Market Insights: Wednesday, August 28th, 2024.

SPY opened down @ $.25 seemingly starting the day as forecast, looking for nothing but chop and range trading. But this quickly changed at the 10 am ET hour as the market sold off with SPY reaching a low of $555.04 before finding meaningful support. Was it the raid Isreal launched on the West Bank, or simply investors jockeying for position before NVDA earnings. We will never know. But after dropping hard and fast, SPY found support at a major level and rallied to close down .58% at $558.30. The Nasdaq too fell, dropping 1.14% with the DOW shedding .39% and IWM losing .68%. "Magnificent 7" stocks all gave up ground today, including NVDA. Trading volume for SPY was light at 40.23 million shares. 10-year Treasury yields rose .5% with Crude falling 1.78%. Gold fell .54% while Bitcoin continued to fall, losing 4.5% to below $60K once again. We continue to remain Bullish Gold and Silver. Bitcoin is having a difficult time staying above $62K. As such our model has adjusted range for our Bullish view on Bitcoin to above $62K.

In Tuesday’s newsletter, we stated the market was likely to continue to trade sideways to slightly higher today on very low volume. And the market surprised with a sell off instead. It happens as our models are more than 65% accurate so today is one of those days where the model did not forecast today’s move correctly. What it did do, however, and has been doing forever is provide levels where the market will likely find major support and resistance. One such level is $555, which we have identified several times as a level above which the Bulls are in control. And to the penny once again, the market fell to this major level and reversed, setting up a perfect mean reversion long. Another level we identified was the $560 level where we stated a break of $560 and the market will trade to $557. Again this happened exactly as forecast. Finally we stated we favored a mean reversion short from $561.88 or higher and at the open and to the penny, this trade set up perfectly as well. So three for three, even with the model not forecasting the type of day correctly. The point is ALL of the information provided has material and actionable value. Do not focus on one piece or the other but learn to incorporate all into your daily plan. And certainly utilize our Market State Indicator (MSI) for real-time updates which once again today, was spot on.

In the premarket analysis at 8:21 am ET, we stated the market looked sluggish and sleepy without much conviction. Even in the hour before the open, this is what our model forecast. We stated above $560.90 we expected the market to move sideways and below, we forecast potential downside to $557.70. The $557 number once again showed up in our premarket analysis and was a good place to take profits from shorts above $560.90 as indicated both reports. As we state often, when both reports contain similar information, probabilities increase and entering the mean reversion short in size once $560.90 failed to $557 was certainly all a trader needed to make today a highly profitable day. Again all of this information is worthy of your consideration so we highly recommend learning to incorporate it all into your daily plan.

Thursday begins with GDP numbers and Unemployment Claims before the open. These two have the potential to rock the market either way. After the close today NVDA reports which will also have an impact on the market. Friday has Core PCE which too is another market mover so the quiet, sleepy market is likely to awaken and start moving after the close tonight with little to keep it from settling down the rest of the week. Trade what you see and be prepared for anything. Mark all major levels on your charts and know what is likely to happen should these break one way or the other. The Bulls defended the major $555 level today and kept control in their hands. But a break of $555 and we enter the DMZ where the Bears will remerge in earnest and attempt to move prices lower. This zone is $550 - $555 so a break below $550 and the Bears have an edge short term. At the other end of the spectrum a break above $560 on volume and we at least attempt to test the all-time high. These are the major levels every trader should be aware of and understand what happens when each one gives way. ALL support and resistance gives way eventually. Its your job to understand what that means when it happens. Volume was still light today and while the economic news due this week could be a market mover, any move prior to the Jobs report next month is likely noise. If NVDA earnings far exceed forecast, Thursday the market will resume its march higher. But if NVDA fails to impress, it could get ugly…or the market could just brush it off and wait for another catalyst, like the potential geopolitical risk from the Middle East. Trade what you see.

SPY remained out of the steep Bull channel from the August lows. The channel will be redrawn tomorrow if price continues to move sideways or fall. Price is below bottom tend line yet the Bull trend remains strong as long as price is above $555. We stated for a few days September may provide the Bears an opportunity to retest lower levels. But until $555 fails, expect more two-way trading with exacerbated moves either way due to the low August volume. We recommend reviewing the premarket analysis to receive the latest market updates prior to Thursday’s open.

Looking at a 2-minute chart of SPY with our Market State Indicator (MSI), the indicator is currently in Ranging Market State with price closing at the bottom of the range. The MSI opened the day in a Bullish Trending Market State without extended targets above. We stated we favored a mean reversion short from the $561 level when the MSI stopped printing extended targets. And this was a perfect trade, confirmed by the MSI. The MSI rescaled to a Ranging Market State and then quickly to a Bearish Trending Market State and started printing extended targets below. Users of this tool know this means a strong trend which should be hopped on and ridden to a major level. $557 was the first stop but the MSI continued to rescale lower and jumping on the break of $557 was another great spot to get on this short trade. The MSI did this once again, rescaling lower and printing extended targets so shorting $558 was another high probability trade to major support at $555. Once there, price put in a failed breakdown and given $555 is a major support level, and given the MSI stopped printing extended targets below, a quick mean reversion long back to overhead resistance at $557 made lots of sense. Once again, the MSI provided at least five great trades, all centered around the levels provided in these newsletters. If you are not using the MSI, you are foregoing multiple opportunities each day to bank profits.

In the MSI’s current state we favor long trades from support at $557.34 to resistance at $560.37. That said, price has closed at the low of the range. Lots of new information is due to be released into the market which will likely change the MSI overnight so we recommend using the MSI in real time and trading what you see. Should we retest $555 we favor a mean reversion long on a failed breakdown set up, assuming the MSI is not printing extended targets below. We would wait for a failed breakdown pattern or other bottoming pattern before entering a mean reversion long. For Thursday our model projects a huge range of $558.75 to $567 (white box on chart), expanding again from today, anticipating more volatility from NVDA earnings and the economic news being released tomorrow. The size of this range should be a warning to all traders that our model is not able to clearly define what will happen on Thursday. The move could be significant either way and we recommend caution for any long book. As we forecast for today, VIX popped above 17 so we expect trading on Thursday to be trending with large moves in either direction. Get with the trend and stay with it.

Dealer positioning for Thursday to the upside has Dealers selling $561 to $570 and higher strike Calls while buying small quantities of $560 Calls. This implies Dealers believe the market will attempt to move higher, but will likely fail to get above $565. To the downside, Dealers are buying $559 to $550 and lower strike Puts in a 5:1 ratio to the Calls they are selling implying a Bearish view of the market for Thursday. This positioning has changed materially from yesterday with Dealers adding much more downside protection.

Looking ahead to Friday, Dealers are selling $562 to $570 and higher strike Calls while also buying $560 and $561 Calls. This implies Dealers want to participate in any rally toward the all-time high by Friday. Dealers buy Calls to participate in any upside that may develop. That said they are no longer selling Puts, therefore their conviction of higher prices by Friday is lower today than it was yesterday. To the downside, Dealers are buying $558 to $550 and lower strike Puts in a 3:1 ratio to the Calls they are buying and selling. This implies some concern that prices may trend lower by Friday. Dealers are positioned both for higher prices, but also are protected from any decline. This positioning for Friday has changed from yesterday to a more Bearish view.

Dealer positioning changes daily, so we recommend reviewing our pre-market analysis on Thursday 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.