Market Insights: Thursday, July 18th, 2024.
Another rough day for the markets with all major indices taking it on the chin. SPY initially gapped up at the open $1.57 and looked like today may provide a relief rally to yesterday’s decline. But like the market likes to do, today was trap filled both ways, and the slide continued after the initial pop to major resistance at $560. From there it was pretty much downhill until the 3 pm hour where SPY found support at another major level, $550, and rallied to close down on the day .77% at $552.66. The great rotation trade suffered today as well with the recent out performer, IWM falling 1.93%. The Nasdaq slid .48% while the DOW closed off after making a new high yesterday, dropping 1.29%. A mixed bag for Mag 7 stocks with AMZN, AAPL, GOOGL, MSFT and NFLX dropping, while TSLA and META rallied. NVDA too made up some recent losses, rising 2.63%. We mentioned after last Friday markets like to do what they have done in the past and to look at what happened after April 4th for clues. We also suggested Wednesday or Thursday this week a similar pattern to April may emerge and while we didn’t get a relief rally today, we did get an initial rally which was a classic trap to lure longs back into the market. We continue to believe the April decline will reproduce this go around as well and while the timing may not be exactly the same, the outcome will be the same. So we expect a relief rally to fail in the SPY $560 range where we favor shorts to as low as $530. Volume for SPY was once again heavy at 56.27 million shares, which reinforces today’s decline.
10-year Treasury yields jumped 1.08% as money moved into safety assets, with Crude dropping .82%, back below $83. Gold pulled back slightly dropping .53% but still above $2400, while Bitcoin didn’t do much today, moving .2% lower, remaining near $64K. We continue to remain bullish Gold, Silver and Bitcoin above $60K. Gold will find resistance above $2500 but we also see it moving much higher longer term.
In Wednesday’s newsletter, we stated our model was bullish above $560 and a failure of $560 would trade to last week’s low of $555.83. We also stated a failure of $555 “…and the market will fall much further and much more quickly” and that is precisely what we got today. We also said “…do not get fooled by a rally tomorrow or Friday. It’s very likely with price now below the trend channel that has been in place since the April lows, and also sitting on the low subchannel trend line, price may bounce, but this pullback is likely far from over.” And on cue once again, after an early rally to $559.52, the first sell off dropped to $555.59, bounced to $557.70, before heading straight down to $552.50 where we chopped around a bit more until finally reaching the lows of the day at $550.43. Our model predicted this price behavior and provided all of the major levels so our readers knew exactly what to expect from the market today. We have also being saying for days that the market is moving into a more seasonally bearish period and that the clues and warnings of this sell-off have been there for days. Today is no exception. Once again as you will see below, our Market State Indicator adjusted in real time several times today to provide perfect trading opportunities for monster profits on the day.
In the premarket at 8:25 am ET, we stated the market appeared poised to deliver a small rally. We also stated it needed to reclaim $560 to void short entries, and that we would only go long above $562. That didn’t happen. We stated if the market could not overcome $562, we favored shorts to at least $557.25. If you only took one trade on the rejection of $560 to $557.25, you had a great day. We want to point out when we provide a level, it’s a “zone” and not a hard and fast number. $557.25 should be viewed as a +- .5% range or @ $2.80 from the that price, plus or minus. So start looking at price at @ $558.50 to @ $555.75 and look for the market to provide clues where to get in and or get out. Levels are not exact and shouldn’t be viewed that way. Instead, look at them as ½% ranges above and below where you the trader, need to make decisions. We also advise taking 75% of profits at the first major level you approach and then trailing, taking an additional 15% off at the next level, keeping a 10% trailer until you are stopped out. To learn how to best trail, speak to you advisor as that is beyond the scope of these newsletters. In any event both the post market and premarket provided very similar information to our readers so again, take notice, and follow the advice provided. This is how you best utilize this actionable information for your benefit.
Unemployment Claims were released today and were a bit worse than expected. But this is likely due to seasonal factors and we wouldn’t get overly excited about the news as Unemployment claims are notoriously unreliable. Friday there is nothing but more Fed speakers and once again there doesn’t appear to be any major macro catalyst to move the market one way or the other. Trump is speaking tonight and that could move the overnight markets somewhat. Since we did not get the relief rally today, it’s very possible Friday we see it move prices back to the $555 level where traders should watch closely for rejection or acceptance. If price moves above $555 on volume, $560 is certainly possible. But the bears are currently in control until price gets above $560, so we continue to favor selling rallies at these levels. SPY is currently at $553.97 once again rallying a bit in the aftermarket. We remain bullish above $560 with any failure moving much lower. Now that we have tested $550, its possible a failure of $550 will bring in much lower prices over the next two weeks. We reiterate do not get fooled by any rally. Price is below the sub channel and we will redraw trendlines to the downside with another day of falling or even flat prices. Remember in April we dropped over 5% so if history at least repeats, SPY $532 is in play. But the market is still long above $520 long term, so while there may be more short-term pain, we advise using these 5%+ pullbacks as buying opportunities. Be certain to check the premarket reports for more updated information for Friday.
Looking at a 2-minute chart of SPY with our Market State indicator, the indicator is currently in a bearish trending market state with prices closing at lower support at $552.67. We continue to have extended targets below at $549.55. Resistance is $555.79. Again with extended targets still printing below, the herd is jumping on this short bandwagon and it’s likely rallies will be sold at the levels indicated. The indicator rescaled five times today in rapid succession and all were as a bearish trending state with extended targets. As we state often, when this happens, get with the trend, and stay with it. A rapid rescaling lower means the AI cannot effectively determine the bottom and therefore it relies on the major levels identified daily. The opening rally to $560 was the cue to get short given this was an extended target from the prior day. When the indictor rescaled lower and continued rescaling until 12:12 pm ET and stopped, that was the sign the AI was getting close to determining the bottom and to take profits at the levels identified. The last push lower was a classic failed breakdown with price making a new low to the major $550 level and failing to follow through. Our indicator at that time was still printing extended targets and as such, we do not favor mean reversion trades under those conditions. Yet experienced traders knew to get long at $551.50 after the failed breakdown for the $2 easy trade. Failed breakdowns are one of the most complex and difficult patterns to trade given 70% of the time markets move higher. For new traders we recommend avoiding these types of trades. But if you wish to learn more about how best to trade these patterns, speak to your representative. Today there were plenty of easy trading opportunities provided by our indicator in real time, particularly when combined with the actionable information contained in the daily post and premarket reports. For Friday our model projects a range of $546 to $558.50 (white box on chart), about the same size as today so once again, expect trending price action which means like today, get with the trend, and stay with the trend. And for real-time updates to this information, incorporate the Market State indicator into your daily routine for trade direction and accurate price levels to trade to and from.
Dealer positioning for tomorrow to the upside has Dealers selling $562 to $565 and higher strike Calls, while also buying $553 to $561 Calls. This implies Dealers believe prices on Friday have the potential to bounce and push to as high as $562. Dealers are buying Calls in a 5:1 ratio to the Calls they are selling which is a fairly large commitment that prices will at least get to $560, and perhaps to $562. To the downside Dealers are buying $552 to $545 and lower strike Puts in a 20:1 ratio to the Calls they are selling implying major concerns prices will continue to fall on Friday. This is a completely unbalanced ratio and much higher than anything we have seen in some time. This implies quite a bit of fear of lower prices. So should prices fall below $550, certainly Dealers are positioned to make all kinds of money to at least $545 and substantially lower. Put buying does not die off until prices get to $530 which happens to coincide with the 5% sell-off level we have discussed the last two days.
Looking to next Friday, Dealers are positioned similarly to tomorrow, selling $564 to $565 Calls in very large size while also buying $553 to $563 Calls. This implies any rally next week will stall at or near the all-time high. $562 remains a line in the sand for Dealers, so long above $562 and short below. To the downside Dealers are buying $552 to $530 and significantly lower strike Puts to as low as $470 in very large sizes. Downside protection is a bit sporadic with levels where they expect to see bounces, and are therefore thinly protected below the major levels of $550, $530, and $470. We recommend taking notice of these levels as potential downside targets longer term. Today $550 held but from Dealer positioning it seems a failure of $550 will bring in $530 and achieve the 5% sell-off similar to April. While the Nasdaq has fallen over 3% the past two days, this is day 352 without SPY having a 2% sell off day with a record of 377 days. The past two days sell-off in SPY has contributed to close to a 2% sell off but that is not the record we are referencing. It still seems likely that the S&P and therefore SPY is destined have a 2+% sell off day and probabilities suggest this will happen between now and mid-August.
Dealer positioning changes daily so be sure to check in with Market Sentiment Newsletter premarket as well as checking 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.
