Market Insights: Thursday, June 13th, 2024.

SPY gapped up @ $1.50 on a much lower than expected PPI reading at 8:30 am ET, as well as a higher-than-expected Unemployment Claims number. Combined they support the narrative of easing inflation, weakening jobs and therefore, the ability for the Fed to reduce interest rates. The Fed likely needs two more CPI/PPI readings like this to establish enough of a trend to reduce rates. This could come as early as September, and the first rate cut will likely only be a 25 basis points…big deal. But the market will interpret this as extremely bullish and anticipate at least 100 to 200 basis point cuts in 2025 which will drive short term yields much lower. We still believe longer-term yields will remain elevated, working their way back to at least the high 4’s. Other countries are already cutting rates so the Fed will need to follow suit to balance money flows. While the market didn’t make a new high today, it tested yesterday’s high premarket and then sold off, spending much of the day in a range between $540 and $542, occasionally straying a bit higher or lower but generally in a fairly tight range. Once $541.76 broke strongly at 2:06 pm ET, SPY drifted higher the rest of the day reaching $543.33 before selling off in the last few minutes to close at $542.45, down 20 basis points. The Nasdaq rose .57% while the Dow lost 17 basis points. The Russell gave back some of yesterday’s gains, losing .87%. Volume for SPY was average at 44.30 million shares, somewhat reinforcing the bull trend.       

10-year Treasury yields once again fell on the news losing 1.62%, yielding 4.246%, while Crude lost .47%, still trading in a range between $75 and $80. Gold lost .88% and we continue to buy dips in Gold and Silver. Bitcoin had a rough day falling 2.36%, closing below $67,000. We continue to recommend buying dips in Bitcoin above $60,000.   

In Wednesday’s newsletter, we reiterated our model remains bullish above $537 and advised clients to ride any long trend that developed today. We stated $539.33 was support and we recommended buying any dip near this level. We also stated $541.76 was resistance where we would take profits. We also stated on any strong breakout of this level, we would go long as the market would seek another new high. We stated shorts below $537 would be attractive, but reaching this level was a low probability for the day. SPY opened above resistance and fell to $539.59 where it reversed course and rallied to our $541.76 target by 1:30 pm ET. The market then chopped around for a couple of hours and broke strongly higher at 2:06 pm ET. The break higher pushed prices back up to $543.33 for another solid trade. Today’s macro event was PPI and Unemployment Claims which both support lower interest rates. That is bullish for the market and was proven to be true today in an environment that is certainly risk on. Understanding what we advise and using it to create a trading plan does about 90% of the work for you. Incorporating this actionable information into your daily trading will help you grow your trading account.

In the premarket at 8:23 am ET, before PPI, we stated the market may take a shot at the all-time high of $544.10. The market did that in the premarket after PPI was released. We also stated that would likely be the high on the day and certainly this was the case. We advised selling a break of $542, holding shorts to at least $540.30 and perhaps lower. Finally we stated from support in the $540 range, expect the market to rally back to $542 in a choppy, difficult fashion. All of these premarket predictions came true today once again. Combining this information with the post market recap from yesterday once again provided a perfect road map for the day.

Our model remains bullish above $540. Below $540 the market will likely experience a deeper pullback to at least $535 which will close the gap from yesterday. Bulls are still in control of the broader market above $518. With most of the major economic news out of the way for the rest of the week and next, it’s likely the market enters consolidation mode and chops around for a few days before picking a direction. The market still has room to the upside in the bull trend channel that has been in place since the April lows, but there is also room to the downside to support. The high of the channel is $550 and the low is $535. The market wants to get to the top of the channel, but it would not surprise us to see a pause and a retest of $535 before doing do.

Looking at a chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state which didn’t rescale today. This implies a bull trend but a weakening trend. In addition, the olive-colored extended targets have virtually disappeared. This confirms this statement…the herd is not necessarily interested in trying to make a new high on Friday. Resistance, which is now support is still $541.76 with further support lower at $539.33. Our Market State indicator provides lots of information about what the “herd” plans to do next and with prices still in a bullish market state, look to buy dips at support and expected generally higher prices on Friday.

For Friday our model projects prices will trade in a range between $538 and $546 (white box on chart), contracting a bit implying more of a sideways market on Friday. In a sideways or ranging market, stay with the trend buying dips, but also take profits near resistance. Buying dips to $539 and taking profits at $542 makes lots of sense for tomorrow. You might also look to go long on a retest and hold of $542 as the market still wants to attempt to make a new high. Certainly any major failure of $539 and we will look to short to $537, but we see this as a low probability for tomorrow. For updates to these levels and the plan for Friday, be certain to check the Premarket Market report before the open.  

Dealer positioning for Friday to the upside has Dealers buying small quantities of $543 Calls while selling $544 to $550 and higher strike Calls. This implies a hard ceiling at $550 but with heavy resistance above $545. More evidence Dealers think tomorrow the market may drift higher and make a new high, but the market won’t likely go much further than $545. To the downside Dealers are buying $542 to $534 and lower strike Puts in a 3:1 ratio to the Calls they are selling. This implies any break of $539 will bring in much lower prices…again perfectly aligned with our model’s predictions. The increased Put buying indicates the return of fear of lower prices by the Dealers. Market makers have been bullish and not heavily positioned for downside risk, but appear to be loading up on Puts once again with the market at these extended levels.

Looking out to next Friday, to the upside Dealers are selling $542 to $530 Puts while selling $543 to $550 Calls in a 4:1 ratio to the Puts they are selling. This implies a conviction that prices will not fall much below $540 next week while at the same time, they won’t rise much higher than $545. Again for next week it looks like Dealers believe there will be new highs but they will be limited to $545 and the market will likely trade in a range between $540 and $545. To the downside Dealers are buying $535 to $520 and lower strike Puts in the event $540 fails to hold. Positioning to the downside isn’t heavy enough to indicate any real fear the market is about to fall off a cliff. Instead, Dealers believe next week will simply be a ranging week trading in a $5 range with a bullish undertone. 

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.