Market Insights: Tuesday, July 30th, 2024.

We had a minor technical issue yesterday with a software update and were unable to provide a post market report Monday evening. But our model is back online and we will do our best to recap both days in tonight’s report. Monday the market did not do much, finding resistance just above Friday’s highs and finding support above Friday’s lows. Monday was generally a range bound day without much action either way. Today however, was a different story. While SPY opened down just $.50, it rallied and attempted to break Monday’s highs and by 9:40 am ET, had reached $547.14. But the market failed to break above major resistance at $548, a level we have mentioned for days, and fell virtually straight down to $538.52, before reversing back to $543 just prior to the end of the day. But in the last two minutes of the day, SPY fell hard to $538.59, only to reverse course once again, closing down just .51% at $542. Certainly a wild ride for SPY heading into FOMC tomorrow. Driven largely by a selloff in megacap tech stocks, SPY fell after two back-to-back gains. The Nasdaq however fared much worse falling 1.3%, while the DOW rose .5% with IWM falling .38%. Mag 7 stocks as well as NVDA fell, with the exception of AAPL and GOOGL, which had positive gains. Volume for SPY was average at 46.59 million shares.

10-year Treasury yields fell sharply down .84% with yields below 4.2% while Crude continued its’ three-day slide, dropping .88%, closing below $76. Gold rallied 1.17%, moving just above $2400 with Bitcoin sliding .66%, moving below $66K. We remain bullish Gold, Silver, and Bitcoin above $60K.

In last Friday’s newsletter, we stated our model projected prices would rally attempting to overcome $548 before failing and falling to as low as $541. And while Monday price did in fact reach $548 in the premarket, it found major resistance as indicated and fell to $543. Today was virtually a carbon copy of Monday until 10 am where once again, the market attempted to rally beyond $548 only to fail, falling to @ $538.50. While you did not have the benefit of a report last night, knowing what the model projected for Monday should have been in the back of traders’ minds, seeing every rally as selling opportunity. Certainly today that mantra once again prevailed. We also stated on Friday $538 was major support and below this level, much lower prices, as low as $530, are in play. We stated for several days that $530 to $532 is a viable target for this pullback. And today once again provided a perfect failed breakout trade at 9:40 am ET which was textbook. With price up against major resistance at $548 and with this pattern in hand, today was a day to get short after the open and ride it to the lows of the day. Again, if you missed these posts that discuss this pattern, we highly suggest you review to learn this setup.

While today’s decline is not great news for the Bulls, they have successfully defended the $538 level for four days, drawing a line in the sand to the downside for the Bears to overcome. We suggest watching both these levels, $538 and $548, as major turning points in the market. SPY closed up against the upper trend channel in place from the all-time highs. And while Bears still have the edge in the current market, with FOMC coming out tomorrow, any surprise move from the Feds could change that quickly. The Bulls need to push above $550 on volume to change this market’s tune, otherwise prices will visit $530 at some point.

In the premarket at 8:17 am ET we stated the market looked postured very similar to Monday and while it wanted to move up, there was limited appetite to take that step. We suggested longs from good support levels, i.e. $538, and any failure from resistance would likely open up $542.70 as a minimum. The failure to break $548 after the open was a great place to short to at least $542.70, and surely a long off $538.50 was a good place to go long.

Today did not have any huge surprises in economic news but tomorrow there is plenty of information to digest. First up is ADP Non-Farm Employment in the premarket, followed by Pending Home Sales at 10 am and the biggie, FOMC at 2 pm ET. Surely this is a day to trade what you see as our model will not have the benefit of this information until after the fact. The Bear channel that has been in place since the market highs will be redrawn should price continue to move sideways. But we do not believe price will move sideways for too many more days given the amount of information due out tomorrow and the rest of this week will certainly push the market one way or the other. Coupling this with earnings from the likes of META, AAPL, AMZN, etc., it’s highly probable a direction chosen for the next major market move be it higher or lower. Every rally for the past several days had been an opportunity for market participants to unload high PE stocks. We see this pattern continuing perhaps several months, even with an interim reprieve. With price today closing at $542, probabilities for Wednesday favor the market attempting another overnight rally to $545 where it will likely trade sideways until FOMC at 2 pm. Tomorrow using the Market State Indicator will be extremely helpful to understand where the herd is positioned and how they react to FOMC. We recommend you check the premarket report for more updated information for Wednesday but also make sure you trade what you see and use the Market State Indicator to do so.

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 just above support. In this state we favor shorts off resistance at $540.70. But we suspect prices will rally above this level before the open and the indicator will flip to a ranging market state. As our readers know, a ranging state is a transition zone where prices tend to fall from overhead resistance and rally from lower support. Given today spent much of the day in a Bearish trending state, rescaling lower several times and printing lower extended targets, indicating a strong Bear trend, it’s probable the market will find a level of resistance, perhaps as high as $545 before selling off once again. Therefore for Wednesday we favor shorts off $545 or other major resistance levels to at least $540, and perhaps to as low as $538. Should $538 give way on volume, ride the trend as there is a high probability a failure of $538 will lead the market to $532 or lower. And the opposite is likely true on at first a break of $545, with small longs to $548. But any major move above $548 that gets to $550 would put an end in the short term to the Bear market. Once again, the Market State Indicator provided actionable information for the day which allowed traders the confidence to trade today’s action both ways. For Wednesday, our model projects a range of $532 to $552 (white box on chart), which is a massive range. This implies heavy trending price action due to the volatility expected from FOMC. We did state Monday would be a consolidation day which is what the market delivered but for Wednesday, our model sees some consolidation in the morning but more likely a day where one side will dominate the other and the market will trend potentially to levels not seen in some time. 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 Wednesday is not providing much information given the late in the day sell off cleared many options positions. But what we do see is to the upside Dealers are selling $550 to $557 and higher strike Calls while also buying $543 to $549 Calls. Dealers are pretty evenly balanced between buying and selling Calls which implies if the FOMC provides any good news, the market will rally, but find resistance at $550 to $552. To the downside Dealers are buying $542 to $538 Puts in a 2:1 ratio to the Calls they are buying/selling, implying a balanced view of the market for Wednesday. Our model does not agree with this assessment, and it’s likely due to options getting exercised today just before the close. We believe Dealers will load up on Puts at the open to further protect from any downside tomorrow.

Looking to Friday, Dealers are selling $552 to $560 and higher strike Calls, while also buying $542 to $551 Calls. They are selling Calls in a 2:1 ratio to the Calls they are buying. This positioning implies the potential for a rally by Friday to at least $552, possibly breaking above the $550 line in the sand we keep mentioning. Remember $555 is the level where Bulls firmly take control of the market. To the downside Dealers are buying $542 to $535 and lower strike Puts in a 5:1 ratio to the Calls they are buying/selling. This positioning is bearish and implies should $538 fail to hold, the market will move lower to at least $535. Dealers remain concerned any rally will continue to be sold.

But 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.