 2000 rose 0.45%, bolstered by small-cap names, while the Dow Jones Industrial Average dipped 0.22% as industrial and defensive stocks underperformed. Key drivers included aligned inflation data and optimism around monetary policy easing, which bolstered growth-oriented sectors while weighing on defensive plays.

Notable Stock Movements:

Alphabet spearheaded the gains with a record-breaking 5%+ rally, underpinned by momentum in its artificial intelligence and quantum computing segments. Tesla also gained more than 5%, reaching its first record high in three years on robust EV demand and favorable policy developments. Meta and Amazon achieved new all-time highs, reinforcing the Magnificent Seven’s dominance, while Apple dipped slightly, making it the only laggard in the group. The divergent performances underscore the market's focus on growth and innovation-driven narratives.

Commodity and Cryptocurrency Updates:

Crude oil spiked 2.79%, closing at $70.37, as traders priced in tighter global supplies. Gold gained 0.89%, settling at $2,717, as inflation-aligned data encouraged safe-haven buying alongside risk-on sentiment. Bitcoin surged 4.68% to close just above $101,000, reflecting heightened demand as digital assets regained favor amid broad market exuberance.

Treasury Yield Information:

The 10-year Treasury yield rose 1.06% to close at 4.275%, approaching the critical 4.3% threshold that could dampen equity market optimism. While yields remain elevated, inflation-aligned data helped contain further upward pressure, allowing equity markets to maintain their bullish momentum.

Previous Day’s Forecast Analysis:

Tuesday’s forecast anticipated a trading range of $600 to $609 with a bearish bias below $605. The forecast stated above $605 the bulls would “resume complete control”. Key support at $603 and resistance at $605 were highlighted as pivotal levels. The analysis correctly predicted that a break above $605 could propel SPY toward $609, and this scenario unfolded as SPY rallied past resistance, testing $608.43 before settling near $607.

Market Performance vs. Forecast:

SPY’s actual performance closely adhered to the prior day’s forecast. Opening at $605.78, the ETF moved above resistance, which became support and SPY climbed steadily, reaching a high of $608.43 before closing at $607.46. Resistance at $605 was cleared decisively early in the session, supporting bullish entries, and confirming the forecast’s reliability. Traders who positioned for long trades above $605 enjoyed substantial gains, while cautious short attempts were mitigated by the strength of the breakout. The forecast advised looking for failed breakout and breakdowns for entries at major levels i.e. $605, $609. By the time the market opened, SPY had railed above $605 resistance and entries were limited to simply purchasing this level. Those you use our MSI indicator witnessed the strength of the morning trend and entering long was made quite easy. A failed breakout at $608.40 set up the only viable short for the day which led to solid gains. Traders were advised to trade what they saw after CPI and those who did, capitalized on upside momentum, validating the forecast’s emphasis on buying dips near support and targeting resistance levels while also seeking shorts from $609.

Premarket Analysis Summary:

Wednesday’s premarket analysis, posted at 7:53 AM, emphasized $605 as a critical resistance level and $603 as key support. The analysis accurately anticipated a bias toward upside momentum if $605 was cleared, projecting targets of $605.70 and $608. SPY’s strong rally validated the bullish bias, with intraday price action respecting these key levels. The premarket guidance provided actionable insights, aligning with the day’s robust performance.

Validation of the Analysis:

Wednesday’s trading confirmed the premarket analysis with SPY breaking above $605 early and sustaining gains throughout the session. Resistance levels at $605 and $605.70 provided launch points for long trades, while the upside target of $608 was effectively reached. The forecasted range and sentiment held firm, offering traders clear opportunities to capitalize on directional moves.

Looking Ahead:

As the week progresses, traders will focus on Thursday’s PPI release, which may influence the market’s inflation narrative. PPI when combined with CPI equate to the PCE, the Feds favored indicator. PPI has the potential to move the market a second day and likely higher. Resistance at $609 and $610 will be critical for bulls, while support at $605 and $603 will guide downside risks. Broader sentiment leans bullish as markets anticipate additional monetary easing, though profit-taking and macroeconomic surprises could prompt short-term volatility.

Market Sentiment and Key Levels:

SPY’s close at $607.46 indicates a bullish tilt, with the market positioned just below significant resistance at $609. Bulls remain in control above $605, targeting $610 and beyond, while bears could regain momentum below $603. Traders should watch Thursday’s economic data for cues, as a break above $609 could open the door to new highs, while a dip below $603 might signal consolidation or reversal.

Expected Price Action:

Our model projects a trading range of $605 to $610 for Thursday, with a bullish bias. SPY is expected to test resistance at $609, with a potential breakout targeting $610 or higher. Conversely, a dip below $605 could prompt tests of $603. Economic data will likely determine the session’s trajectory, making disciplined trading around key levels essential. Expect price to retest $606 perhaps overnight and break above $609 on favorable PPI.

Trading Strategy:

Traders should prioritize long trades near $605, targeting $609 with stops below $604. Short entries from $609 to $610 could aim for $607 or $605, with tight stops above $610. We recommend extreme caution on any short trades as the probabilities suggest shorts will be small winners and not trend trades, therefore take profits quickly. Our model favors longs so look for support @ $605 with failed breakdowns to initiate new long positions. Today may be the start of the Santa rally which would move prices higher into month end. Given the potential for volatile price action around Thursday’s PPI release, smaller position sizes are advised. Focus on failed breakout and failed breakdown patterns to optimize entry points.

Model’s Projected Range:

The model forecasts a maximum range of $603.75 to $610, reflecting an expectation of trending price action fueled by economic data. SPY’s positioning within a bullish trend channel from the September lows supports further gains, though downside room to $595 remains. The market is Call dominated implying higher prices to follow on Thursday. Traders should monitor resistance at $609 and support at $605, with macroeconomic events likely driving sentiment shifts.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State with price closing well above support and extended targets. Extended targets printed the entire session indicating the herd was participating in today’s move higher. The range is narrow implying a low volume bull trend. The MSI did not rescale today which can happen on low volume. MSI support is currently $605.77 and lower at $604.92.
Key Levels and Market Movements:
A solid day on positive CPI with the bulls stepping up and buying the dip, particularly in the technology space, which was on fire today. We stated yesterday the last two days sell off “did little to change the bull narrative long term.” We also stated ”While the parabolic rally has stalled, sellers have not returned in force” and as such, with positive economic news to lean on, the bulls had enough gas in the tank to push SPY back toward all-time highs. We continue to believe the bulls desire to trap shorts for liquidity but it appears that will have to wait until after the Santa rally has ended. With the market above $605 the bears are on the sidelines and prices will move higher. At the open today SPY had moved higher in the premarket and there was little to do but buy the open using MSI support given extended targets had been printing since CPI was released. SPY followed suit and moved from support at $605.50 to resistance at $609, a level indicated in yesterday’s forecast. SPY then moved sideways for most of the day with a late day pullback. But with extended targets printing we were not inclined to short the less than textbook failed breakout  @ 1 pm and instead called it a day with one solid long trade in the books. Report days often see much of the price action occur in the premarket. While the MSI will support those who trade pre and post market, we do not review those potential trades in this newsletter. With one trade and no losing trades in some time, we continue to prove every day how the MSI boost confidence while also helping you to grow your account. Again the MSI kept us trading on the right side of the market, provided us levels to enter and to take profits with actionable intelligence to capture all that the market provided. We highly recommend incorporating the MSI into your trading toolbox to achieve your best results.
Trading Strategy Based on MSI:
The MSI's current state suggests a bull trend with herd participation. The herd may walk away overnight until PPI is released. It’s probable the MSI will rescale in the premarket on whatever volume PPI produces. We stated yesterday “Wednesday we do expect the market to reengage as institutions seek any excuse and catalysts to execute their agenda and certainly CPI could provide said catalyst. December typically rallies into month end which still remains likely so unless CPI is overly hot, it’s likely the move higher resumes sometime tomorrow after CPI”. CPI was not hot and as forecast, market participants did reengage and pushed prices higher. Tomorrow once again is a day to trade what you see after PPI. Absent this information, we advise continuing to seek failed breakouts for shorts from $610 and failed breakdown longs from $606 and lower. Below $605 we advise waiting for price discovery to determine if a move lower is a trap or the beginning of something more onerous. We recommend using the MSI to identify the trend and levels to buy and sell to keep yourself on the right side of the market in real time. This is critical in day trading because when market dynamics change, the MSI will also change to keep you trading with the market and not against it…the key to long term success.   

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $609 to $615 and higher strike Calls while buying $608 Calls indicating Dealers wish to participate in any move higher on Thursday. If price does move higher, it appears $610 is the ceiling for Thursday. The Dealers seem to view a break of the all-time high of $609.07 will not lead to materially higher prices on Thursday. To the downside, Dealers are buying $607 to $590 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying implying a neutral view of the market for Thursday. This stance has shifted from bearish to neutral. It appears the complacency from last week has returned. And while Dealers own substantial quantities of downside protection, they are positioned for the Santa rally to continue.  
Looking Ahead to Friday:
Dealers are selling $610 to $615 and higher strike Calls while also buying $608 to $609 Calls and also selling $606 Puts. As we have stated often, Dealers do not sell Puts close to the money unless they are convinced prices will move higher. Dealers are displaying a strong desire to participate in any rally that may develop into Friday to as high as $610 and believe prices will make new highs. To the downside, Dealers are buying $605 to $590 and lower strike Puts in a 3:1 ratio to the Calls/Puts they are selling/buying, implying a neutral to slightly bearish view of the market heading into the end of the week. This has changed from neutral to slightly bearish. Again as we stated the last several days, “Dealers see any pullback as a buying opportunity.” and a neutral market is what Dealers expect to develop into week end. We advise continuing to watch Dealer positioning for clues of what is likely to develop in the near term.

Recommendation for Traders:

Traders should maintain vigilance around key levels, focusing on $605, 609 and $610 for Thursday. For long trades, seek entries near $605, targeting $609 while placing tight stops below $604. For short positions, consider resistance near $610 but only from a failed breakout, with downside targets of $606. Adjust position sizes to account for increased volatility from the PPI release and remain flexible as market conditions evolve. Always prioritize disciplined risk management, avoiding overexposure, especially in volatile environments. As always, review the premarket analysis posted before 9 AM ET for updated levels and insights.

Good luck and good trading!