Market Insights: Tuesday, July 9th, 2024.
SPY opened up $.98 today and once again traded all day in a very narrow, tight range reaching a high of $557.18 and a low of $555.52. SPY ended the day down 10 basis points at $555.82 after making yet another new, intraday all-time high. The market continues to digest the gains from last week, building energy for its’ next leg higher or lower. Mag 7 stocks had another mixed day with MSFT dropping the most, with NFLX and GOOGL flat. All others were up on the day with TSLA once again leading the pack, up over 3.7% on the day. NDVA too rallied 2.48%. The Nasdaq also made a new all-time high, gaining .07% while the DOW was flat, losing .13% with the Russell losing .44%. We mentioned yesterday we didn’t expect the Russell to continue to rally and right on que, today it gave back most of its gains from yesterday. Volume for SPY was quite low at 27.31 million shares.
10-year Treasury yields gained 42 basis points, while Crude continued to pull back .49%, closing below $82. Gold rallied .22% while Bitcoin continued to recover, jumping 2.35%, closing just shy of $58000. We are bullish Bitcoin above $60K.
In Monday’s newsletter, we stated our model is bullish above $548 and stated we expected new all-time highs to continue and that the market was likely to continue to trade in a very narrow range. We stated we liked a mean reversion short from $557 which presented perfectly at 1 pm ET falling to $555.52. We also stated we didn’t think today would provide too many opportunities to trade given how narrow and tight the market was trading. We also confirmed our model’s projections with Dealer positioning stating Market Makers were positioned for the market to reach $557 but that it was unlikely to move any higher. The market reached $557.18 today before giving way. So today was one and done for us, which is all you can expect from a market that is trading in such a narrow range. Even Powell’s testimony today didn’t move the needle. These are trap filled days which can cost a trader his entire book so it is best to pick your spots from the levels we suggest or sit on the sidelines and follow the advice provided in our highly accurate and actionable newsletters.
In the premarket at 8:08 am ET, we stated SPY would sluggishly move higher reaching a max high of $558, but also with the desire to visit $555. This once again confirmed the post market recap favoring a mean reversion short from the highs while taking profits at support. We also stated at $555 we were solidly bullish and would look for longs. While the market only fell to $555.52, it found support at this level several times, providing the opportunity for scalps for those who dared trade today’s price action. But again like yesterday, we trade levels we establish in the post and premarket and simply taking the short from $557 generated enough to pay the bills for the day. As traders this is our goal…to make money, even if it’s just one trade, and wait for the best opportunities to set up. Learning this method and expanding to other tickers provides plenty of chances to earn each day. The pre and post market reports provide actionable information and for those who wish to be nimbler and more effective, couple this information with our Market State indicator to view real-time levels on all your favorite stocks, incorporating this into your daily trading plan.
Powell continues to testify to Congress on Wednesday which is the only possible macro event which could move the market tomorrow. Thursday will likely bring much more action to the market with CPI data being released with various Fed members speaking thereafter. This should provide additional opportunities for intraday trades. Below $551 the market will experience a pullback to $548. SPY remains in the trend channel from the end of April with plenty of room to the upside, riding along the bottom of the channel. While price could dip into the subchannel from the end of May, we continue to believe the market will reach new all-time highs until a major catalyst derails the bull trend.
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. The extended targets at $557.03 were reached today and are no longer plotting indicating the herd is no longer piling into the long trend with the same volume and vigor. Lower support remains at $543.57 and once again, the indicator did not rescale today given the very narrow range. We are currently using a 5-minute chart to provide the AI with additional information, but even the 5-minute chart hasn’t rescaled which implies narrow, range bound trading for tomorrow. We continue to favor the long side but do not expect much movement either way. For Wednesday our models projects a range of $553 to $559 (white box on chart) which is fairly tight and narrow, again implying ranging behavior for tomorrow. We continue to trade near the all-time highs but see $558 as a substantial hurdle to overcome in the short term. We continue to like longs above $555 reaching a maximum high of $558 with everything in between being noise.
Probabilities continue to favor the market pushing a bit higher on Wednesday, although the probabilities have weakened from today. Even with a major external catalyst we do not see the market exceeding $560 on Wednesday. Any failure of $550 will bring in the next level of support of $543.50 where we once again favor longs. While we may look to short a test of $558 and a new high, we likely will wait for the second test of this level to enter a mean reversion short. Let the market trap a few traders at this level and watch for a failed breakout before attempting to fade a new all-time high. This happened perfectly today so look at how the market reacted to the $557 level a few times before breaking higher at 1 pm ET just to trap trade traders long. This is the pattern you want to see tomorrow before taking a short trade in this market. View the below image for a simple method to trade failed breakouts.
For updates to these levels be certain to check the Premarket Market report before the open.
Dealer positioning for Wednesday to the upside has Dealers selling $556 to $558 and higher strike Calls implying a ceiling on Wednesday of $558. To the downside Dealers are buying large quantities of $554 to $550 and lower strike Puts in a 3:1 ratio to the Calls they are selling. This implies more concern about downside risk than today’s balanced book. Any failure of $554 is likely to bring in lower prices and while Dealers are positioned for more sideways action on Wednesday, they are adding to protection to the downside and selling Calls a bit more aggressively. This implies a short-term top coming soon.
Looking out to Friday, Dealers are selling $556 to $560 and higher strike Calls but not in very large size. This implies while they believe the market will likely move a bit higher into Friday, there is a possibility that very good CPI and PPI numbers could cause the market to breakout significantly higher. While $560 is currently a ceiling based on this positioning, Dealers will certainly adjust their positioning after CPI to be prepared for a move one way or the other before PPI. To the downside Dealers are buying $555 to $547 and lower strike Puts in very large size. They are buying Puts in an 8:1 ratio to the Calls they are selling implying growing fear a pullback is possible by Friday. A failure of $554 will likely test $553 and possibly $550. Dealers have been adding to this protection for a couple of days and we certainly advise any long book do so as well. It’s now day 345 without the market having a 2% sell off day with a record of 377 days. The probability exists this record will break sometime in early 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.
