Market Insights: Monday, July 15th, 2024.

SPY opened up $2.04 today on the belief that Trump’s chances of being elected President increased after the failed assassination attempt. Trader’s believe Trump will be favorable for the stock market, even as many pundits believe Trump’s policies will be inflationary. The market continued to push higher reaching a new all-time high of $564.84 before Powell started speaking at 12:30 pm ET, after which the market fell to close the day down .28% at $561.53. Powell stated he wasn’t sure of the timing of rate cuts which apparently wasn’t dovish enough for the market. Once again, this type of price action, a big rally to a new high that reverses to end mid-range to down is typically a bearish signal and we continue to see more defensive positioning in the options markets which indicates we may be reaching a short-term market top. Mag 7 stocks were mixed on the day with META and AMZN falling while the others gained slightly. NVDA also fell .62%. The Nasdaq held on to its’ gains, closing up .27% while the DOW rallied .53%, with the Russell once again outperforming the other indices, rallying 1.90%. We mentioned on Friday, IWM breaking above $212 technically supports higher prices and perhaps the rotation into small caps this time is the real deal. Volume for SPY was lower than average at 40.56 million shares.

10-year Treasury yields fell 1.1% closing above 4.2% while Crude continued to slide, falling .3% closing below $82. Gold was up .46%, remaining above $2400 with Bitcoin rallying strongly, up over 5% and once again over $64K. We continue to remain bullish Gold and Silver and Bitcoin above $60K.

In Friday’s newsletter, we stated our model was bullish above $555 and a failure of $558 would retest the lows at $555.83. We stated we expected prices to settle down today and trade in a range between $556 and $563 and that probabilities favored higher prices. We stated we felt the market today would provide the opportunity for two-way trading between the highs and the lows, ending the day relatively unchanged. Finally we stated Dealers favored longs to as high as $563 but were positioned for prices to move as high as $565. With this weekend’s macro event, as we state often, new information can and does change the micro view of the market provided by our models. That said, the model was clear today would be more of a ranging day, selling the highs and buying the lows and that the trend was generally higher. Certainly we got higher in the morning session and then sold off, only to find support at $559.72 where the market rallied. The levels today changed as a result of external catalysts and as such, experienced traders needed to adjust our model’s levels to make effective trades. Of course our Market State Indicator also picked up the weekend news and as you will see below, adjusted it’s levels to reflect this new information. We often state this tool is quite useful in providing real-time updates to our models.

In the premarket at 9:04 am ET, we stated SPY has been rallying off support and would continue to rally to a likely max high of $563.65. The market reached $564.84, exceeding our targets. We also stated the market needed to remain above $561 to continue to its’ bullish stance and once this level failed, the market would seek our lower targets of $558.05. The market reached $559.63. We also stated the day would be messy and would only trade from the high and low ranges indicated. We had previously stated in the post market recap anything between our levels was noise and to trade with caution. The premarket view supported the post market’s recap’s view. Perhaps a bit more challenging day than anticipated but it’s fair to say presidential assassination attempts don’t happen very often, so we will cut our model some slack. That said, this is a good lesson for traders. We state all the time trade what you see but perhaps what we should also say is when something unique or unusual appears, best to scale down and perhaps even sit on your hands for better opportunities. Today is a good example of a day when doing nothing would have likely been the best trade. Those who follow these newsletters closely know these newsletters are quite consistent at delivering actionable information to create a plan of action for the day, so we continue to rely on them for this purpose and recommend the same for our clients.

Tuesday Core Retail Sales will be released premarket which will provide information on the health of the consumer. A weaker consumer may actually support price short term, even though it’s bad for the economy. There is little economic news again until later in the week so most of the action will come from the slew of companies reporting earnings this week. SPY is currently at $562 and we are bullish above $558. A failure of $558 will likely retest the lows from last Thursday at $555.83. Certainly a failure of $555, and the market will attempt to reach $551. For Tuesday we expect prices trade much like today with two-way trading between $560 and $565 with higher prices probable, given price continues to trade in the bull channel from the April lows. Today’s price action once again was not great for the bulls, yet the bulls likely did enough to continue to push the market higher. There is a chance we see another new all-time high on Tuesday. We mentioned price behavior from April 4^th and it’s possible after two sideways to slightly up days, Tuesday provides a bit more information whether the market will continue to grind higher, or whether we will see some follow through to last Thursday’s drop. While probabilities favor higher prices, we advise traders to be prepared for a sell-off this week should it present. Markets like to do what they did in the past so be cognizant of this fact and stay vigilant. Be certain to check the post and premarket reports for updated information.

Looking at a 2-minute chart of SPY with our Market State indicator, the indicator is in a ranging market state with prices closing midrange. The range is quite narrow with support at $560.70 and resistance at $562.68. We expect this range to expand tomorrow. Above $560 we favor longs to $563. Below $560 we favor shorts to potentially $558, where we would once again go long. In a bull market shorts should be traded carefully and in small size. Given the current market, we advise trading with the broader trend, taking longs off support to resistance. Today the Market State Indicator rescaled at the open to a bullish trending state, finding support at $561.87. Once $561 gave way, we saw a late day short to the lows of the day. Again a bit sloppy and complex price behavior on a day which was set up by the weekend’s macro events. Certainly the Market State indicator provided valuable information in real time which provided clues for what to expect for the day. For Tuesday our model projects a range of $558 to $567 (white box on chart), the same size as today, implying similar price behavior on Tuesday.

Dealer positioning for tomorrow to the upside has Dealers selling $562 to $565 and higher strike Calls in some size. This implies Dealers believe prices on Tuesday may resume their march higher to perhaps as far as $565. Dealers are no longer buying Call so their conviction in prices moving higher on Tuesday isn’t as strong as it was today. To the downside Dealers are buying $561 to $555 and lower strike Puts in a 1:1 ratio to the Calls they are selling implying little concern prices will fall on Tuesday. A 1:1 ratio is not quite balanced, meaning this is clearly bullish positioning. But even though Dealers are positioned for the bull market to continue, they do not see prices exceeding $565 on Tuesday. Our model agrees…$563 will be difficult to overcome on Tuesday but if price does push higher, it will stall at $565 where we would recommend a mean reversion short.

Looking to Friday, Dealers are selling $562 to $570 and higher strike Calls while also selling small quantities of $561 Puts. This implies Dealers believe prices will continue to press higher this week to $565. Beyond $565 any break on volume may push prices to as high as $570. To the downside Dealers are buying $561 to $530 and much lower strike Puts in a 10:1 ratio to the Calls they are selling, adding significantly to their downside protection. 10:1 is quite a bit of protection so this implies while prices may trend higher initially, there is certainly growing concern that should a major level such as $555 fail, prices could fall dramatically to $550 at a minimum. Dealers are heavily hedged below $550 so look out below should a major level fail to hold. Today is day 349 without the market having a 2% sell off day with a record of 377 days so it seems Dealers are becoming increasingly aware that probabilities suggest this record will break in August.

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.