Market Insights: Tuesday, June 25th, 2024.
SPY opened up $1.25 and initially traded lower, finding support at $543.03 by 9:58 am ET, where it reversed course and headed higher, reaching $544.48 where it traded sideways before retesting the lows from yesterday at $542.44 @ 1 pm ET. Finding support once again at the lows, SPY then reversed course and moved straight up, pausing at $544.87 before moving to the highs of the day at $545.20 before closing at $544.83, up 39 basis points wiping out yesterday’s decline. All of the Mag 7 stocks gained on the day with NVDA jumping over 6% with most others gaining at least 2%. We continue to advise watching this group for clues about the market’s next move. As might be expected, the Nasdaq fared better than SPY gaining over 1.16% with the DOW losing .76% and the Russell also losing .33%. It appears at least in the short-term, money is still willing to chase big cap tech names rather than rotate into more defensive assets. Volume for SPY was a little less than average at 37.42 million shares.
10-year Treasury yields gained slightly, up 28 basis points with Crude dropping over 1.15% but remaining above $80. Gold also fell 58 basis points but holding above $2300. We are buying dips in Gold and Silver. Bitcoin reversed its decline to rally 2.93% to get back above $62K. It’s possible the dip below $60K was triggered by other macro factors and that the drop in Bitcoin was a one-day event. It’s too early for our model to predict Bitcoin’s next move but we remain bullish above $60K.
In Monday’s newsletter, we reiterated our model remains bullish above $542 and to watch Mag stocks given as they move, so moves the broader markets. Well Mag 7 reversed course today as did the market. Yesterday we stated that as long as $542 held, the market would resume its’ march higher, which is exactly what transpired. We also stated we favored shorts at $544.78 to $543, which played out almost to the penny in the morning session. We stated our model projected an overnight rally back above $543 (we opened at $543.99) and that we would fade any rally from $544.78 because the market was likely to retest $543 before rallying to $545, where we once again favored a short back to support. At 11:18 am ET the market rallied to $544.41 and proceeded to sell off to $542.44, in line with our call to fade the initial rally. The market then rallied once again to $544.87 at 2:30 pm where we recommended selling once again for a retest $543. The market got to $543.80 by 2:45 pm. And this move back to $545.12 could have once again been faded at 3:30 pm as the market sold off once again. Three perfect trades, identified yesterday in the post market report after the close which paid handsomely. While we also stated to watch for a failure of $542, when this didn’t transpire, the market was traded in a range between $542.50 and $545, exactly as our model predicted. Again we certainly recommend learning to incorporate this actionable information into your trading plan each day.
In the premarket at 8:33 am ET we stated the market was “quite hungry” to retest $545. We also stated that $545 would be difficult to hold, reinforcing the post market’s view that traders should fade any rally at this level. We stated we favored shorts at $545 and longs between $542.25 and $543. The premarket picked up the potential for longs that the post market did not identify and as such, following both reports easily added another trade long off the lows at 1 pm which rallied to $545. We stress it’s important to read and incorporate both reports into you trading plan with the morning update typically refining the overnight view. If you can successfully learn to do this, your odds of trading profitably each day increase exponentially.
For Wednesday our model remains bullish above $542 and below $542, the market will experience a pullback to at least $540. We continue to believe the all-time made last week holds for the remainder of the week. The trend channel in place since late April held nicely with SPY bouncing off the lower channel today with prices moving back into the channel. There remains an unfilled gap from June 11th which makes a viable target at $537, should $542 give way. New Home Sales statistics are released tomorrow which should not do much to move the markets. Earnings are going to start coming in which will have an effect on the broader market. Friday’s PCE report will certainly move the markets but until then, probabilities favor choppy, range bound price action until Friday’s PCE with SPY trading in a range between $542 and $548.
Looking at a 2-minute chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state with prices just above the lower support level of $544.50. In a bullish trending state we favor buying support and taking profits at overhead resistance. Like the bearish state from the last two days, this bullish range is quite narrow so probabilities favor more ranging behavior than trending behavior. In fact if you look closely, there are no extended targets (olive lines) above upper resistance. There were no material extended targets below support earlier in the day as well when the indicator was in a bearish market state. When we do not see extended targets, the “herd” is not as strong as the market might appear. This too is another sign that while bullish, do not expect a 2% day or anything that will allow you to ride the trend for long. A narrow range without extended targets implies ranging behavior. Resistance is $545.12 with support at $544.52. The Market State Indicator rescaled several times today: First lower at the open which indicated additional weakness which confirmed fading rallies was appropriate, then a rescale to a bullish market state which indicated it was safe to take longs off support, but it quickly rescaled to a ranging state, back to a bullish trending state and another rescale higher which reinforced the bull case. But the indicator rescaled again to a ranging state toward the end of the day, just to end the day back in a bullish state. All this back and forth implies market confusion. Trading ranges are the hallmark of confusion so we expect tomorrow to be more range bound than trending, with a retest of lower levels. Yesterday we advised our clients to watch this indicator for clues after today’s open to know how to trade the day. And once again the indicator predicted the day perfectly. With the afternoon rally off the lows, and with the indicator bouncing around a bit yet closing in a bullish market state, for tomorrow we recommend looking for long trades at support @ $544.50 but taking quick profits at $545.12. If $544.50 fails to hold, we would look for shorts to $543.28. At that level we would look for the indicator to rescale to provide clues for the rest of the day. Should the indicator rescale higher after the open, certainly a more aggressive approach, seeking higher prices, is appropriate. $545 represents significant overhead resistance so the market needs to clear this hurdle on volume to open up higher prices on Wednesday. If this does occur, SPY will rally to as high as $548.
So for Wednesday our model projects prices will trade in a range between $541 and $548 (white box on chart), expanding slightly from today. But this range is narrow so this implies mostly choppy trading with moments of trending behavior. With price currently sitting at $544.83, unless the market rallies overnight, there is a risk prices fall in the morning session to as low as $543.28 before finding support. Below $543.28, there is a risk prices may fall further to $542.66. That said, probabilities favor prices stabilizing at the current level with $543 holding. Should the market test $543, we look for longs to $545. Our model does not favor shorts at this time. There is little chance the market attempts a new high on Wednesday. A failure of $542 will see prices drop to $540 and perhaps close the gap to $537, a low probability. For updates to these levels and the plan for Wednesday, be certain to check the Premarket Market report before the open which will update from overnight Futures price action.
Dealer positioning for Wednesday to the upside has Dealers selling $545 to $550 and higher strike Calls implying a ceiling for Wednesday of $547. To the downside Dealers are buying $543 to $540 and lower strike Puts in a 1:1 ratio to the Calls they are selling. This continues to imply little fear of material weakness on Wednesday. A balanced 1:1 book where Dealers are selling Calls to finance Puts implies sideways price action and little fear of any major move either way. This positioning has not changed materially from today.
Looking out to Friday, Dealers are buying $545 to $547 Calls while selling $548 to $550 Calls, implying the all-time high will not be breached this week, yet Dealers expect the market to move higher later in the week, to as high as $548. To the downside Dealers are buying $543 to $535 and lower strike Puts in very large size, protecting against any major pullback. Again this positioning hasn’t changed materially since yesterday. Dealers are prepared for a bad day should it develop, but based on their current positioning, it’s unlikely to transpire on Wednesday or Thursday. Most likely Dealers are setting up for a higher-than-expected PCE reading Friday premarket which could cause prices to fall. We reiterate the market has not had a 2% sell off in 336 days and with a record of 377 days, the market is due for a bad day soon. But should any sell-off develop, it’s likely to be short lived or not occur until later in July given historically, the first two weeks of July are seasonally the most bullish of the year. Dealers are positioned for a sell-off should it develop this week, but at the same time and like yesterday, they are positioned to participate in any rally back toward $548 by Friday.
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.
