Market Insights: Friday, June 14th, 2024.

SPY opened down @ $1.50 as the market entered consolidation mode, digesting the gains from this week. UoM Consumer Sentiment came in a bit weaker than expected as rising costs and less job prospects dampened consumer enthusiasm. But today was much more about typical market behavior with prices moving sideways setting up for the next major move. The market spent much of the day in a range between $540 and $542, until the last few minutes of the day when the market pushed higher to close at $542.81, up 6 basis points. The Nasdaq pushed higher to another new all-time high, rising .42% while the Dow lost 15 basis points with the Russell suffering a 1.59% decline. Volume for SPY was shy of average at 40.07 million shares.

10-year Treasury yields continue to slide, down .54%, while Crude gained .66%, remaining in a range between $75 and $80. Gold gained 1.37% and we continue to buy dips in Gold and Silver. Bitcoin fell once again losing 1.27%, closing at $65,884. We continue to buy dips in Bitcoin above $60,000 and see major support at that level.

In Thursday’s newsletter, we stated once again our model remains bullish above $540 and advised clients to continue to buy dips at this level. We also advised clients to expect today to be range bound with the market trading between $539 to $542. We advised favoring the long side, buying dips with exits at $542. Today was not a day to ride the trend, and our clients knew that yesterday. We stated $539.33 was support and $541.76 was resistance. The market traded much of the day between $539.85 and $542.50. If anyone doubts the accuracy of this model, we dare anyone to show us a service that is more accurate. Finally we stated a failure of $539 would bring in $537 but that this was a low probability for the day. We continue to stress every trader incorporate this highly accurate and actionable information into their trading plan to take the guess work out of trading.

In the premarket at 8:49 am ET we stated the market after falling overnight would rise to $541, but would move higher to $542 where it would find major resistance. The market bounced off $542 several times today before breaking higher late in the session. We also stated we expected the max downside for today to be $539 where we recommended initiating longs, targeting $541. The post and premarket reports for today were quite similar which reinforced the model’s predictions. The advice and recommendations made in these reports once again laid out the perfect plan of attack for the day.

Our model continues to bullish above $540. Again, below $540 the market will experience a deeper pullback to at least $535. Bulls are solidly in control of the broader market above $518, even though the hard lifting is being done by just a handful of stocks. If stocks like AAPL, NVDA, MSFT, NFLX, LLY and a few others give way, the market will certainly experience a deeper pullback. But for now at least the markets are happy with this narrow leadership and continue to push to new highs. We recommend watching these stocks to “predict” when a pullback may occur. There is very little news next week and nothing market moving on Monday so again, the market will likely stay in consolidation mode for at least a few days before picking its’ next major move. Price is still in the middle of the bull trend channel from the April lows and there is room to both the upside and the downside. But as each day passes in a sideways market, these levels move higher. At some point, without another breakout to the upside, price will break the lower bounds of this channel and the market will experience that long awaited pullback of at least 2% and perhaps as much as 10%.

Looking at a chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state which hasn’t rescaled since Wednesday at the open. This implies a bull trend but a weakening trend. Resistance, which is now support is still $541.76 with further support lower at $539.33. With the late in the day breakout it’s possible the Market State indicator rescales on Monday. But failure to do so will reinforce the idea that the trend is stalling at these levels. This is highly valuable information as it lets you know where to buy and close positions. As we said yesterday, look to buy dips at support and expected generally higher prices on Friday and this is precisely what the model displayed and what the market delivered.

For Monday our model projects prices will trade in a range between $538 and $546 (white box on chart), the same as today, once again implying more sideways trading on Monday. In a sideways or ranging market, stick to the longer-term trend and in this case, buy dips, but also take profits near resistance. Buying dips to $539 and taking profits at $542 continues to be the proper course of action for Monday. If $541.76 hold on any retest, the market may attempt to make a new high, although $543 will be quite challenging to get past on Monday. Any major failure of $539 and prices will drop to $537, but again, we see this as a low probability. So for Monday the routine is really the same as today…buy dips and take profits…do not look for extended moves. For updates to these levels and the plan for Friday, be certain to check the Premarket Market report before the open.

Dealer positioning for Monday to the upside has Dealers buying small quantities of $543 and $544 Calls while selling $545 to $547 and higher strike Calls. This implies a hard ceiling at $547 with heavy resistance above $545. Dealers believe the market may continue to drift higher toward a new high, but won’t likely go much further than $545. To the downside Dealers are buying $542 to $540 and lower strike Puts in a 7:1 ratio to the Calls they are selling. This implies any break of $540 will bring in lower prices…aligned with our model’s predictions. This is a large increase in Put buying which indicates fear of lower prices. Market makers remain bullish and have not been heavily positioned for downside risk, but they now appear to be adding significantly to their protective Puts. The fear is while the market is still long, that could change quickly at these extended levels.

Looking to next Friday, to the upside Dealers are buying $543 and $544 Calls in very small size while selling $545 to $550 Calls in much larger size. This again implies SPY may rise a bit higher but not much beyond $545. Dealers continue to believe there is a possibility of new highs but they will be limited. To the downside Dealers are buying $542 to $535 and lower strike Puts in the event $540 fails to hold. They are holding 8 times more Puts than the Calls they are selling. Dealers often Sell Calls to finance the purchase of Puts making it quite profitable for them. However at 8:1 they are spending their own money to protect from a selloff which certainly implies some concern of a deeper pullback by next Friday. This is a change from yesterday’s positioning where it appeared Dealers believed the market would simply range trade all next week. Looking at this information daily provides clues as to potential changes in Dealer and therefore market behavior.

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.