Market Insights: Tuesday, June 18th, 2024.

SPY opened up slightly and spent the entire day chopping around in a very tight range between $546.73 and $548.62. SPY closed up slightly heading into the holiday tomorrow at $548.49, up .25% while the Nasdaq closed up .03%, with the Dow gaining .15%, and the Russell following suit, up .19%. Volume for SPY was low at 36.41 million shares due to the shortened week with people headed out for a nice long summer weekend.

10-year Treasury yields fell 1.54% while Crude continued to rally 1.09% pushing its way toward $85 as was suggested yesterday. Gold rose .59% and we continue to buy dips in Gold and Silver. Bitcoin fell sharply down 3.36% to close below $65,000. We continue to be bullish on Bitcoin above $60,000.   

In Monday’s newsletter, we stated we expected a narrow range today between $544 and 551 and advised buying dips to $545, taking profits at $548. We also suggested the market may attempt to make a new high, which it did at $548.62, barely nudging above the prior all-time high. The market didn’t fall below $546.73 and we wouldn’t blame traders who chose to sit out today given how tight the range was all day. But those who kept buying dips and particularly the double bottom @ 11 am ET were rewarded with profits, exiting at the advised $548 level. Those using our Market State Indicator saw no changes to the indicator with price above the upper resistance level, trading between midway to the extended target and at the extended target. With a close just shy of the all-time highs, its likely on Thursday once again, we revisit and break these highs. But once again our model nailed the type of day, direction with a plan to buy dips with the target exit. We believe every trader who incorporates this actionable market information into their trading plan each day will benefit greatly from this highly accurate information.  

In the premarket at 8:18 am ET we stated the market was stagnant and while there was upside pressure, we felt $548.50 was likely the top for the day. The market reached $548.62. We also reiterated the post market report stating to expect nothing but chop today and to be careful of traps between $546.75 and $548. We stated we favored longs at $546.75 targeting $548.50. The low of the day was $546.73 and the high $548.62. Once again, the premarket nailed the levels, direction and type of day so our client’s knew how to trade the day to make profits. We gave ourselves a B grade yesterday due to the unexpected market move, but today, we give ourselves an A+. Learn to use these reports to benefit from our deep learning algos.    

Our model continues to bullish above $542. Below $542 and the market will experience a deeper pullback. Bulls control the broader markets and there is some broadening with the DOW and Russell perhaps starting to participate in the rally. NVDA, APPL and a handful of others make up virtually all of the markets’ gains this year. We need more stocks to participate to continue the bull run. We still believe $550 is the peak for this week, however the market could be preparing to go parabolic, reaching the upper trend channel that has been in place since the April lows, before running out of gas. With little to no market shaking news the rest of the week, and with the markets closed on Wednesday, we do not anticipate anything major to develop on Thursday. Perhaps more slow grinding chop to new highs but just barely.

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 yesterday. Whenever this indicator just sits in the same spot for a few days, stay with the broader trend but do not expect any material breakouts either way. And with price right up against our upper extended targets, we favor mean reversion trades to support which is what transpired today at 1:50 pm ET. While mean reversion trades have a no better than a 40% probability of success, taking first profits at a 2:1 reward to risk ratio makes them profitable. Buying dips and pullbacks is closer to a 60% probability and as such, taking a 1:1 reward to risk is acceptable. But for mean reversion you must be able to double risk at a minimum, otherwise do not take the trade. Putting a stop just above our extended target and trading for a mean reversion easily provided the 2:1 reward to risk ratio mean reversion trades require. Our indicator clearly shows where we expect prices to stall where they will find support. Using this tool to compute the math makes trading decision quite easy. Currently interim support is $545.43 with further support lower at $542.08 with resistance at $548.78. With the indicator remaining fixed for the entire day, it’s likely Thursday is much like today, with a bull day but with ranging price action with dips to $545.43 before moving back toward the extended target of $548.78. The Market State indicators provides enough information to let you know where to buy and where to sell and what trend will likely develop.

For Thursday our model projects prices will trade in a narrow range between $544 and $552 (white box on chart). This is similar to today which implies sideways trading on Thursday. In sideways or ranging markets, stay with the longer-term trend and for Thursday, continue to buy dips, taking profits near resistance. Buying dips to $545 and taking profits at $548 continues to be the plan but we would also consider mean reversion trades at $548.78. We had a nice mean reversion trade today and expect there to be more opportunities for the same on Thursday. Should $545 fail to hold, we advise buying $542 for a rally back to $545. The market may once again make a new high on Thursday, although we still see $551 as a level the market will struggle to get beyond. Certainly a major failure of $540 will see prices drop to $537…a low probability. For updates to these levels and the plan for Thursday, be certain to check the Premarket Market report before the open.

Dealer positioning for Thursday to the upside has Dealers selling $549 to $550 strike Calls and higher and are no longer selling Puts. This implies a hard ceiling at $550 for Thursday with little more upside. It appears the risk to reward of higher and higher prices is fading from the Dealers perspective. To the downside Dealers are buying $548 to $540 and lower strike Puts in a very large size in a 6:1 ratio to the Calls they are selling. This implies some fear of weakness on Thursday, especially if $546 fails. There is no floor in the market on Thursday. This shift in positioning happened quickly as today, they were positioned for higher prices. That seems no more, at least for Thursday.

Looking to Friday, to the upside Dealers are selling $550 Puts while also buying tiny quantities of $549 Calls. They are no longer selling Puts. While this is somewhat bullish to $550, Dealers certainly believe $550 is the top for the week. To the downside Dealers are buying $548 to $542 and much lower strike Puts in a 20:1 ratio to the Calls they are selling, implying should $546 fail, prices may drop much further. This positioning hasn’t change much from today, however this positioning is far less bullish than just a few days ago. As we stated yesterday, at 20:1 Dealer are protecting the downside and we certainly suggest you do the same for any long book. There is a very large iceberg Call order due to roll off on Friday and while that initially could be supportive of a brief rally, once these are gone, depending on how Dealers reposition, the market may experience at least a material (2%) pullback.     

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.