Market Insights: Tuesday, June 4th, 2024.
SPY opened down @ $1.75 today and moved a bit lower, finding support at $525 by midday. The morning was filled with chop with little opportunity for profit. By the afternoon the market found its footing and pushed higher @ the 2 pm hour, reaching a high of $529.15 before stalling and settling virtually up slightly at $528.39, gaining 11 basis points. JOLTS job openings fell to a 3-year low and bad news for the economy is good news for interest rates and the market rewarded a decline in available jobs with a push up into the close. The market continues to trade in the bullish trend channel from the April lows and will likely continue to move higher into Friday’s Employment report. The Nasdaq rallied .29% while the Dow gained .36% with the Russell being the sole laggard, losing 1.29%. Volume for SPY was low at 34.63 million shares and as we often state, do not trust a move on low volume.
10-year Treasury yields fell on the news, losing 1.41% to close at 4.33%. We still believe yields will rise longer term. Crude fell sharply, down 1.4% on OPEC policy changes, while Gold also fell 1.03%. We recommend buying dips on Gold. Bitcoin rallied strongly, up 2.56%, closing back above $70,000. We recommend buying Bitcoin above $60,000. Our models project Bitcoin will reach $100,000 at some point before a material pullback.
In Monday’s newsletter, we reiterated our model remains bullish and we expected the market to drift higher today heading into Friday’s Employment report. We also suggested buying all dips on a test of $526 and that Dealers had a hard floor in the market at $525. We suggested getting long and riding positions to overhead resistance as high as $530. The market low for the day was $524.96 before ripping higher close to $4, stalling $529 before moving back up into the close. Once again, our model correctly determined the type of day, the direction for the day and the levels from which to trade. Finally we stated to expect the market to enter consolidation mode as we approach Friday’s Job’s report and that it could present at any time. The market, while up on the day, closed virtually unchanged.
In the premarket at 8:54 am ET we stated the market would start the day with a bearish stance with a high likelihood of consolidating in a tight range…precisely what the market delivered all morning. We also suggested selling $527 to $524.30…the market hit $524.96 and there were several clues for traders to take profits in the $525 range before going long. We suggested buying support at these levels and trading to at least $527, with $528 as the upper target. Once again, the premarket Market Sentiment update when coupled with the post market report provided a perfect plan of attack for the day. We highly recommend you learn to incorporate the actionable information provided in these Market Sentiment reports into your daily trading. For assistance, contact your trading representative.
We remain bullish above $518 while below $525 the model sees further weakness and a retest of the $518 level. A break and close below $518 will bring in materially lower prices. But another green day with a rally off $525 continues to support the models bullish tone. Services ISM is due tomorrow as well as ADP Payroll. If these continue to show weakness, the Fed may well be on their way to the soft-landing scenario which supports cuts in interest rates, perhaps later this year. Again absent a severely overheated reading, we expect the market to continue to drift higher into Friday.
Looking at the 5-minute chart of SPY with our Market State indicator, the indicator is currently in a bullish trending market state, rescaling from a ranging state on the break of $526.44. Our clients who use this tool understand when this happens probabilities favor buying support and riding the trend to resistance, currently at $528.73. This AI based indicator rescales in real time and continues to suggest higher prices, to as high as $530.63. For more information on this highly accurate AI tool, please contact your representative.
For Wednesday, our model projects prices will trade between $521.50 and $531.50 (white box on chart) with a similar size range as today, this implies another day with both choppy trading and a chance of a trending period. With the market at resistance near $530, there is a 40% probability of a mean reversion sometime tomorrow to the $525 level before the market attempts another push higher. Certainly the market is within striking distance of the all-time highs and we would prepare for that possibility on Wednesday. Should the market reach a new high before Friday’s Employment report, it will likely do so on Wednesday as we expect Thursday to be rangebound without many trading opportunities. The market continues to trade in its’ bullish trend channel with plenty of room to the upside. Above $530 and there is solid probability of reaching a new high with the next level of resistance at $533.07. Expect more of a grind higher on Wednesday, but be certain to check the premarket Market Sentiment report for updates.
Dealer positioning for Wednesday to the upside has Dealers buying $530 Calls, while selling $531 to $532 Calls and higher strike calls. They are also selling while also selling $529 to $527 Puts in a 2:3 ration to the Calls they are selling. This certainly implies a hard floor on Wednesday of $529 with a hard ceiling at $531. From this positioning you should expect the market to move higher on Wednesday. To the downside for tomorrow, Dealers are buying $526 to $520 and lower strike Puts in 3:2 ratio to the Calls they are selling, implying very little concern about downside risk, particularly when considering the Puts they are also selling. Market Makers a certainly positioned for higher prices on Wednesday and they believe the market will once again trade in a fairly tight range from $528 to $532.
Looking out to Friday, Dealers are buying small quantities of $531 Calls while selling $530 and higher strike Calls. This implies Dealers believe any material break of $530 by Friday will lead to a new all-time high and they want to participate in this move by buying $531 Calls. Dealers are selling $533 to $535 Calls in large size again, implying any break of the all-time high will be a minor move higher. Dealers are also buying $527 to $520 and lower strike Puts in a 3:1 ratio to the Calls they are selling, certainly prepared for selling should the Jobs report exceed expectations. Again the implication is prices will move higher heading into Friday but could stall just above the prior all-time high or, on a very strong Jobs report, fall considerably. Fortunately the monthly Employment report is out premarket on Friday, so traders should be able to apply Dealer positioning to their advantage.
And as we state daily, 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.
