Market Insights: Monday, December 2nd, 2024

Market Overview:

The Nasdaq and S&P 500 started December with a bang, closing at record highs as optimism in the tech sector lifted the broader market. The Nasdaq climbed nearly 1%, led by a surge in Tesla and Meta, which each gained over 3%. Meanwhile, the S&P 500 edged up 0.2%, continuing its recent record-breaking streak. The Dow, however, slipped 0.32%, reflecting a mixed sentiment among blue-chip stocks. Tech remains the primary driver, bolstered by Apple hitting fresh highs and an overall favorable outlook on the sector's resilience. The rally follows November's stellar performance, which saw the indices post their best monthly gains in a year. This bullish momentum comes despite lingering geopolitical tensions and anticipations around key employment data later this week, which could reshape expectations for Federal Reserve policies. As the market braces for the final stretch of 2024, tech and growth stocks appear poised to lead the charge, keeping investors optimistic for a strong year-end finish.

SPY Performance:

SPY rose 0.18% on Friday, closing at $603.66, with an intraday high of $604.32 and a low of $602.47. This modest gain reflects a continuation of the ETF's steady climb within a bullish trend channel. Trading volume of 27.64 million was below the average, typical of a post-holiday session. SPY’s resilience above $600, coupled with its closing near the day’s high, underscores the market’s cautiously optimistic sentiment as traders enter the final month of the year.

Major Indices Performance:

The Nasdaq led the indices with a 0.96% surge, fueled by robust gains in the tech sector. The S&P 500 followed with a 0.2% increase, maintaining its upward momentum. In contrast, the Dow slipped 0.32%, weighed down by underperformance in industrials and financials. The Russell 2000 posted a marginal gain of 0.02%, reflecting subdued small-cap performance. The tech rally continues to define market sentiment, with growth stocks driving gains while defensive sectors like utilities lag.

Notable Stock Movements:

Among the "Magnificent Seven," Tesla and Meta stood out with gains exceeding 3%, marking a strong day for these tech leaders. Apple also achieved record highs, contributing to the sector's momentum. Other components of the group, including Microsoft and Amazon, posted modest advances, aligning with broader tech optimism. This collective strength highlights the market’s reliance on tech to sustain its upward trajectory, with investors eagerly rotating into growth-oriented names.

Commodity and Cryptocurrency Updates:

Crude oil ticked up 0.22%, closing at $67.90 per barrel as traders balanced demand concerns with supply cuts. Gold slipped 0.73%, settling at $1,981 per ounce, as easing geopolitical risks reduced its safe-haven appeal. Bitcoin fell 1.63%, retreating to just above $95,500 amid profit-taking, though the cryptocurrency remains firmly in a bullish posture, supported by growing institutional interest.

Treasury Yield Information:

The 10-year Treasury yield inched up 0.05% to 4.191%, maintaining its position below the critical 4.3% threshold. This stability provided a supportive backdrop for equities, particularly growth stocks, as lower yields alleviate valuation pressures. Investors appear confident in the Fed's ability to balance inflation management with economic growth, reinforcing the positive sentiment for risk assets.

Previous Day’s Forecast Analysis:

Friday’s forecast anticipated a trading range of $600 to $605 for SPY, with a bullish bias above $600. It highlighted key resistance at $603, $604, and $605 and identified $600 as pivotal support. The strategy emphasized favoring long trades above $600, targeting $604 and $605, while recommending caution in the event of profit-taking below $600. This projection aligned well with SPY’s performance, as the ETF tested $604 before closing just below it, reflecting a controlled upward bias.

Market Performance vs. Forecast:

SPY’s actual trading range of $602.47 to $604.32 closely adhered to Friday’s forecast, demonstrating the model’s accuracy. The ETF’s movement respected key levels, with $603 acting as an intraday pivot. The bullish bias above $600 was evident as SPY maintained its strength throughout the session. Traders who followed the forecast likely capitalized on the move toward $604, validating the model’s reliability while shorts from $604 allowed for quick scalp profits as was advised.

Premarket Analysis Summary:

The premarket analysis for Monday projected a range of $600.25 to $607.25, with a bias toward $603 as a critical level. It identified $605 as the upside limit and $599.50 as the downside support. The session unfolded as anticipated, with SPY consolidating near $603 and testing resistance levels without significant deviations. The analysis provided actionable insights, guiding traders to monitor breakouts and reversals near identified levels.

Validation of the Analysis:

Today’s market adhered closely to the premarket projections. SPY tested and respected the $603 level, consolidating within the expected range. The analysis accurately highlighted $605 as a potential resistance, though the ETF fell a bit short of testing this level. Traders who followed the suggested strategies likely found opportunities for profitable trades around the identified pivots, reinforcing the model’s value.

Looking Ahead:

This week’s economic calendar includes critical releases like JOLTS job openings and the ISM Services report on Wednesday. These data points will be pivotal in shaping market sentiment and Fed policy expectations. With heightened sensitivity to employment data, traders should prepare for increased volatility as the week progresses.

Market Sentiment and Key Levels:

SPY’s close at $603.66 reflects a cautiously bullish sentiment, with the market firmly within a long-term uptrend. Key resistance remains at $605, while $600 serves as critical support. A break above $605 could pave the way for new highs toward $608, while a dip below $601 might trigger profit-taking and test lower support at $598. The market’s resilience suggests an overall bullish tone heading into December.

Expected Price Action:

Our model projects a trading range of $601 to $606 for Tuesday, with a bullish bias above $603. Actionable intelligence suggests targeting $605 on the upside, with a potential ceiling at $608. A breakdown below $601 could shift momentum, testing support near $598. Traders should focus on opportunities around these key levels, watching for strong buying interest to sustain the rally. The last day rally to $604 sets up the market to reach $605 where our model will look for profit taking.

Trading Strategy:

Long trades are recommended above $602.50, targeting $605 with tight stop-losses near $601 to manage risk. Short trades could be considered near $605 and $608 aiming for $603 or $601, but should be executed cautiously given the market’s bullish bias. The VIX remains subdued, favoring controlled volatility, though unexpected events could create sharp price swings and with Jolts and several Fed speakers on Tuesday, trade what you see.

Model’s Projected Range:

The model forecasts a maximum trading range of $601 to $606 which is quite narrow, suggesting choppy action dominated by Call positioning. With SPY firmly in a bullish trend channel from the September lows, traders should monitor $603 as the pivotal level, with $605 as major resistance and $601 as critical support. Any sustained move beyond these levels could redefine the market’s trajectory.

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 average and the MSI rescaled late in the day. Extended targets printed for most of the session indicating the herd is supporting the bull trend. Midafternoon extended targets printed on and off indicating the herd was taking profits and that the move higher was likely to stall. Shorts were off the table until extended targets stopped printing when price reached $603.75 late in the afternoon. Then extended targets began printing once again and price pushed to major resistance at $604.32 allowing the MSI to rescale. MSI support currently is $602.56 and lower at $604.32.
Key Levels and Market Movements:
Despite profit taking overnight which pushed price lower to major support at $601, the market rallied in the premarket and at the open had already reached $603.50. While $604 is a major level of resistance for our model, with extended targets printing we did not enter a short until @ 1:40 pm ET from $603.75, a premarket level. We set our first target at $603 and went to breakeven given the risk shorts pose. We mentioned Friday any shorts needed to take profits quickly given the strength of the market. There was little else to do once we got into this trade as we were one and done. Our model favored longs but given the move higher occurred premarket, we were left with just one quick short. We felt lucky to get this one small trade given the day’s extremely narrow range. We suggested this would be the case last Friday and that the market needed volume for the MSI to rescale. While this happened late in the day, and there was a mean reversion short from $604.32, we passed this trade given the MSI is still bullish and the market printed extended targets up and until 3:30 pm. We typically don’t like to trade the last twenty minutes given this is when institutions push price wherever and however they want. In any event, it was a very slow and uneventful day until the last 30 minutes but once again, one where the MSI kept us from entering shorts at the wrong time and kept our bias long. 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. Price is approaching major resistance at $605. A break above $605 will target $608 and a failure at $605 will bring in a test of $601. The range is about average but has rescaled indicating some strength to the bull trend. But there are no extended targets printing at the close so its likely MIS resistance at $604.32 will hold until we see more extended targets. We advise caution initiating new long positions at these levels and now that price has reached $604, we will be looking for a failed breakout for a short back toward $601. But without this type of price action, we continue to favor longs from support at $602 as the market makes its way toward $605. Remember the week after Thanksgiving typically sees a 1% pullback which would move SPY as low as $597 where we are 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 as our model projects market participants will continue to buy dips. The risk of a rug pull for longs is still present and shorts continue to pose risks given the strength of the bull trend. We advise caution until the market consolidates and SPY either sells off or continues sideways for a couple more days. Today did not follow the pattern of retracing much at all of the holiday move but that does not mean it can’t and won’t come tomorrow or the next day. But until that happens. allow 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 $604 to $608 and higher strike Calls implying Dealer’s belief that should price continue to move higher, it will likely slow at $605 and stall at $608. To the downside, Dealers are buying $603 to $577 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 bearish stance has reduced slightly but remains slightly bearish. Dealers continue to protect from what is traditionally a seasonally weak period and have significant downside protection should Tuesday be the start of a deeper pullback.  
Looking Ahead to Next Friday:
Dealers are selling $604 to $610 and higher strike Calls implying the market may approach $605 but not exceed $610. To the downside, Dealers are buying $603 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 this week. This is unchanged from Friday although the quantity of both Calls and Puts has increased given the market is back to normal trading. It appears Dealers are not very worried about weakness for this week and continue to believe any pullback will be bought. We continue to advise watching Dealer positioning closely for clues of what is likely to develop in the near term.

Recommendation for Traders:

Traders should focus on opportunities near critical levels such as $602.50 support and $605 resistance. Long trades above $602.50 could target $605 and $608, while short trades from $605 and $608 should aim for $603 or lower, but only if resistance holds firmly. Managing risk with tight stop-losses is crucial, particularly in a range-bound market. With low VIX levels, volatility should remain subdued, though surprises could create sharp moves. Always align trades with the prevailing trend, favoring long positions in a bullish market as the bulls have complete control and with a strong start to December, higher prices are likely to follow. Remember to review the premarket analysis posted before 9 AM ET to adapt strategies based on updated insights.

Good luck and good trading!