Market Insights: Friday, June 21st, 2024.
SPY opened down $2.60 and continued to trade lower, finding support at $543 to close the day down .46% at $544.51, hovering near major support at $545. Profit taking continued in heavies like NVDA, which pushed the market lower. Friday was monthly options expiration and well as Futures expiry so there was lots of repositioning which may or may not make an impact on the market next week. Watching how the Mag 7 trade next week will provide clues to the market’s next move given, they have fueled most of this year’s rally. The Nasdaq fared similarly to SPY losing .26%, with the Dow eked out a green day, up 4 basis points with the Russell also gaining .23%. Volume for SPY was heavy at 64.51 million shares, again due to OPEX and Futures rolling.
10-year Treasury yields fell slightly down 14 basis points with Crude dropping .76%, but remaining above $80. Gold lost 1.63% which could set it up for a deeper pullback below $2300. We are buying dips in Gold and Silver. Bitcoin lost 1.15% to close @ $64,000 as Germany continues to dump hundreds of millions of dollars of seized Bitcoin. Germany holds over $3B of Bitcoin. We recommend taking advantage of this weakness, adding to Bitcoin positions above $60,000.
In Thursday’s newsletter, we stated our model remained bullish above $542 and to watch the Mag stocks given if they falter, the broader market will follow. We stated that the high from Thursday was likely in for at least a few days and if $546.58 failed, to expect lower prices to at least $545.42. We recommended longs above $546 and suggested being careful below this level to ensure $545 held, as any rejection of $545 would bring in lower prices to the next major support level. With the market opening at $544.40, below $545 on a day that was expected to have higher volatility, going short to the next level of support at $543 was the proper course of action after the open. But once the market made a double bottom at $543, longs were appropriate, keeping with the generally bullish undertone of the market, trading back to $545. Those with our Market State Indicator saw these levels develop in real-time which made trading the day quite simple. Knowing the levels to trade and in what direction takes the guess work out of trading. Learn to incorporate our actionable information into your trading plan each day will help you bank profits daily.
In the premarket at 8:18 am ET we stated profit taking from Thursday was likely to continue heading into Friday morning. We stated if $544.50 failed, the market would move lower. We also stated there was sufficient Call speculation that would fuel a rally off major support. We suggested the market would “snap back sharply” from support. We stated once the floor for the day was made (double bottom at 9:52 am ET), to go long and ride it back to our upper targets. Once again having this updated, premarket information made the morning session easy to read and trade for substantial gains on the day. While the day as quite choppy during the afternoon hours, the morning did provide opportunities for profit, using the levels and instructions provided.
We reiterate our model remains bullish above $542 and below, will experience a deeper pullback. There is some broadening of the bull market with the DOW having a solid week. Of the Mag 7 stocks, META could be setting up for weakness, even though it’s one of the more reasonably priced Mag stocks. We recommend buying META on any material (10%) weakness. We continue to believe this week’s high will hold for at least a few days. But with the market bouncing off the lower trend channel in place since the end of April, and closing the day as a doji, it’s possible this weakness is very short lived and the market resumes its bull trend next week. There is no news on Monday with little news until Friday’s PCE report…the Fed’s favored indicator. Therefore the market could spend much of the week chopping around, drifting higher while it waits for Friday to move the needle one way or the other.
Looking at a chart of SPY with our Market State indicator, the indicator is currently in a bearish trending market state with prices in the middle of the range, between support at $543.02 and resistance at $544.78. In a bearish trending state we favor selling resistance and buying support. But make note that range is quite narrow with a few instances where it rescaled from a bearish state to a ranging state. At the open, the indicator clearly identified the market would move lower, given the indicator rescaled lower four times. We state often when the indicator quickly rescales, it indicates the herd is jumping on the trend and prices will follow to our projected levels. Finding support at the lower level however and then breaking the upper level, again, caused the indicator to rescale to a ranging state. The same occurred near the close. When you combine this information with the narrow size of the bearish range, as well as the market trading near the lower, bull trend channel, it’s likely there is little more downside to come on Monday. And certainly, if price breaks the upper resistance level of our Market State Indicator, we favor longs back to major resistance at $548.
So for Monday our model projects prices will trade in a range between $540.50 and $548.50 (white box on chart), contracting a bit from today. This implies less volatility and more ranging price action. With price currently sitting at $544.50, smack in the middle of this range, we look for the market to possibly retest $543 where we favor longs to at least $545. Should the market open or move above $545 on any strength, we continue to favor longs to $548. We do not believe the market will attempt to make a new high on Monday, and instead will chop around between $543 and $545 before attempting to break out one way or the other. Probabilities favor a breakout to higher levels, once price finds support. Overall our recommendation is to continue to buy dips to $543, taking first profits at $545, but possibly looking for the bull trend to resume on Monday to $548. Certainly a major failure of $542 will see prices drop to $540, where its’ likely the market finds support and fails to move any lower. This drop is still a low probability, but has increased slightly from today. For updates to these levels and the plan for Monday, be certain to check the Premarket Market report before the open.
Dealer positioning for Monday to the upside has Dealers selling $549 to $550 and higher strike Calls, while also buying $545 to $548 Calls in a 2:1 ratio to the Calls they are selling. This implies Dealers believe the market will rally on Monday from its’ currently levels to as high as $550. Whenever Dealers spend money to buy Calls, they believe prices will move higher. The ceiling for Monday looks to be $550 with a potential floor at $542. To the downside Dealers are buying $544 to $540 and lower strike Puts in a 2:1 ratio to the Calls they are buying. This implies little fear of weakness for Monday, although if $542 fails, Dealers believe prices will drop to $540 before finding major support. But again, this appears to be a low probability based upon Dealer positioning for Monday.
Looking out to next Friday, Dealers continue to buy $545 to $548 Calls, while selling, $549 to $550 Calls, again implying the all-time high will not be breached next week. To the downside Dealers are buying $544 to $535 and much lower strike Puts in very large sizes, protecting against any major pullback. It’s important to note the market has not had a 2% sell off in over 330 days. The record is @ 350 days so the market is about to enter unchartered territory. Any sell-off is likely to occur next week, given historically, the first two weeks of July are seasonally the most bullish of the year. Dealers are certainly positioned for a sell-off next week should it develop. But at the same time, they are positioned to participate in a rally back toward $550. This implies any sell-off that may materialize will be short lived.
But again, 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.
