Market Insights: Friday, June 28th, 2024.
SPY gapped up $.79 as PCE was in line with forecasts. The market took the news as a sign that inflation is falling and would provide a green light to the Fed to lower rates. The market pushed higher quickly and by 10:12 am ET had made a new all-time high at $550.28 by $.16. $550 is a big round number and was simply too difficult to overcome on the second trip to this level and the market reversed course by 10:30 am ET and continued to fall for the rest of the day, reaching a low of $542.95. There were clues in the price action in the Futures market at 8:30 am ET that once the market hit overhead resistance, it would likely fail. In fact all of the Mag 7 stocks suffered profit taking which brought down the broader markets. Mag stocks dropped between .4 and over 3%. Only NVDA was up on the day, but only slightly. SPY closed down .39% while the Nasdaq fell .54% with the DOW giving up 12 basis points and the Russell ending up .41%. Volume for SPY was well above average at 76.14 million shares, with more than 60% of this volume trading in the last 30 minutes of the session, reinforcing today’s decline and providing possible clues of what is to follow.
10-year Treasury yields didn’t think much of PCE and rallied 2.71% and back toward 4.5% which has been problematic for the markets. We continue to believe long term rates will rise given the amount of debt the Treasury needs to finance. Crude was down .39% after rallying strongly on fears of an expansion of the Middle East wars. Gold was flat down 4 basis points and we continue to buy dips in Gold and Silver. Bitcoin fell 2.12% but remained above $60K. We remain bullish Bitcoin above $60K.
In Thursday’s newsletter, we continued to state our model is bullish above $542. Yesterday we stated today would be a trending day and that the market would visit $548 after a favorable or inline PCE report. We believed PCE would come in as forecast and that the market would push to at least $548, potentially reaching $550. And right on que PCE did come in as forecast and the market hit $550.28. We recommended buying support, favoring longs to resistance. With the market opening above our post market levels, finding support may have been challenging for some, unless you also read our premarket report, OR used our Market State Indicator. Both the premarket report and our indicator advised that support had shifted upward in the premarket and to buy $546.76 at the open, which delivered solid gains to $550, where we recommended taking profits. When we state take profits, our traders know we mean take off 75% of your position at our first target level, set stops to breakeven and let 25% of your position run for a risk-free trade. Doing that today and closing out at $550 provided a solid opportunity for profit right out of the gate.
In the premarket at 8:44 am ET, we stated the market had assumed a strongly bullish posture and longs to $550 were appropriate. We also stated below $546, the market would likely fall. This delivered several opportunities for profit today, both long, as stated above, and also short from the highs as once the market made an all-time high, it reversed course and fell to support at $548.10, which failed giving way to the lows of the day at $542.95. By reviewing both newsletters, traders were able to develop a solid trading plan for the day and by adding the Market State indicator, also have a visual representation of the levels published in these reports. These levels update in real time and using these three components provides extremely powerful and highly accurate, actionable information in real time.
For Monday our model remains bullish above $542. Below $542 the market will experience a pullback to at least $540. While the market reached a new high today, it was brief and just barely broke the prior high. When a market reacts to a new high the way it did today, with poor price action, no follow through and a close near the lows of the day, at least in the short term, the market is telling you it’s highly likely today’s high holds for at least a few days and perhaps the market is ready for a pullback. Price is currently just below the trend channel in place since late April. Yet $543 has proved to quite difficult to break below all week. But the problem with a fixed, horizontal level like $543 is the more it is tested, the weaker it gets. Traders who have profited all week from this level, buying dips, are less inclined to keep doing so, risking the gains they have already banked. As such volume dries up and like a suit of armor being hit by a spear several times, eventually the level breaks. Once $543 does give way, the market will turn bearish short term and it’s likely the market pulls back 5 to 10%. Remember there remains an unfilled gap from June 11th which makes a failure of $542 a viable short to $537 minimum.
Looking at a 2-minute chart of SPY with our Market State indicator, the indicator is currently in a bearish trending market state with prices closing mid-range. In a bearish trending state we favor selling overhead resistance and taking profits at support. Given support is the $543 level, it’s likely there will be opportunities to the long side on Monday off this level. The bearish range is rather narrow and while our model projects a range on Monday from $541 to $549 (white box on daily chart), it’s more likely the market trades in a narrower range as indicated on the Market State Indicator. There are no extended targets (olive lines) below lower support which again, implies more ranging behavior, favoring shorts off $544.79 but taking profits at support at $543.13. The indicator today rescaled higher at the open twice and printed olive extended targets. That was a sign the trend would be strong and that the move after the open would be sustained to $550. The indicator printed $550 as overhead resistance and confirmed this level as a viable target. But at 10:50 am ET the indicator rescaled lower indicating a weakening trend and by 11:02 am the indicator shifted to a ranging market state which implied selling overhead resistance at $548.10 to support at $544.40. This proved to be the best trade of the day. Following the indicator, coupled with the advice provided in the post and premarket reports was once again quite profitable.
For Monday probabilities favor the market testing of both sides of the bearish range, selling $545 while buying $543. A failure of $543 will bring in lower levels mentioned above. We favor short trades on Monday from $545. Above $545 the market will attempt to rally back to $548. There is ISM on Monday at 10 am which we don’t believe will move the market significantly. This week is a four-day week with the 4th of July on Thursday. Many pros will head for the hills on vacation this week so look for low volume and low volatility until Friday’s Jobs report. For updates to these levels and an updated to the plan for Monday, be certain to check the Premarket Market report before the open.
Dealer positioning for Monday to the upside has Dealers buying $546 and $547 Calls while selling $548 to $550 and higher strike Calls, implying a ceiling on Monday of $548. Market Makers are selling 15 times more Calls than they are buying which implies virtually no conviction prices will rally far on Monday. Options gamma also supports this view. To the downside Dealers are buying $545 to $540 and lower strike Puts in a 3:2 ratio to the Calls they are selling. Market Makers shifted to risk on to protect from today’s decline and profited handsomely with their more risk averse positioning today. But for Monday, Dealers appear to be far less concerned about downside risk given their virtually balanced positioning. This implies they expect the market to resume the rangebound, choppy price action behavior from earlier this week, with SPY ranging between $542 and $548. Dealers have little fear today’s sell off will continue much on Monday.
Looking out to next Friday, the day after a holiday, Dealers are selling $547 and $550 Calls in large size implying little belief the market will make new highs next week. As of today, they believe $550 is the top for the week. Dealers are not buying Calls therefore they believe next week may deliver lower prices. To the downside Dealers are buying $545 to $530 and lower strike Puts in a 7:1 ratio to the Calls they are selling, again implying a fear of lower prices. As we have stated now for several days, the market has not had a 2% sell-off day in 339 days and with a record of 377 days, the market is due for a bad day. But the first two weeks of July are seasonally the most bullish of the year, but seasonality is very difficult to trade and should not be used literally. Seasonal information is only a guide, but not as something actionable. We provide plenty of actionable information for you each day in addition to Dealer positioning and suggest learning to incorporate it all into your day’s trading plan.
And remember 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.
