Market Insights: Friday, July 19th, 2024.
Another bloody day for the markets with all major indices falling. SPY opened down $.42 and initially attempted to rally at the open, but once again failed and fell until 1 pm ET after which it traded sideways in a range between $548 and $550. This is the first red week for SPY since June 24th and the largest weekly decline since April 15th. SPY is down over 3% from the all-time highs…not a big deal after a monster 12.6% move off the April lows. A 50% retracement would be perfectly normal and quite healthy for the markets. Another 3% from here and SPY will be in the $530 range we mentioned the past couple of days. That would put price just below the 50 DMA and yet the bull market would still be firmly intact should this transpire. Perhaps like April, we dip below the 50 DMA to shake out weak longs, setting up the next leg higher. The economy is strong and there is nothing fundamental that would cause the market to turn decidedly bearish. SPY today closed down .66% with the Nasdaq falling .93%, while the DOW too slipped .93% with IWM falling .51%. Another mixed day for Mag 7 stocks with AAPL, GOOGL and META basically flat with all others dropping, including NVDA. Volume for SPY was quite heavy at 65.38 million shares due to OPEX, but again, high volume reinforces today’s decline, so more to follow.
10-year Treasury yields jumped .88% with Crude dropping 2.67%, back toward $80. Gold too fell 1.83% but closed just above $2400, while Bitcoin continued to rally on the Trump trade, up another 5%, over $67K. We continue to remain bullish Gold, Silver and Bitcoin above $60K and did warn gold will find resistance @ $2500, even though our models suggest it will move much higher longer term.
In Thursday’s newsletter, we stated our model was bullish above $560 but below, we recommended selling all rallies. We stated once again not to be fooled by any rally now that the bears are in control of the market. We stated today would be a trend day and to ride the short trend all day and to watch the market as it attempts to retake $555, looking for rejection or acceptance. Above $555 the market would move to $560, yet below, $550 was in play and perhaps lower, given $550 has been tested already. And like a Swiss watch, the market followed our model’s plan to the tee rallying $554, then falling directly to $550 where it once again, set a trap rallying to $551.45 before dropping to the lows of the day at $548.99. Another test of this level and a mean reversion rally back to $550 which once again failed with SPY closing near the lows of the day. Again our model predicted this price behavior and provided all major levels so our readers knew exactly what to expect today. We have also being saying for days that the market is moving into a more seasonally bearish period so prepare accordingly. And as you will see below, our Market State Indicator adjusted in real time several times today to provide perfect trading opportunities for massive profits on the day.
In the premarket at 8:26 am ET, we stated the market to begin with an upward bias toward $555 and that most likely, traders will be trapped as prices move lower to as low as $549.50 or beyond. We recommended entries from our major levels fading rallies. Again the premarket materially agreed with the post market which means what…follow the advice closely since our model didn’t find any reason to deviate from overnight information. Yesterday we discussed price levels as a zone and profit taking at our levels using trailing stops. If you missed this discussion, please go back and read it to understand level to level trading, or speak to your advisor for more information. But again, both the post market and premarket provided similar information so again take notice, and follow the advice provided to utilize this actionable information for your benefit.
There were no economic reports today and nothing on Monday or Tuesday so there are few macro catalysts to change the market dynamic. That means expect more of the same. We do however expect to see a relief rally at some point and possibly on Monday given $550 appears to be holding. But it’s also highly probable we see a quick flash lower on a failure of this level, with a quick drop to $545 where we think a relief rally will begin. $555 and $560 remain important levels to overcome for any sustained rally back toward the highs. But now the market must hold $550 and get firmly above $555 before even thinking about the end of this bear push lower. As such we continue to favor selling all rallies, but would entertain a mean reversion off the $545 to $546 level back to $550. SPY is currently at $548.50 falling a bit in the aftermarket. So once again, we reiterate do not get fooled rallies. Price is now in a tight bear trend channel making lower lows and lower highs. If this continues for another day, this becomes a micro channel which is quite strong. The channel is also steep so prices will fall more quickly than in April. We reiterate SPY $530 - $532 is in play, yet long term, we remain bullish above $520. Be certain to check the premarket reports for more updated information for Monday.
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 near lower support at $548.50. Extended targets below stopped printing at 1:22 pm ET which was a sign that the herd is less willing to press prices at this level. As such our readers knew the door was open to a mean reversion trade off support and that provided three opportunities for longs off the $548 level for solid gains. Resistance is $552.22 where we recommend selling. The indicator rescaled lower today eleven times 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 each day. The opening rally to $554 was the cue to get short and when indictor rescaled lower and continued rescaling, stopping at 1:32 pm ET, that was the time to exit short trades and look for mean reversion longs. Today our Market State Indicator provided plenty of trading opportunities for level-to-level trading in real time. When combined with the actionable information provided in the daily post and premarket reports, trading is pretty simple. For Monday our model projects a range of $542.50 to $554 (white box on chart), a little smaller than today so perhaps a little more two-way trading on Monday, although still heavily favoring the short side. 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 Monday to the upside has Dealers selling $556 to $560 and higher strike Calls, while also buying $549 to $555 Calls. While they are buying Calls somewhat heavily for Monday, they are not selling very many Calls given there is little premium available in these Calls so why take the risk. This implies Dealers want to participate in any rally to as high as $556 or higher, but don’t have a very strong conviction that this will transpire on Monday. To the downside Dealers are buying $548 to $545 and lower strike Puts in a 1:1 ratio to the Calls they are buying implying a balanced to slightly bullish market view for Monday. It appears, at least for Monday, Dealers may think the worst is over. That said, options volumes have dried up substantially so there is far less information to be learned from Monday’s positioning. While we still think traders should incorporate this into their plan for Monday, weight it lower than our model’s predictions above. But from Dealer positioning for Monday, it appears $545 is the floor and $555 is the ceiling with a slightly bullish lean.
Looking to next Friday, Dealers are selling $564 to $565 and higher strike Calls in large size while also buying $549 to $563 Calls in a 2:1 ratio to the Calls they are selling. Again this is likely due to the low premium they can receive from selling Calls currently. Clearly however, Dealers are ready for a rally to $565 should it develop. There is little to no chance price will exceed $565 next week based on Dealer positioning. To the downside Dealers are buying $548 to $530 and lower strike Puts in a 4:1 ratio to the Calls they are buying. This has dropped significantly from today which implies Dealers, while prepared for more weakness, appear also positioned for a relief rally at some point next week. The $540 to $542 level looks to be one where dealers believe the market will find support, a bit lower than our model’s prediction above. Dealers believe once the market does find support, it will bounce back to perhaps as high as $560. This $560 level is still relevant and will need to be reclaimed for the bulls to resume control from the bears. Today is day 353 without SPY having a 2% sell off day with a record of 377 days. The past few days sell-off in SPY has contributed to a 3% sell-off but again, that is not the record we are referencing. It seems likely the S&P and therefore SPY is destined have a 2+% sell off day and probabilities suggest that will happen between now and mid-August. But from Dealers perspective as of today, that is not likely to occur next week.
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.
