Market Insights: Friday, July 5th, 2024.
There was no post market recap for Wednesday as it was a half day. SPY on Friday opened up $.31 after moving higher by @ $2.50 during the limited session on Wednesday. The market continues to rip straight up on relatively low, holiday week volume. Today SPY tested $553 shortly after the open, pulling back to $551 and from there never looked back. SPY made another all-time high of $555.05, closing just shy of this level, at $554.67, up .58%. After breaking out from an 8-day range on Tuesday, this week the market moved decidedly higher. All that consolidation and repositioning by major institutions fueled this week’s massive rally, with SPY moving up for the week over $12.50 or more than 2.3%, leaving little doubt the bulls are completely in charge of this market. Today’s move was driven by a 111,000 downward revision in the number of jobs added in April and May, and an uptick in the unemployment rate to 4.1%. Today’s report added more jobs than expected, yet the market liked the fact that the 4.1% unemployment rate is the highest reading in close to three years, which again favors the Feds cutting interest rates sooner than later. All Mag 7 stocks rallied with META leading the charge, up over 5.8%, while NVDA suffered from a downgrade, dropping 1.92%. And when Mag stocks rally, the Nasdaq does as well, gaining over 1.02% making yet another all-time high. The DOW rallied slightly up .17% with the Russell failing to catch a bid, dropping .5%. It seems the market is not interested in value names given persistent high interest rates. Volume for SPY was lower than average at 36.16 million shares, but respectable for a shortened holiday week, reinforcing the bull case.
10-year Treasury yields eased 1.54% with Crude pulling back 1.1%. Gold was up 1.34% as we continue to buy dips in Gold and Silver. Bitcoin continued to fall, shedding 1% adding to its losses this week with yesterday’s major 5.15% drop to close below $57K. We are bullish Bitcoin above $60K but at this level are holding until Bitcoin finds a bottom. Major support for Bitcoin is $50K. Below this level our model will turn bearish on Bitcoin.
In Tuesday’s newsletter, we continued to state our model is bullish above $542. We recommended longs off $548 for Wednesday and stated once the market breaks above $545, prices will move significantly higher given both the strength of the market and the seasonally strong first two weeks of July. We also suggested by Friday (today), SPY could reach $553 given Dealer positioning. Once again, having our model’s projections along with Dealer positioning, made it quite easy to ride the trend this week to new highs without ever looking back. Knowing to stay long and to keep adding to long positions on pullbacks was made quite easy by following our post and pre market reports.
In the premarket at 8:52 am ET, we stated SPY had nowhere to go but up to at least $553 and to buy any dips above $551. We stated shorts should be avoided or taken with extreme caution. Our upper range target for today was $555 and we hit this virtually to the penny. Again with this premarket information, even lacking a post market report, it was quite easy to know what to expect for today. Get long and stay long was the mandate to at least $553 from @ $551 and to avoid shorts. Following this advice you had a very good day. This is actionable information that every trader should use to create a daily trading plan. To be even more effective, couple this information with our Market State indicator which provides real-time information for traders to profit handsomely from our model’s predictions.
Monday is back to work, albeit summer is in full swing and the markets should start to slow until the deluge of earnings starts in earnest in a couple of weeks. Big banks are up first later next week which should provide some clues as to the strength of the consumer and economy. A week later TSLA and NFLX are a couple of biggies to watch as well. Our model continues to remain bullish above $548. Below $548 the market will experience a pullback to $542 which has proven quite resilient and is likely to continue to hold on any first or second test of this level. But for Monday, we do not see any catalyst which will slow the bull market. There is no notable economic news scheduled for Monday. The market is now solidly in the trend channel from the end of April with room to the upside. New all-time highs are likely to follow next week as the second week of July is also quite bullish and we do not expect to see any material decline next week, at least as of today.
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 well above extended targets of $547.72. The indicator has not rescaled since Tuesday at 2 pm ET. This can happen when the markets trade in one direction for several days on relatively low volume. Remember this tool is looking to identify “herd” behavior and needs market participants to move in with volume to support the markets’ move. Given the shortened holiday week and lower than normal volume, the AI is struggling to determine if this move is “real” or not. We suspect the indicator will adjust on Monday when volume returns. In times like this it’s worth going a bit further out in time from a 2-minute to a 5-minute chart which adds more volume to each bar which will provide the AI with additional information. On a five-minute chart, you will see the indicator is still in a bullish trending state with support at $550.30 and lower support at $543.57, with extended targets above at $557.03. For Monday our models projects a range of $551 to $557.50 (white box on chart) which has narrowed a bit but still implies trending behavior for Monday. While we are at all-time highs, there is still room to the upside to $557. From that level, there is a 40% chance the market will mean revert to test support at $551. There is also a huge block of Calls at $555 expiring on Monday which could serve as major resistance once these begin to fall off. If the market does move higher than $555 on Monday, it will likely drift and chop its’ way to $557 where we favor a mean reversion trade to at least $555.
Again probabilities favor the market attempting a push higher on Monday but may also provide an opportunity for a mean reversion short. We favor longs from $551 but wouldn’t do much at the current level. A failure of $550 will potentially bring in the next level of support to $543.50 where we once again favor longs. As mentioned above, there is a wall of resistance at $555 and any failed breakout of this level may be a good opportunity for a short trade. Please understand mean reversion trades are no better than 40% successful and they need to generate at least twice the risk for the first target to be profitable long term. Never scalp a mean reversion trade. We are currently long $555 Puts in one of our other services looking for a pullback to $553 where our trade will be profitable. For updates to these levels be certain to check the Premarket Market report before the open.
Dealer positioning for Monday to the upside has Dealers selling $553 Puts while also selling $555 and higher strike Calls implying a ceiling on Monday of $555, but also a floor at $553. Market Makers are selling Puts in a 1:1 ratio to the Calls they are selling implying very little concern prices will fall below $553 on Monday. Yet while they are selling $555 Calls, they also believe there is room to the upside and that prices could reach as high as $557. But this very narrow range also implies a day of consolidation and price discovery as many market participants return to work after a long holiday week. Dealers will certainly adjust their positioning during the day on Monday as volume reappears. To the downside as to be expected from upside positioning, Dealers are buying small quantities of $552 to $544 and lower strike Puts in a less than 1:1 ratio to the Calls they are selling. This implies virtually zero concern about downside risk on Monday, further reinforcing the bull case. But with such balanced and light positioning, Dealers believe Monday will be more of a sideways day rather than a major trending day.
Looking out to next Friday Dealers are selling $555 to $560 Calls in large size while also selling small quantities of $554 and $553 Puts. This implies a belief the market is likely to move higher into next Friday, reaching as high as $560. To the downside Dealers are buying $552 to $540 and lower strike Puts in massive size given how inexpensive Puts are relative to Calls, and given the market is in untested waters. Should $553 fail, Dealers are positioned to clean up with lower prices. That said, they are not selling large quantities of Calls to finance their purchases on Puts, which tends to imply they also believe the market is likely to move higher into week’s end. We continue to reiterate the market has not had a 2% sell-off day in 343 days and with a record of 377 days, this record will break sometime in August, which is not unlikely nor is it likely. This is a small data sample, even though this record goes back to the beginning of the stock market. Records are made to be broken so do not rely on this to trade. But be aware that if the market does attempt a material sell-off, it could lead to a 2% or more drop to keep this 100 plus year record intact.
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.
