Market Insights: Wednesday, July 10th, 2024.

SPY gapped up $1.25 today and spent much of the morning trading in a tight $1 range until Powell stated the decision to reduce interest rates did not require inflation to fall to 2%, and that the labor market had weakened substantially which may require the Federal Reserve to cut interest rates sooner rather than later. This news was enough to light a fire under the market and push prices straight up over $5 to close at yet another all-time high, making an intraday high of $561.67. SPY closed at $561.32 up 99 basis points as the relentless bull trend continues to push prices higher. Mag 7 stocks gained on the day except NFLX, while NVDA also had a good day rallying 2.63%. The Nasdaq too made a new all-time high, gaining 1.09% with the DOW joining the party up 1.09%, and the Russell gaining .98% as well. All of the major indexes participated in today’s push higher. Volume for SPY was a little lower than average at 38.42 million shares.

10-year Treasury yields eased .47% while Crude gained .73%, back above $82 at the close. Gold rallied .33% with Bitcoin falling 1.29%, settling just over $57000. We remain bullish Gold and Silver and Bitcoin above $60K.

In Tuesday’s newsletter, we stated our model is bullish above $551 and stated we expected new all-time highs to continue this week. We stated the market was likely to move on Powell’s testimony and certainly we got that today in spades. While the market traded in the projected narrow range before Powell’s magic words, once the market caught wind of these dovish statements, traders should throw out the model’s predictions and trade what they see. We state this often…that the model uses information it has when it creates its’ projections and any macro event or external data intraday can and often will negate the model’s predictions. It’s the main reason we heavily promote the use of our intraday tool, the Market State Indicator, which today provided traders plenty of information to earn significant profits. But more on that below. Yesterday we stated we liked a mean reversion short from $558 but only on retest of this level and a failed breakout. We provided an image of what a failed breakout look like. And certainly that pattern never presented today so we didn’t dare short the market all day and instead found levels to go long using our Market State Indicator. We stated we continued to like longs above $555 to at least $558 and that Dealers were positioned for the market to top out at $560. We also stated any good news could cause the market to move significantly higher. Today the market reached $561.67 in a parabolic move into the close which sets up the market for more fireworks on Thursday.

In the premarket at 8:48 am ET, we stated SPY would continue to grind higher and reach at least $558, with the possibility of reaching $560. We stated any slip in the market would stall at $556 where we would look to buy. We suggested traders avoid shorts all day. Certainly the double bottom at $556.80 this morning was a good spot to jump on the long bandwagon to at least $558, keeping a trailer all the way to $560. The premarket once again updated the post market recap favoring long only trades to at least $558, which created a solid opportunity for profit @ the 11 am ET hour. The pre and post market reports provide actionable information and the basis for a plan for the day. Those who wish to also gain intraday knowledge find the Market State indicator to be extremely useful in clearly identifying the trend and strength of the trend, as well as highlighting levels to trade to and from in real-time. For those who trade intraday, we highly recommend you incorporate this tool into your day to day trading.

Thursday will likely bring even more action to the market with CPI data being released premarket along with Unemployment Claims and two Fed members speaking thereafter. We remain bullish above $555. Below $555 the market will likely experience a pullback to $551. SPY is now mid trend channel from the April lows with room to the upside. We continue to believe the market will reach more new highs until a major catalyst derails this extremely powerful trend.

Looking at a 2-minute chart of SPY with our Market State indicator, the indicator remains in a bullish trending market state with prices well above support at $559.04. There are extended targets at $563.02 for tomorrow which are clearly within striking distance on a lower-than-expected CPI reading. The herd is back buying this market so do not fight this trend until something material changes. Today the Market State Indicator rescaled higher twice and printed extended targets, indicating a very strong bull trend that should not be faded. The indicator also provided levels to enter long at 11 am, and once again at 12:30 pm ET. Lower support is currently $555.06 and we are buyers of all dips above this level. For Thursday our models projects a range of $554 to $565 (white box on chart) expanding significantly from today, which implies a strong trending market for Thursday with likely new all-time highs.

While probabilities for Thursday continue to favor the market moving higher, the market is in unchartered territory and is historically expensive by any metric. Earnings start to be released in earnest in a few days which may require market participants to adjust their 2025 expectations. Interest rate policy alone will not drive the market higher without other favorable economic news. CPI is considered a major external catalyst so be careful to trade what you see tomorrow, and be sure to adjust our model’s projections accordingly. Absent anything earth shattering from CPI, we do not see the market exceeding $565 on Thursday, while any failure of $555 will likely bring in prices as low as $551. As of tonight, buy dips from $559 with the potential to reach $565. For updates to these levels be certain to check the Premarket Market report before the open.

Dealer positioning for Thursday to the upside has Dealers selling $562 to $570 Calls while also selling $561 to $558 Puts. This implies Dealers believe prices on Thursday have little chance of dropping below $559. This also implies a ceiling of $570 for Thursday. To the downside Dealers are buying $557 to $555 and lower strike Puts in a 3:1 ratio to the Calls they are selling. Coupling this with the Puts they are selling, this implies little concern for downside risk. Any failure of $557 is likely to bring in lower prices, yet Dealers are clearly positioned for higher prices on Thursday to at least $564.

Looking to Friday, Dealers are selling $562 to $565 and higher strike Calls while also selling $561 to $557 Puts. Once again this implies little concern the market will drop lower than $557. And while Dealers are selling Calls above, they are not selling in size so there is no real ceiling set by Dealers for Friday. $565 could be difficult to overcome but certainly it’s within the realm of possibility that the market only pauses at $565 before moving higher toward $570. To the downside Dealers are buying $556 to $550 and lower strike Puts in a 10:1 ratio to the Calls they are selling, heavily protecting themselves from any possible surprise that could cause the market to tumble. But Dealers do not typically sell Puts unless they are confident prices will not decline. So this positioning implies this positioning is only a hedge against the remote possibility the market will fall by Friday. We certainly advise any long book add protection here as well. Now day 346 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, particularly since this Friday marks the end of the most bullish two-week period in the market. Could the end of July provide some fireworks to the downside?

Be sure to check in with Market Sentiment Newsletter premarket given Dealer positioning changes each day, and be sure to check 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.