Market Insights: Thursday, August 8th, 2024.

The market initially fell overnight, getting close to testing Monday’s lows before finding comfort with the 8:30 am ET Weekly Jobless Claim data, which came in much lower than forecast. This eased fears of an impending recession and market participants pushed prices up in the premarket with SPY gapping up over $5 at the open. The market continued to move higher, finding resistance at $528, where it traded for several hours before breaking out higher to close up 2.31% at $530.65 just shy of the high of the day. The Nasdaq moved higher as well, gaining 2.86%, while the DOW rallied 1.84% with IWM also rising 2.4%. To be expected all Mag 7 stocks and NVDA rallied significantly as investors piled back into the tech and related trade. Volume for SPY was higher than average at 61.99 million shares.

10-year Treasury yields continued to rise, gaining .61% with yields at 4%. Again, our model suggests the longer end of the yield curve will continue to rise. Crude gained 1.17% and is back over $76. Gold moved 1.36% higher while Bitcoin had a huge day, jumping 8.22% with price just shy of $60K. We continue to remain bullish Bitcoin above $60K and are bullish Gold and Silver.

In Wednesday’s newsletter, we stated today the market would continue to trade between major support and resistance levels and it was highly probable the market would break yesterday's lows and move back toward the lows from Monday. We saw this in the overnight session with prices breaking Tuesday’s lows and moving to within a few dollars of Monday’s lows. In fact, before the 8:30 am ET unemployment report, the market was resting at the important $518 to $520 level after testing lower overnight. We additionally stated we saw the possibility that the market would again attempt to reclaim the $528 level, which is exactly what it did in the morning session. We also stated the $528 level, having been tested several times, would no longer be as reliable as it has been. This means as a resistance level, it would not keep price from moving through it as well as it did previously, which is why price reached $531. Finally, we stated today’s range would be large and that Dealers saw the market moving to $530 or slightly higher. Check and check on both accounts. We state often when new information is released to the market, trade what you see. While the market looked bleak yesterday, and did move lower overnight, new information quickly changed market participants’ view and the market had one of its’ best days in some time. As stated yesterday, when the market moves up and closes down, that is bad for Bulls. Today was the opposite; the market opened lower and moved higher, closing at the highs of the day. This is good for the Bulls. Our model’s levels continued to work like a charm and when price moved through yesterday’s resistance level at $521.35, this level now became support. On the retest of this level at 9:50 am ET, the trade was to go long to resistance at $528 to $530. This is trading what you see and understanding how market dynamics shift on the introduction of new information.

In the premarket at 8:28 am ET our model did not have the benefit of the good news from the unemployment report. As such this morning’s analysis delivered much the same information as the post market recap from yesterday. We stated there was little evidence of much upside speculation and that all signals point downward. We did, however, state that the unemployment report being released will move the market and create more action. And this is what happened. Again, trade what you see. This is why we attempt to educate and train you not to simply rely on trading signals or our model’s levels. Most of the time, the information we provide is extremely accurate…better than 70% of the time. But the other 30% of the time, particularly when new information is released, you the trader need to use the knowledge we are attempting to instill in you to make proper decisions. Today was one of those 30% days. Surely using tools like our Market State Indicator, which adjusts in real time, helps tremendously, as you will see below.

There are no economic news releases tomorrow. Given today’s move, the probability price will move higher has increased materially. Not that the Bears have lost control; simply that the tug of war between Bulls and Bears is likely moving the trading range to higher levels. $525 to $550 is now the likely range for the market over the next week. Our model suggests the market will continue to trade between major support and resistance levels with $530 the dividing line between major resistance and major support. A push tomorrow to $535 on any volume and the model will look for resistance initially at $538 and then at $550. For Friday it’s very important to watch what transpires overnight and in the premarket to determine if tomorrow the market will follow through on today’s rally, or is today’s move simply a dead cat bounce. Should $525 fail to hold, the market will likely move back to at least $520. But like April, after a large reversal day, one day to pause and retrace a bit is normal and perfectly healthy. SPY is currently in the upper half of the Bear trend channel in place since the market highs. There is room to $538 before price will likely stall and pull back. The 200 DMA is still below at $500 as a magnet for price. But for Friday, our model suggests more two-way, range bound trading as volatility continues to come out of the market. Below $520 the market will attempt to once again retest $510. We recommend only shorts below $520. Between $525 and $530 there should be opportunities to trade both long and short. Above $535, there is the likelihood prices reach $538. We recommend reviewing the premarket report Friday 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 Bullish trending market state with extended targets above. Price is at our extended targets, yet the targets continue to print, even in the post market. While we tend to favor a mean reversion short from the $530 level, as our readers know, we do not recommend mean reversion trades as long as extended targets continue to print. There is a possibility prices will move higher tomorrow, and the indicator will rescale higher. That said, the indicator did not rescale higher since just after the open and it’s possible there is an interim top at $530 for tomorrow which would favor a mean reversion short. For Friday, our model projects a range of $522 to $539.50 (white box on chart), which shrunk considerably from today. Still this is a large range but much smaller than the last several days. Traders should be prepared for two-way price action on Friday with some large moves thrown in for good measure. Absent any macro event, we favor two-way, level to level trading which favors the long side and do not recommend a mean reversion short as long as the upper extended target is printing. Should price fall overnight, support is $528 and $525 where we would initiate longs. 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 Friday to the upside has Dealers selling $532 to $540 Calls. The $532 to $539 Calls being sold are in tiny size while Friday’s $540 Calls are being sold in size. This implies a belief by Market Makers the market could rally to as high as $540 on Friday. Positioning is thin as many options were exercised ITM today. To the downside Dealers are buying $528 to $520 and lower strike Puts in ratio 1:1 to the Calls they are selling. This implies a balanced to slightly bullish view of the market with little downside risk on Friday.

Looking to next Friday, Dealers are selling $549 to $553 and higher strike Calls while also buying $530 to $547 Calls in size. This implies Dealers believe the market will rally next week to as high as $550. To the downside Dealers are buying $528 to $510 Puts in a 3:1 ratio to the Calls they are buying/selling. This ratio implies little concern about lower prices next week. Instead, Dealers are positioned for a more balanced market trading between major levels, again in line with our model’s projections.

Dealer positioning changes daily, therefore we recommend checking the premarket analysis on Friday 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.