Market Insights: Tuesday, June 11th, 2024.

SPY opened down $.59 on overnight weakness and profit taking. Like yesterday, in the first hour the market fell until it found support once again at $532.50 where it reversed course hard and rallied, reaching a new all-time high of $537.01 before closing at $536.95. There is no doubt that the market is bullish. While prices did chop around mid-day, once prices got above $534, new highs were in sight. The Nasdaq fared even better than the S&P, gaining 71 basis points while the Dow lost .31% with the Russell losing .62%. Volume for SPY was 36.29 million shares, still a bit low but expect more volume tomorrow due to the release CPI and FOMC decision.

10-year Treasury yields lost 1.45% closing at 4.406% on a better than expected 10-y bond auction. It seems investors want to lock in these higher rates due to uncertainty about the Fed’s next move. We did mention yesterday that this auction should provide clues as to where yields and therefore the markets, are headed. Crude was basically unchanged, remaining in its’ trading range, while Gold rallied .24% to close back above $2300. We are buying dips in Gold and Silver. Bitcoin fell 2.91%, closing below $68,000. We recommend buying dips above $60,000.   

In Monday’s newsletter, we reiterated our model remains bullish above $530 and it would not surprise is to see a new all-time high today with the market testing both our lower and upper, support and resistance levels. We stated $532.50 was major support and to buy any dip at this level. We also stated $536.85 was resistance. Finally we stated we would be flat at 1 pm ET for the bond auction and depending on the outcome, would look for clues to trade the afternoon session. And the bond auction delivered very good news for the market which lowered rates and drove the market to new highs. We state often that economic news can and will override any model’s price predictions and as a trader, you must understand how to interpret this information. At 1 pm ET the market was at $534 still chopping around like we suggested it would, yet with such a strong bond auction, traders needed to know the market would rip higher in the afternoon to a new high. We stated yesterday Dealers were positioned for this outcome and once again buying the dip at $532.50 was a perfect trade this morning, followed by another buy after the bond news. Pretty easy money when you have a plan and the proper tools and knowledge how to use them. This is actionable market intelligence and we highly recommend you incorporate it into your daily trading.

In the premarket at 8:20 am ET we stated we expected the market to retake the $536 level but that the market would struggle along the way. We stated $535 was a great place to short targeting $533.55 and buying $532.55 for a trade back to $536 was the plan for the day. The sell off at the open provided the short and by 10 am the wonderful long we also mentioned in the post market recap yesterday presented perfectly. Then the chop came into play as identified in the premarket, followed by the bond auction rally. Putting our two reports together with Dealer positioning and 90% of the work to trade the day is done for you. Our model provides a directional bias, the type of day to expect and where to enter and exit for profit. Make this a part of your daily routine, creating a plan of action for the day. For further assistance, seek out one of our staff.

Our model remains bullish above $532. Below $532 the market will likely experience profit taking which will initially reach $530 and then $525. Yet $518 is a line in the sand and as long as the market is above it, the market is long. After new highs in both the S&P and the Nasdaq, and with tomorrow’s major economic news, the rest of the week is less certain. While the market still has room to run in the bull trend channel that has been in place since the April lows, the market will react to tomorrow’s economic news and could moves either way, higher or lower. Trader’s need understand the news being released and watch the markets’ reaction to it to determine the direction for the day. Initially the first move after an economic news release is a trap and it’s often quite profitable to fade the initial move.

Looking at a chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state. The indicator rescaled lower initially but then moved to a mid-range state and then a long state after the bond auction. Clients who utilize this tool understand the indicator rescaling intraday provides lots of information about what the “herd” is planning to do next. With price sitting at above the upper-range of the indicator, we expect continued strength overnight. But with CPI at 8:30 am ET, be prepared for a move either way. For more information on the proper use of this tool, please contact one of our staff.

For Wednesday our model projects prices will trade in a range between $529 and $544 (white box on chart), expanding significantly from today. Margin requirements have increased for tomorrow as broker dealers are expecting fireworks. This very large range implies a level of uncertainty in the model with the likelihood of whatever trend does develop, it will be strong. We plan to hop on the trend and ride it for major gains. Interim support is $535 with resistance at $537. But these could get blown out with CPI at 8:30 am ET so for tomorrow, trade what you see. We are prepared for $541 to the upside and $530 to the downside. Yet we are bullish and will be looking to buy dip at our support levels given our model projects the market reaches $540 before it reaches $530. Of course for updates to this plan, be certain to check the Premarket Market report before the open.

Dealer positioning for Tuesday to the upside has Dealers selling $538 to $543 and higher strike Calls. Dealers are not buying any Calls. This implies Dealers do not expect any strength tomorrow to exceed $541 as the quantity they are selling quite large. Dealers were right on today’s positioning that the market would make a new all-time high. To the downside Dealers are buying $535 to $524 and lower strike Puts in a 2:1 ratio to the Calls they are selling. This implies should $534 give way, they expect prices to fall to at least $530. Dealers are back to holding twice as many Puts as Calls which implies the belief that any hawkish news tomorrow will lead to a material sell off, and even dovish news has limited upside.              

Looking out to Friday, to the upside Dealers are selling $539 to $545 Calls implying a max high for the week of $541. To the downside Dealers are buying massive quantities of $534 to $525 Puts, heavily positioned lower prices by Friday. Dealers do not know more than anyone else what the news will be tomorrow and their positioning reflects this. While the market may very well make another new high this week, to as high as $541, it seems they also believe there is a high likelihood the market will fail to hold these lofty levels and will sell off materially. We highly recommend purchasing protective Puts for any long book.  

But as we state daily, Dealer positioning changes so be sure to check our Market Sentiment Newsletter premarket and review these post-market recaps to understand how dealer positioning will affect the day’s price action. Pre-market analysis is posted by 9:15 AM and these post-market recaps are posted each evening. We strive to deliver actionable intelligence you can use each day in your trading. Good luck and good trading.