Market Insights: Wednesday, August 7th, 2024.

The market rallied overnight on news the BOJ would not raise rates as long as markets remain under pressure. This came as a huge relief which saw the Nikkei reverse all of the losses incurred since last Friday. SPY opened up over $2 on the news and drifted higher, reaching $531.59 before market participants changed course realizing the unwinding of the $1T carry trade could push prices lower. And by 11 am ET, the market started to fall and continued to do so, accelerating to the downside to settle down .67%, right back to the major line in the sand at the $520 “zone”, closing at $518.66. Days with the market moving higher in the morning session, only to give up all gains and then some in the afternoon is technically very bad news for the Bulls. This pattern also presented yesterday, and until the market closes on or near its highs, the probabilities of lower prices continues to grow. Once again, $528 was a difficult level for the Bulls to reclaim and the pop to $531 set up a perfect failed breakout and double top for today’s reversal. The Nasdaq too saw similar action falling 1.03%, while the DOW fell .60% with IWM also falling 1.18%. The Russell has given up all of its gains this year. Mag 7 stocks had a mixed day with TSLA, META and MSFT as well as NVDA falling, while the others made small gains on the day. Volume for SPY was once again higher than average at 68.84 million shares, but certainly much lower than the last two days.   

10-year Treasury yields gained 1.55% with yields just shy of 4%. Our model predicted two days ago the decline in yields was overdone and continues to see yields moving higher. Crude gained 3.1% and is back over $75. We suggested yesterday that the Bulls were close to stepping in to support Crude. Gold fell .39% while Bitcoin declined once again losing 2.78%, hovering in the $55K range. We remain bullish Bitcoin above $60K and continue to remain bullish Gold and Silver.

In Tuesday’s newsletter, we stated today the market would continue to trade between major support and resistance levels until there was an external catalyst to move price. We stated the market will provide two-way trading, dipping lower overnight toward $517, then attempt to rally toward $528. And after yesterday’s close, the market did move lower to $519 where it remained until the premarket open. In the premarket, SPY gapped up and stalled once again at $528 until the regular session open when SPY popped higher, just like yesterday, before making a double top with a failed breakout. SPY then headed right back down to the lows of the day at $518, closing virtually on its’ lows. We were very clear in yesterday’s newsletter that we favored mean reversion longs off support, and recommended selling rallies in the $528 zone. We also stated to be prepared for large moves either way, given the elevated volatility. Finally we suggested selling $522.21 to at least $520.15. Those who do not trade overnight missed the mean reversion long…no worries. The pop to $531 in the morning session should have been viewed by all as fake breakout with a double top and sold. Even after the market fell to $520, it rallied once again to $522, where we recommended selling to $520. This trade set up perfectly in the last hour of the session. Direction, levels to trade, bias for the type of day, trades to look for and finally patterns to trade. These are all traders need to make money in the markets. And all of this is provided to you by the post and premarket newsletters. Anyone who has read these for some time should have come to realize how accurate and actionable this information is every single day. If you are not incorporating this information into your daily trading plan, speak with your advisor to do so.

In the premarket at 8:38 am ET we stated while the market saw a strong lift overnight, the evidence suggested the bullishness would be short lived. We stated the max upside for the day was likely $530.80 and that the market would struggle to get above $529. We also stated if the market rejected this level, we favored short trades targeting $526.40 initially and a lower target at $523.50. Once again you should have had two major takeaways from this premarket analysis: 1) While the post market stated $528 was major resistance, the premarket saw prices moving a bit higher to $530.80. The market in fact reached $531.59. This should have given you reason to expect the market to move beyond the overnight levels, but also given you confidence to sell the highs of the day, and 2) After the market initially sold off from the highs, it bounced off $526 which is in the same range as the $525.35 level stated in the premarket report. Should you have been inclined to take profits here, when the market moved back to $528, you should have used the opportunity to take a second short from the $528 level, which provided the biggest move on the day, blowing right through the $525.35 level to the lows of the day. Once again, the premarket report adjusted the post market levels, but moreover provided additional color on the way to trade the day, giving readers multiple opportunities to earn today. Again learning to combine the two reports will give you more confidence on your trading decisions, which will lead to greater profits and less stress.    

Once again there were no material economic news releases today. Tomorrow Unemployment Claims are due to be released premarket with not much else the rest of the day. We suggest you watch the price action after unemployment numbers are released to see how the market reacts. Otherwise, the market will continue to trade between major support and resistance levels like it did today. That said, the market has now bounced and tested $518 – 520 several times, as well as $528 - $530. As such these levels are less reliable than they have been all week. For Thursday, it’s highly probable the market will break yesterday’s lows and move back toward the lows from Monday. SPY is currently in the lower half of the Bear trend channel in place since the market highs. We felt today would be a “recalibrate” day meaning traders will decide if the market will continue to move lower, or has the pullback ended and the market will slowly move back to its’ highs. Our models suggests today’s recalibration further reinforces the odds of SPY revisiting the April lows at $493.86. With the 200 DMA below at $500, this target will act as a magnet to draw price lower. We continue to advise selling into rallies. Below $520 the market has little to keep it from retesting Monday’s lows at $510. Should $510 fail, $500 is the next major support level the market will seek. And again, below $500 the market dips to $494. With the market currently sitting at $518, the market will likely move a bit lower overnight. But we still see the possibility that the market attempts once again to reclaim $528. Because this level has been tested, we do not believe prices will get that high on Thursday. For tomorrow our model projects more two-way price action with more volatility from today, but with perhaps the bulk of that volatility coming to the downside. Market moves could still be quite large on Thursday. Given Bears control this market, we continue to favor shorts from overhead resistance at $526 and beyond this level at $528 to $530. We highly recommend reviewing the premarket report Thursday morning for updated information before the open.

Looking at a 2-minute chart of SPY with our Market State indicator, the indicator is currently in a Bearish trending market state with extended targets below. This implies the market will move lower to at least the extended targets at $516.72. The indicator was quite active today, rescaling higher overnight but moving sideways for several hours while printing overhead extended targets. But once those extended targets ceased printing, the market sold off quite vigorously. Our readers know when price reaches these extended targets but stops rescaling or printing extended targets, it’s highly probable the market will mean revert, which is exactly what happened today. The indicator then rescaled lower several times while printing extended targets indicating the strength of the herd moving prices lower. Again our readers know, when they see this indicator rescaling quickly with extended targets, the herd is pushing the trend and to ride it until price reaches one of our major support or resistance levels. For Thursday our model projects a range of $512.50 to $535 (white box on chart), increasing from today and continuing to predict an overly aggressive range. Traders should be prepared for large moves in either direction. For Thursday, absent any macro event, we favor two-way, level to level trading which favors the short side. We do not recommend mean reversion longs as long as lower extended targets are printing. Instead look for price to find resistance at $521.35 and again at $526 for shorting opportunities. For real-time updates to this information, we highly recommend utilizing the Market State Indicator to gain a material edge every day.

Dealer positioning for Thursday to the upside has Dealers selling $526 to $528 Calls, while also buying $529 Calls. They are also selling $530 to $533 Calls, and once again, buying $534 Calls before moving back to selling Calls at and above $535. This type of positioning displays major uncertainty in market direction by the Dealers. Market Makers want to be protected from any downside, and sell Calls to generate revenue to buy Puts, but they also want to participate in any upside but are uncertain where the market may find support or resistance. Clearly the $528 level is a level of resistance Dealers recognize. But above $528, Dealers believe prices could move to $530 or slightly higher. And above $533, Dealers believe $535 is in play. Again mixed at best with a high degree of uncertainty. To the downside Dealers are buying $518 to $510 and lower strike Puts in ratio 1:1 to the Calls they are buying/selling. This implies a somewhat balanced market without much additional downside risk. We believe Dealers are simply confused from the last few days action to have a strong conviction either way. That said Dealers are adding to their options positions but without a strong conviction which way the market will move. And as we stated yesterday, confusion = trading range.    

Looking to Friday, Dealers are selling $520 to $541 and higher strike Calls while also buying way out of the money $550 Calls just in case the market rips higher. At the same time Dealers are selling $511 to $500 Puts in 3:2 ratio to the Calls they are buying/selling, implying Dealers believe a potential floor in the market may be forming at $510. Dealers again have added quite a bit of options since yesterday. While Dealers are not positioned for substantially higher prices, a potential floor is in and Dealers believe the market will tread water, rather than make another major leg lower or higher. To the downside Dealers have significantly lightened their Put protection, again due to the market closing below $520 with many of yesterday’s options closing ITM. We believe Dealers will adjust their positioning first thing Thursday and add back significant Put protection below $510. As of today, this implies Dealers expect more sideways price action into Friday with the market stabilizing above $510.  

But Dealer positioning changes daily, therefore we recommend checking the premarket analysis on Thursday morning in addition to reading these post-market recaps to understand how Dealer positioning may 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.