Market Insights: Thursday, June 20th, 2024.

SPY opened just shy of $1 and reached a new high after the open of $550.12, after which the market sold off to major support at $545.18 before recovering to close the day at $547, down 27 basis points. The Nasdaq fared a bit worse losing .79%, with the Dow gaining .77%, and the Russell losing .42%. Volume for SPY was high at 70.03 million shares which could be due to the shortened week or this sell-off could be the beginning of something deeper. We tend to believe the shortened week has more to do with this than any weakness in the market. But time will tell.

10-year Treasury yields rallied 1.09% as the Fed does not control longer duration bonds and any interest rate cuts will have a greater impact on short term Treasuries than longer term Treasuries. Long term Treasury yields are priced based on supply and demand and with a $2T budget shortfall prjected, the US will be increasing the supply of longer duration bonds which will drive longer term rates higher. Crude paused it’s rally dropping .23%, still solidly working its’ way higher, while Gold jumped 1.32%. We continue to advise our clients to buy dips in Gold and Silver. Bitcoin was virtually unchanged, rising .15% to close at $65,000. We continue to be bullish on Bitcoin above $60,000.   

In Tuesday’s newsletter, we stated we expected the market to hit a new all-time high today and we got just that after the open. We reiterated our bullish view of the market and certainly those positioned for today’s high had a good day. We also stated $550 would be the peak for the week and that we would favor a mean reversion trade at that level to support at $545.43. The market fell to $545.18 before reversing and rallying to $548.19. We advised buying dips at support and taking profits at $548.78. Our clients who were long coming into today, took profits at $550, reversed short to $545 where they again, banked profits for a long to $548. Pretty simple trading with levels to trade that were accurate virtually to the penny. Those using our Market State Indicator had even more intraday information, which made decision making for the day much simpler and even more profitable. Once again, our model nailed the type of day, the direction with a plan to sell the highs and buy dips, with targets to exit. If this actionable information isn’t simple enough to follow, we suggest you find another career. Clients who incorporate our actionable market information into their trading plan each day benefit from it greatly and earn enough in one day to pay for one year’s subscription.   

In the premarket at 8:23 am ET we stated while the overnight saw the market make new highs, the market would stall at the $551.50 level. We also stated if buyers decided to step away, we would see downside to $547 where we would consider longs. The market moved quickly below $547 in the noon hour and clients who utilize our Market State Indicator saw this $547 level drop to $546 where they knew it was safe to go long. But the indicator also rescaled to a bear trend so again, having this tool provided our clients the knowledge to take profits at $547 for a quick countertrend long off $546. Our services are designed to complement one another so we recommend to all they incorporate these newsletters into their trading plan, but also consider adding our custom indicators. Trading alone is hard…we have made it easy for anyone who follows our advice and uses our tools.     

Our model remains bullish above $542. Below $542, the market will experience a deeper pullback. Bulls still control narrative and there is in fact some broadening with the DOW and perhaps the Russell starting to participate in the rally. Weakness today came from NVDA, AAPL, NFLX and to a lesser extent, MSFT. AMZN and GOOGL rallied today. But we have warned when these few stocks start to experience weakness, take note as they make up virtually all of the markets’ gains this year. If all of these stocks begin to falter, the market will move lower quickly. Since we reached our projected $550 top in SPY, today could mark a short-term high for a few days. That said, today’s decline is tiny in the scheme of things and even a drop to $520 would not cause us to believe the bull run is over. The trend channel that has been in place since the April lows has room to the upside to $555 with the lower channel at $540. We recommend watching these levels and the big tech names for clues of what is to follow. There is no news tomorrow but it is OPEX so we expect increased volatility.

Looking at a chart of SPY with our Market State indicator, the indicator is currently in a ranging market state with prices near the low of the range. In a ranging state, we buy lower support and sell, upper resistance. The indicator rescaled higher after the open but quickly rescaled lower, initially to a ranging state, then to a bear trending state. The rapid change indicated further downside weakness. We did state on Tuesday when the indicator sits at the same level for more than a day, it’s likely the trend is weakening. So today’s, quick move to new highs coupled with our advice that $550 was the ceiling for the week made it easy for our client’s to short the highs and say short to the lows of the day. Our indicator clearly shows where we expect prices to stall where they will find support. Currently support is $546.58 which if fails, will bring in $545.42. Resistance at $548.91 which could be the high on Friday.  

For Friday our model projects prices will trade in a range between $542 and $552 (white box on chart), expanding from today. This implies more volatility with some trending price action for Friday. But with price currently sitting at support and with overhead resistance at $549, even if the market attempts to test today’s highs, it will likely stall and put in a double top to end the day, between $546 and $549. OPEX days typically have swings both ways, with some extended ranges. We recommend staying long above $546, targeting $549 and should the market reach $550, we would also favor a mean reversion short. Below $546 we would be careful to see that $545 holds. We would want to see rejection of this level before initiating a new long. But overall our recommendation is to continue to buy dips to $546, taking profits at $549. The market may try to eke out a new high on Friday, although we see $551 as the absolute top for Friday. Certainly a major failure of $540 will see prices drop to $537…a very low probability. 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 selling $549 to $551 and higher strike Calls while also buying $548 Calls implying if the market retakes $548, Friday could have some upside to as high as $551, in line with our model’s predictions. Dealers believe the hard ceiling for Friday is $551. To the downside Dealers are buying $547 to $545 and lower strike Puts in large sizes in a 5:1 ratio to the Calls they are selling. This implies continued fear of weakness for Friday if $546 fails. This shift to a more neutral to bearish stance happened quickly this week and seems to be continuing into next week.

Looking at next Friday, positioning looks virtually identical to tomorrow with Dealers selling $548 to $550 and higher strike Calls, while also buying tiny quantities of $548 Calls. Dealers certainly believe $550 is the top for next week…at least as of today. To the downside Dealers are buying $546 to $540 and much lower strike Puts in a 10:1 ratio to the Calls they are selling, implying should $546 fail, prices will continue to retrace. This positioning hasn’t changed much from yesterday. Dealer are protecting the downside and we suggest you do the same 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.