Market Insights: Wednesday, June 12th, 2024.

SPY gapped up shy of $5 on a much lower than expected CPI reading. At .2%, this is the lowest reading recorded for inflation since November of 2023. While one month doesn’t a trend make, we now have two months of lower readings and perhaps, high interest rates are finally taking a bite out of inflation. The Feds seem to think so indicating there is progress on inflation and there will be one rate cut later this year. This news pushed the S&P and the Nasdaq to new all-time highs today. In the opening hour, the markets continued to move higher, then chopped around most of the day until the FOMC statement was released at 2 pm ET when the market initially fell, then ripped higher once again, making a new high on SPY of $544.12. The market fell in the last 40 minutes on profit taking to close down on the day 15 basis points. The Nasdaq held onto its’ gains, rising 1.33% with the Dow losing 9 basis points. The star of the day was the Russell, gaining 1.54% since lower interest rates help small caps more than large caps. Volume for SPY was an impressive 62.72 million shares, well above average which certainly reinforces the bull market, setting it up for even higher highs.       

10-year Treasury yields reacted to the news as expected losing 2.04%, closing at 4.316%, with Crude gaining .19%, still trading in a range between $75 and $80. Gold rallied .27% as Citi advised it’s clients Gold would hit $3000 by the end of the year. We continue to buy dips in Gold and Silver. Bitcoin rose 1.37%, closing just above $68,000. We continue to recommend buying dips in Bitcoin above $60,000.   

In Tuesday’s newsletter, we reiterated our model remains bullish above $532 and advised clients to hop on the trend and ride it given the projected range for today was $529 to $544. We stated $535 was support with $537 was resistance, but that CPI could blow through these levels and to prepare for the market to reach at least $541. SPY opened above $541 and continued to our highest range of $544. As we often state, any model’s prediction can be made null and void when unknown macro information presents. Today that macro information was CPI. We have been advising clients for weeks to be long and stay long and yesterday stated the market would reach $540 before it hit $530. Creating a plan of action from these market sentiment reports requires you as a trader to adjust your plan when news presents. We told you yesterday that typically after FOMC, the first reaction is usually a trap and to fade the first move. The markets fell at 2 pm to our Market State Indicator support level at $541.76 before ripping to today’s new high. Trading is easy if you make a plan, adjust it accordingly, and have the proper tools at your disposal. We highly recommend you incorporate this actionable information into your daily trade plan as well as the tools we provide.

In the premarket at 8:19 am ET we stated to expect lots of volatility from CPI and FOMC. We stated the market could rise to $542. Our model did not have the benefit of the lower than expected CPI reading at the time of the premarket release. Again this is why we advise clients to trade what they see and to utilize the tools we have available to adjust their plan in real time. More on that below.  

Needless to say our model remains bullish above $537. Below $537 the market will likely experience profit taking which will initially reach $530. But again, $518 is still the line in the sand, above which the market remains bullish. We have not had a 2% down day in over 310 days. The longest streak like this in the past is @ 350 days, so do not be surprised to see a 2% down day this summer. The markets are due. And even a 2% sell off will still keep SPY above $530…not a big deal when it does develop. With much of this week’s big news out of the way, the only major news due out tomorrow is PPI. Certainly a potential market mover. If this too is lower than expected, prepare for another day with another new high. The market still has room to run higher in the bull trend channel that has been in place since the April lows. The top of this channel is $550 and certainly this level is a possibility before we see any material pullback.

Looking at a chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state which rescaled at the open significantly higher. This was the first indication of a stronger than expected bull trend and clients who use this tool knew to get long and stay long to our extended, olive colored target. Initial resistance at $541.76 became support and again, clients who use this tool knew to get long once again, especially after FOMC, “fading” the first move as recommended. But once the market hit our extended target, mean reversion trades became more favorable and a late in the day selloff was all but guaranteed. This indicator provides lots of information about what the “herd” is doing next and with prices still in a bullish market state, be prepared for higher prices tomorrow. Again adjust your plan once PPI is released at 8:30 am ET.

For Thursday our model projects prices will trade in a range between $538 and $548 (white box on chart), still quite a wide range implying a trending market for Thursday. In a trending market, hop on the trend and ride it for major gains. Support is $539.33 with resistance at $541.76. These levels could change from PPI premarket. So for tomorrow, keep a bullish stance, buying dips to $539 and above $542, look for longs with the market expected to attempt to make another new all-time high. Any major failure of $539, and we will look to short to $537. We see this as a low probability for tomorrow. However without knowing what PPI will produce we are prepared for another day with the market attempting to make new highs, and will buy dips at the levels indicated. For updates to this plan, be certain to check the Premarket Market report before the open.  

Dealer positioning for Thursday to the upside has Dealers selling $541 to $540 Puts while also selling $542 to $545 Calls in a 4:1 ratio implying a floor in the market for tomorrow of $540 with a ceiling at $545. The sizes for this positioning are not large so we might disregard the $540 floor expectation, but rely on the $545 ceiling. To the downside Dealers are buying $538 to $536 and lower strike Puts in a 1:1 ratio to the Calls they are selling. This implies little fear the markets will fall lower than $536 tomorrow, as a balanced ratio is interpreted as quite bullish. Should $536 fail, Dealers expect prices to fall to further, yet they see also this as a very low probability. Instead Dealers are prepared for new highs on Thursday, perhaps stalling at $545.

Looking to Friday, to the upside Dealers are selling $540 to $538 Puts while also selling $542 to $545 and higher strike Calls, implying a max high for the week of $545 with little risk of prices falling below $538. To the downside Dealers are buying $537 to $528 Puts in very large size, just in case $538 fails. Similar to today’s positioning, Dealers are uncertain what PPI will do to the markets so they are positioned for a high of $545, but a break of $538 will allow them to clean up as well. Dealers are holding more than ten times as many Puts as Calls they are selling and are therefore indicating their uncertainty going into Friday. We continue to recommend purchasing protective Puts for any long book, even though our models remain strongly bullish.

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.