Market Insights: Friday, August 23rd, 2024.

SPY opened up over $3.25, once again within striking distance of the all-time highs, having drifted higher overnight. After a brief rally after Powell’s speech to today’s highs at $563.09, the market stumbled a bit and fell to support just above $557 before deciding Powell’s dovish comments were good news and SPY resumed its march back toward the highs, closing at $562.13, up 1.06%. Powell made it clear the time has come to cut interest rates, virtually guaranteeing a rate cut at the September FOMC meeting on September 18^th. The Nasdaq rallied 1.47% on the news while the DOW gained 1.14% with IWM up a whopping 3.19%. Every "Magnificent 7" stock as well as NVDA moved higher with the exception of META and NFLX. Trading volume for SPY was slightly below average at 50.64 million shares. 10-year Treasury yields fell 1.43% to 3.791%, with Crude rallying 2.64% closing just shy of $75. We stated for several days we were Bullish Crude and continue to believe Crude will move higher toward $78. Gold jumped 1.22% while Bitcoin blasted higher by 6.19%, closing right above $64K. We continue to remain Bullish Gold and Silver and Bitcoin above $60K. Our model suggests Bitcoin is ready to move to its all-time highs.

In Thursday's newsletter, we stated today would bring more volatility and to trade what you see after Powell’s speech. We stated we favored longs and stated the Bulls would vigorously defend the $555 area and recommended longs from this level. We also stated while the market would likely move higher overnight, our model did not anticipate it would reach the all-time highs without a deeper pullback first. We recommended trading light and to expect trending price action. And the market did move higher overnight, again attempting to reach the all-time high but quickly found resistance, forming a double top at today’s highs. After falling to $557, SPY set up a perfect failed breakdown which trapped shorts and quickly reversed back toward the day’s highs. On days like today our models should be used as guides rather than hard and fast levels from which to trade. Our lean was long, which certainly was appropriate, and mean reversion shorts from the highs were also appropriate given our belief the market would not reach a new high today. Trading what you see while loosely applying the post market recap information served traders best today. The Market State Indicator (MSI) once again was extremely helpful identifying the strength of the trend as well as levels to trade from. More below.

In the premarket analysis at 8:04 am ET, we stated the market looked to regain some of its composure lost yesterday and would move higher. We stated $556.85 was a level where we would favor longs moving toward the all-time highs. And once again, the premarket analysis added material and actionable information to yesterday’s post market recap with detailed insight into how to trade the day. The market did move higher, but when it fell to support at $557 where we recommended longs, this long trade was the best trade of the day. Again we recommended riding the trend which could not have been more appropriate. Once again, today is an example of why we provide two reports daily. When the reports are identical, navigating the day is fairly straight forward. When they differ, readers should take the general market view from the post market recap utilizing specific levels from the premarket analysis, given it has more recently updated information.

Monday has little news of substance therefore the market will likely take a day to digest the information provided this past week. The Bulls remain solidly in control and while today was good news for interest rate cuts, this information is already priced into the market therefore it’s likely the markets need an additional catalyst to push them materially higher. Without such a catalyst, it’s likely SPY will simply drift higher to the all-time high and perhaps slightly beyond, before pulling back. Our model suggests Monday the market will attempt to rally to the all-time high but will run into heavy resistance at $565. A break of $565 and the market will move toward $570. A failure of $560 and the market will trade to $555. Remember the $550 to $555 zone is still the battleground between the Bulls and the Bears so should price slip back into this area, the battle for control will resume. Until then however, the Bulls rule the markets and will seek higher prices. And we would be remiss if we did not continue to mention the potential geopolitical risks from the Middle East.

SPY continues to trade in a steep Bull trend channel from the August lows. The channel was redrawn slightly with the last four days sideways price action and will likely continue to flatten as price moves sideways to slightly higher. Price is trading along the lower tend line of this Bull channel with room to the upside. The Bull trend remains strong as long as price remains above $555. The seasonally weak September will be upon us soon therefore we recommended traders prepare for more two-way trading with perhaps more volatility in the first two weeks of September. We also recommend reviewing the premarket analysis to receive the latest market updates prior to Monday’s open.

Looking at a 2-minute chart of SPY with our Market State Indicator (MSI), the indicator is currently in Bullish market state with price closing at upper resistance. There are extended targets above. The MSI rescaled higher overnight to a Ranging state and then to a Bullish state after Powell’s speech. The MSI then oscillated between Bullish and Ranging states for several hours before returning to a Bullish state into the close. With the extended targets printing and the rescaling at the open, jumping on the trend long from $560 was highly appropriate. Once the extended targets stopped printing, seeking a mean reversion short also became appropriate. Falling back to $557 with the MSI in a Ranging state at 1 pm while price put in a perfect failed breakout was the opportunity to go long from this level, riding it back to the MSI upper resistance. When the MSI moves from a strong trending state to a Ranging state, traders should assume the Ranging state represents a pullback and @ mid-range, should expect price to return to the trending state from which it came. This developed perfectly at 10:30 am today. How did we know the trend was strong? The MSI printed extended targets which implied the “herd” was participating in the move. Notice when price moved back to the Ranging state at noon, there were no more extended targets printing therefore price continued to fall beyond mid-range. This second move into the Ranging state had a higher probability of pulling back further which is exactly what price did. But also recall, in a Ranging state, we buy support and sell resistance so the long at 12:46 pm was also a perfect set up. Learn to use the MSI in the manner described and our analysis of the accuracy of the MSI proves you will win more than 65% of your trades. Add the levels and actionable information from these newsletters and this win rate increases substantially. If you do not utilize the MSI currently, we highly recommend you contact your representative for more information.

In the MSI’s current state we favor longs from $560.46. We do not currently favor a mean reversion short given extended targets continue to print above. Its highly likely price will rally overnight to $563 or beyond where checking the MSI for extended targets is appropriate. If extended targets are no longer printing, we favor a mean reversion short to $560 as an initial target. The MSI is in a tight range which implies more sideways than trending price action. For Monday, our model projects a range of $555.50 to $566 (white box on chart), contracting from today further implying more ranging price action. VIX is back below 16 therefore expect two-way trading, favoring the long side.

Dealer positioning for Monday to the upside has Dealers selling $563 to $575 and higher strike Calls. This implies a ceiling at $568, should $565 break, which will not be an easy task on Monday. To the downside, Dealers are buying $562 to $558 and lower strike Puts in a 2:1 ratio to the Calls they are selling. This implies a balanced view of the market with little risk to the downside. We mentioned yesterday Dealers were ready for Friday’s rally and did quite well today with their positioning.

Looking ahead to next Friday, Dealers are selling $563 to $575 and higher strike Calls. This implies if $565 is breached, price will move to $570 where it likely peaks. To the downside, Dealers are buying $561 to $558 strike Puts while also selling $556 and $557 Puts. They are also buying $554 to $550 and lower strike Puts in a 2:1 ratio to the Calls/Puts they are selling. Again this implies a balanced view of the market with prices remaining above $555. Dealers continue to position for higher prices positioned for little weakness next week. Perhaps Dealers believe NVDA earnings on Wednesday will power the market to new all-time highs, or at least keep the markets from falling. Either way, Dealers currently are less concerned about weakness than they were earlier in the week.

Dealer positioning changes daily, so we recommend reviewing our pre-market analysis on Monday morning in addition to reading these post-market recaps. This will help you understand how Dealer positioning might influence the day's price action. The pre-market analysis is available by 9:15 AM, and these post-market recaps are posted each evening. Our goal is to provide you with actionable insights that you can apply to your trading every day. Good luck and good trading.