Market Insights: Monday, July 8th, 2024.

SPY opened up $.80 today and traded all day in a very narrow, tight range from a high of $556.25 to a low of $554.19. SPY closed down 12 basis points at $555.28 after making another new all-time high. The market is clearly tired and needs to digest the massive move from last week to build energy for its’ next leg higher or lower. Mag 7 stocks had a mixed to down day on profit taking with GOOGL, AMZN, META, MSFT and NFLX all dropping. AAPL and TSLA were up slightly with NDVA reversing some of last week’s decline, rallying 1.88%. The Nasdaq was also able to make a new all-time high today, gaining .23%, mainly on strength from NVDA and the chip sector in general. The DOW was flat, losing .08% with the Russell up .70%, the best performer of the day. We don’t expect the Russell to continue to rally as we believe this is a day or two event rotating funds out of tech to value which will be short lived. Volume for SPY was a bit lower than average at 36.01 million shares which if difficult to do in a market that barely moved $2 all day.

10-year Treasury yields eased 5 basis points, while Crude pulled back 1.31%, remaining above $82. Gold was down 1.38%. Bitcoin found support at $54000 rallying 1.8%, closing just shy of $57000. We are bullish Bitcoin above $60K, but are holding at this level until Bitcoin finds a bottom. Major support for Bitcoin is $50K and if this gives way, Bitcoin could visit $44K which is major, long-term support.      

In Friday’s newsletter, we continued to state our model is bullish above $548 and we stated the market would slow until earnings start to be released in earnest in a couple of weeks. But slow isn’t dead so even we were taken a bit off guard by today’s narrow price action. We did however state Dealers were positioned for a narrow range day from $553 to $557 and to take heed. We recommended not trading much from the close on Friday as we were looking for mean reversion trades from $557 or longs from $551. Since price never hit either level, we sat on our hands all day. We are week two of the seasonally strongest two weeks of the year and as such are not inclined to short this market, but to instead find levels to go long. By utilizing our model’s projections, today you would have done nothing like we did and just watched the paint dry….it happens, especially in the summer and after a 2% week. Knowledge is power so knowing to look for levels to trade to and from kept your powder dry today and kept you safe from getting trapped in a market that didn’t provide much opportunity for profit.

In the premarket at 8:01 am ET, we stated SPY wanted to go higher but that there was little to no momentum to do so. We stated we liked longs above $553.85 to $555, but that getting to $557 would be challenging. The market did not get to a level where we wanted to go long and while you could have faded $555, why bother. We are in a bull market and want to get long at levels where the herd will support price. And if these levels don’t present, preservation of capital is the wisest course of action. The pre and post market reports provide actionable information, even if that information leads to inaction. To be even more effective, couple this information with our Market State indicator to view real-time levels and information to incorporate into your daily plan.    

Tuesday Powell will testify to Congress which should be interesting and possibly get the market moving, one way or the other. Other than that there is no notable economic news due tomorrow. Our model continues to remain bullish above $548. Below $548 the market will experience a pullback to $542 which will provide major support. For Tuesday there aren’t any catalysts which will change the market dynamics with the exception of Powell. SPY is solidly in the trend channel from the end of April with plenty of room to the upside and we expect to see more new all-time highs in SPY and Nasdaq.

Looking at a 5-minute chart of SPY with our Market State indicator, the indicator remains in a bullish trending market state with prices well above support at $550.30. There are extended targets at $557.03 and lower support at $543.57. The indicator did not rescale today given the very narrow range. As we stated Friday, 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. But even the 5-minute chart hasn’t rescaled which implies narrow, range bound trading, favoring the long side but without much movement either way. For Tuesday our models projects a range of $552 to $557 (white box on chart) which has narrowed implying ranging behavior for Tuesday. While we are near all-time highs, there is still room to the upside to $557. Again this implies sideways to up price action.  We still like a mean reversion trade from $557 and longs from $551. In between it’s all noise and we will not be trading.

So while probabilities favor the market attempting a push higher on Tuesday, without an external catalyst or a few days of consolidation, there may be limited trading opportunities. Once again with SPY at $555.34 we wouldn’t do much at this level. Any failure of $550 will potentially bring in the next level of support of $543.50 where we once again favor longs. There continues to be a wall of resistance at $555 and any failed breakout of this level may be a good opportunity for a short trade. 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. For updates to these levels be certain to check the Premarket Market report before the open.

Dealer positioning for Tuesday to the upside has Dealers selling $556 to $560 strike Calls implying a ceiling on Tuesday of $557. Market Makers are no long selling Puts. To the downside Dealers are buying large quantities of $554 to $550 and lower strike Puts in a 1:1 ratio to the Calls they are selling. This implies a balanced book with little concern about downside risk on Tuesday. While Dealers have protection in place, when it’s balanced in a 1:1 ratio, it’s likely there is a floor in the market at $553/$554 but also with a ceiling at $557. Again this implies Dealers believe Tuesday will be a sideways day consisting of more consolidation rather than a major trending day.     

Looking out to Friday, Dealers are selling $556 to $560 and higher strike Calls in size. This implies a belief the market is likely to move higher into Friday, reaching as high as $557 but not likely to move much higher. To the downside Dealers are buying $555 to $545 and lower strike Puts in massive size given how inexpensive Puts are relative to Calls. Should $553 fail, Dealers are positioned to clean up. They are buying Puts in a 3:1 ratio to the Calls they are selling implying a bit more confidence that while prices might continue to rally a bit further, there is more belief a pullback will present which may test $553 and possibly $548. Still not heavily protected at 3:1, Dealers are starting to purchase more protection for later this week. We advise any long book to do so as well given the market has not had a 2% sell-off day in 344 days and with a record of 377 days, this record could break sometime in August.     

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.