Market Insights: Thursday, June 27th, 2024.
SPY opened down slightly but traded higher out of the gate to overhead resistance at $547. SPY bounced around in a range from $545 to $547 until 10:40 am ET when it decided to retest lower levels of support, falling as low as $544.61 a couple of times before closing the day at $546.42, up 17 basis points. Mag 7 stocks continue to support the market with AAPL, AMZN, GOOGL, META, MSFT, NFLX and TSLA all gaining today. NVDA lost 1.91% in the ongoing battle between bulls and profit takers. We are watching this group to determine the market’s next move. Nasdaq ended the day up gaining 19 basis points with the DOW gaining 9 basis points and the Russell being the best performer, up 1.01%. Volume for SPY was anemic at 31.15 million shares as the market waits to pile into whatever develops tomorrow after PCE.
10-year Treasury yields gave back a bit of yesterday’s gains, losing .99% with Crude up 1.16%. Gold rallied 1.23% to close just above $2300. We continue to buy dips in Gold and Silver. Bitcoin also rallied .98% remaining above $61K. We remain bullish Bitcoin above $60K.
In Wednesday’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, just like Wednesday. We favored buying support at $545.25 and taking profits at $546.11. We also suggested if $545.25 fails, the market would find support at $544 where we would initiate longs. And again to the penny, the market dipped at the open to $545.35 where it rallied to $546.84 where it reversed and dropped again to $545.25, where another long trade was in order, taking us to the highs of the day. Two great morning trades laid out perfectly yesterday in the post market report. When $545.25 failed at 11:00 am ET, a short was in order, again as outlined in the post market report to as low as $544. While the market only dropped to $544.68, there were several opportunities to exit for a profit at this level. Then a long for a rally again back to $546.25 was another perfect trade which set up in the 2 pm hour. Five perfect trades at the levels identified, all post market on Wednesday. It doesn’t get much easier than this, which is why we highly recommend learning to incorporate this actionable information into your trading plan each day.
In the premarket at 8:42 am ET we stated the market would chop between $546.50 and $544.55 which is precisely what it did all day. Using this info to update the $544 level from the post market report proved to be quite valuable and actionable. We continued to recommend longs off support and again, verified the information provided post market. This delivered several opportunities for profit today. Review both of these newsletters to develop a solid trading plan for the day and incorporate the visual representation of these reports using our Market State Indicator which plots these levels in real time.
For Friday our model remains bullish above $542. Below $542 the market will experience a pullback to at least $540. We continue to believe the all-time from last week holds for Friday with the market likely to visit $548 on Friday if PCE is favorable. The trend channel in place since late April continues to be tested for five days and is holding at the bottom of the trend channel. Should PCE be unfavorable, and should the lower trend channel fail, there is an unfilled gap from June 11th which makes a failure of $542 a viable short to $537. Today Final GDP and Unemployment Claims were in line with expectations with Pending Home Sales falling. Falling home sales is supportive of reduced interest rates, which is bullish for the markets. But again the big event this week is tomorrow’s PCE report which will bring volatility back to the market on Friday. We are in the camp that PCE will come in either as Forecast or slightly lower which would give the market a push back toward at least $548 and potentially $550. Certainly should PCE come in hotter than expected, watch for the first drop to $542 and if that fails, look out below.
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. In a bullish trending state we favor buying support and taking profits at overhead resistance. This bullish range has expanded as the model projects more volatility on Friday. There are no extended targets (olive lines) above upper resistance which implies ranging behavior. That said, this will likely change quickly on Friday with any deviation in PCE from forecast. If you have this indicator, make sure to use it in the premarket after PCE to adjust today’s price predictions. Resistance is currently $546.72 with support at $545.75. The indicator rescaled higher out of the gate twice which confirmed a strong trend, reinforcing the buy the dips mantra touted in both the pre and post market recaps. Following this advice proved to be quite profitable today. The indicator then rescaled lower after making the high of the day, which should have given traders pause regarding the strength of the trend. Fading the highs for a mean reversion short was a pretty easy call looking at this indicator. But buying support at $544.50 and $545.72 was certainly reinforced by the indicator. Even shorting the failure of $545.72 to $544.50 was displayed perfectly when the indicator moved to a ranging state at 11:00 am ET. The indicator was quite active today which, when combined with the levels identified, set up great trading opportunities including the late in the day buy into the close. Watch this indicator premarket after PCE for opportunities on Friday.
For tomorrow, models that do not incorporate material economic or macro information need to be tempered with what actually develops. We often state, if news comes out that is unknown to the model, disregard the model’s predictions and trade what you see. But assuming PCE does not materially affect the market on Friday, should $545.75 hold, we will look for longs to $546.72 and perhaps a bit higher given optionality tells us $548 is in play for tomorrow. A failure of $545.72 will drop to support at $545.50. We favor long trades again tomorrow, and would not be inclined to take a mean reversion trade from tomorrow’s highs. Friday our model projects prices will trade in a range between $541 and $550 (white box on chart), expanding in anticipation of PCE. This range implies more trending behavior for tomorrow. Should $544 fail tomorrow, there is a risk prices fall further to $543.67. 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 buying $547 Calls while selling $548 to $550 and higher strike Calls implying a ceiling on Friday of $550. Market Makers are selling 8 times more Calls than they are buying which implies a minor conviction PCE, if favorable, will push the market to as high as $550. But even if the news is good for the markets, the all-time high of $550.12 is unlikely to be breached on Friday. To the downside Dealers are buying $546 to $540 and lower strike Puts in an 8:1 ratio to the Calls they are selling. While Market Makers were positioned quite balanced going into today, they are now heavily positioned for downside risk on Friday. This implies any failure of $545 will result in lower prices to as low as $540. Fear has returned and Dealers are certainly positioned for a more material pullback should it present.
Looking out to next Friday, the day after a holiday, Dealers are buying $547 and $548 Calls in tiny size while selling $549 to $555 Calls in fairly large size. This implying some minor expectation the market will move higher next week, but certainly no higher than $555…even that looks like a stretch from today’s positioning. To the downside Dealers are buying $546 to $540 and lower strike Puts in a 1:1 ratio to the Calls they are selling, back to a more balanced book with little fear of downside risk. This implies as Dealers get past tomorrow’s PCE, there is little fear next week the market will move significantly, one way or the other. Remember the market has not had a 2% sell-off in 338 days and with a record of 377 days, the market is due for a bad day soon. The first two weeks of July are seasonally the most bullish of the year and it appears Dealers, at least as of today, believe that trend will continue next week.
Dealer positioning changes each day, 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.
