Market Insights: Wednesday, June 26th, 2024.
SPY opened down slightly and traded lower, finding support at $543.17 shortly after the open. SPY then bounced off support reaching $544.80 before reversing course once again and retesting the lows. There again the market found support and traded higher to $545.45 where it found resistance again and spent much of the afternoon chopping in a range between $544 and $545. SPY staged a late day rally moving higher to $546.24 before falling back to the range it traded in all day to close up 12 basis points at $545.51. Mag 7 stocks continue to support the market with AAPL gaining 2%, AMZN up close to 4%, NFLX up 1% with GOOGL flat, MSFT and META up slightly with TSLA up close to 5%. NVDA gained slightly after gaining 6% yesterday. We advise watching this group to determine the market’s next move. Nasdaq ended the day up 25 basis points with the DOW flat gaining 4 basis points with the Russell being the worst performing index, down .26%. Volume for SPY was less than average at 37.56 million shares.
10-year Treasury yields rose 1.65% with Crude basically flat, losing .15%, remaining above $80. Gold fell .89% basis points to close just below $2300. We continue to buy dips in Gold and Silver. Bitcoin fell 1.65% but remained above $60K. We remain bullish Bitcoin above $60K.
In Tuesday’s newsletter, we reiterated our model is bullish above $542. Yesterday we stated that as long as $542 holds, the market will resume the bull trend. We stated today would be a choppy day with brief moments of trending behavior. We favored shorts on a failure of $544 to $543.28 where we would initiate longs. We suggested SPY would test support at $543.28 in the morning session before rallying to as high as $545. We got precisely this set up at the open to the penny and again later in the morning, reaching our $545 target. In between we had the perfect short from $544 back to support. We stated probabilities favored $543 would hold and to look for longs to upper resistance. Three perfect trades identified yesterday in the post market report in an otherwise extremely challenging trading day. We highly recommend learning to incorporate this actionable information into your trading plan each day.
In the premarket at 8:49 am ET we stated the market was “hungry” to make upside progress but if $544 failed, the market would likely flush to as low as $542.65 where buyers would emerge and suggested longs were appropriate at that time, confirming the post market price predictions. Once $544 failed we suggested participating in the short trend to the lows of the day. Once again, the premarket confirmed the post market recap and delivered several opportunities for profit. We state daily to review both of these newsletters to develop a solid trading plan for the day. And if you are looking for a visual representation of these reports, we highly recommend you also incorporate the Market State Indicator which plots these levels in real time with entries, direction and profit taking zones.
For Thursday our model remains bullish above $542. Below $542 the market will experience a pullback to at least $540. We continue to stress the all-time from last week holds for the remainder of the week. The trend channel in place since late April has been tested the last four days but is holding at the bottom of the trend channel. Bulls have defended this $543 area well. There remains an unfilled gap from June 11th which makes a failure of $542 a viable short targeting $537. Thursday has Final GDP, Unemployment Claims and Pending Home Sales, all of which may move the needle a tiny bit. But the big news this week is Friday’s PCE report which will likely bring some volatility back to the market. Until then probabilities favor choppy, range bound price action 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 closing mid-range at $545.51. In a bullish trending state we favor buying support and taking profits at overhead resistance. This bullish range is quite narrow so probabilities favor more ranging behavior on Thursday. There are no extended targets (olive lines) above upper resistance which implies ranging behavior without the “herd” pushing prices significantly higher. Resistance is $546.11 with support at $545.25 with the indicator rescaling higher into today’s close. While the Market State Indicator rescaled several times today, it spent much of the day where it ended the day Tuesday, only to rescale in the last few minutes of the day on a late push higher. The first rescale at the open was to a ranging state which provided take profit levels to the penny. The same occurred when the indicator rescaled back to a bullish trending state and prices held the $544 level identified in the premarket report. In a bullish state we buy support and exit at resistance and as you can see from the image, this trade set up several times today.
For Thursday if $545.25 holds, we will look for longs to $546.11 in the morning session. Given the tight range, a failure of $546.11 will fall to support at $545.25 and possibly lower. Should resistance break with volume, we would not seek short trades, but instead look for higher prices to as high as $548. With the indicator rescaling so late in the day, it’s possible with the way the market rejected $546.11 at the close, the indicator rescales back to today’s range. If this occurs, the plan for Thursday is to follow Wednesday’s plan. We suggest watching the indicator in the premarket for clues. If the indicator remains at today’s closing levels, we suggest a more aggressive approach, buying $545.25 to $546.11. If the market clears $546.11 on volume, $548 is in play. For Thursday our model projects prices will trade in a range between $541 and $548 (white box on chart), which is the same as today. This range remains narrow implying mostly choppy trading with moments of trending behavior, just like today. With price currently sitting at $545.03 post market, unless the market rallies overnight, there is a risk prices fall in the morning session to as low as $544 before finding support. Should $544 fail, like today, there is a risk prices fall further to $543.28. There is little chance the market attempts a new high on Thursday and still valid is a failure of $542 will see prices drop to $540 to perhaps close the gap at $537. For updates to these levels and the plan for Thursday, be certain to check the Premarket Market report before the open which will update from overnight Futures price action.
Dealer positioning for Thursday to the upside has Dealers selling $546 to $550 and higher strike Calls implying a ceiling for Thursday of $548. To the downside Dealers are buying $545 to $543 and lower strike Puts in a 1:1 ratio to the Calls they are selling. This balanced book continues to imply little fear of material weakness on Thursday. Dealers sell Calls to finance Puts and when balanced, implies sideways price action with little fear of a major move either way. This positioning has not changed materially from today.
Looking out to Friday, Dealers are buying $546 to $547 Calls while selling $548 to $550 Calls implying while Dealers expect the market to move higher on Friday, they do not believe $550 will be breached. To the downside Dealers are buying $545 to $540 and lower strike Puts in large size, protecting against a material pullback. This positioning hasn’t changed significantly since yesterday. Dealers are prepared for a rough Friday should it develop, but based on their current positioning, the market is likely to drift higher on Thursday going into PCE. Dealers are prepared 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 337 days and with a record of 377 days, the market is due for a bad day. 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.
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.
