Market Insights: Tuesday, September 24th, 2024

Market Overview

The S&P 500 and Dow hit fresh records, while Chinese stocks took off thanks to new stimulus measures by China’s central bank. After dipping briefly, stocks bounced back following a lower-than-expected consumer confidence reading. The Conference Board's index dropped to 98.7 in September, down from 105.6 in August, and missed economists' expectations of 104. Still, Wall Street’s September rally kept rolling, fueled by the Fed’s big rate cut last week. On Monday, several Fed officials hinted that more big moves could be on the way. Fed Governor Michelle Bowman explained her dissent to last week's half-point rate cut, saying she’s still concerned about inflation risks. But adding to the optimism, China launched its biggest batch of stimulus measures since the pandemic, which gave global markets and oil prices a boost. Chinese e-commerce stocks, like JD.com, surged, with JD's shares jumping nearly 14% after the news.

SPY Performance: SPY opened up just over $0.80 at $570.48 as the market continued to creep higher. SPY reached a high of $571.36 with a low of $567.60 in another sideways trading session. SPY closed the day at $571.30 in the green on a late day surge, up 0.29%. Trading volume was about average at 46.04M shares traded.

Major Indices Performance: The Dow continued to move higher by 0.20% while the Nasdaq climbed 0.57% with the Russell 2000 gaining 0.17%.

Notable Stock Movements: The "Magnificent Seven" stocks were once again mixed with Microsoft (MSFT) and Meta (META) losing ground while the others rallied, including NVIDIA which was up close to 4% today.

Commodity and Cryptocurrency Updates: Crude oil jumped 1.52% on Middle East fears and China stimulus while Gold rallied to a new high, up 1.33% with Bitcoin too rising 1.36% above $64K.

Treasury Yield Information: The 10-year Treasury yield fell 0.03% to close at 3.737%. We continue to forecast longer-term bonds moving higher with the market likely testing 3.4% before finding major support on its way back toward 4% long term. The bond market is forecasting a recession with its Bear steepening of the yield curve.  

Final Thoughts on Market Positions: The markets continue to consolidate after a strong rally the last couple of weeks and may continue to move slightly higher to sideways until an external catalyst forces the market to make a major move. The Bulls continue to own the market which, by historical standards, is overvalued. Prices are likely to continue to grind slowly higher until Thursday when GDP is released. We favor defensive positions in Gold, Silver, and Bitcoin above $62K with SPY expected to reach $573 in the near term making a new all-time high, before finding material resistance.

Previous Day’s Forecast Analysis

Recap of Previous Forecast: In Monday’s newsletter we stated the Bulls are driving the market higher with $570 as the dividing line between higher and lower prices. We stated key support continues to be $566 while $573 is major resistance. We continued to favor long trades over shorts but were open to short trades from major resistance and expected price to continue to consolidate on Tuesday in a tight range, providing two-way trading opportunities in a fashion similar to Monday.

Market Performance vs. Forecast: SPY opened at $570.48 again at the $570 level and immediately sold off to the lows of the day at $567.60. Once there, price formed a double bottom and reversed to the open price where it did nothing for the bulk of the day until the last thirty minutes when it pushed up closing just off the day’s highs. A tight range as forecast but one which provided a solid opportunity for profit from today’s lows. Both a double bottom and failed breakdown trade at major support at $568 provided the best trade of the day, given our hesitation to trade at the $570 level. The post market recap once again kept our readers out of chop by suggesting where to trade to and from and what to expect in terms of the day’s price action, focusing on long trades from major support to $570.     

Final Thoughts: The last three days have been very similar how price has moved with higher highs in a tight trading range. Dips have been bought and prices continue to grind higher favoring the Bulls. Bears are not participating and sell offs are driven only by profit taking. As price continues to grind slowly higher, energy is building and once this energy is released, price will jump one way or the other. Probabilities continue to favor a break higher to at least $573. Our model sees this as a distinct possibility by Thursday after GDP is reported in the premarket. It’s also quite possible when SPY finally breaks lower, it retests the lows from FOMC day at $560 to trap Bears. Our model continues to forecast a VIX spike and a $10 sell off day coming within the next two weeks with price moving through multiple support levels to attract unsuspecting Bears, only to reverse course and move back to the all-time high. But until then, our model projects higher prices with SPY reaching $573 at a minimum.    

Premarket Analysis Summary

Summary of Key Levels Identified: In today's premarket analysis at 8:22 am ET, we stated the market continued to be broadly Bullish with price being fragile at these levels. Above $569.10 we expected price to move toward $572 and favored longs from support. Below $569.10 we stated price would fall to $567.90 where we would favor longs. Critical levels: Resistance at $572, support at $567.90, dividing line, $569.10.

Validation of the Analysis: The premarket analysis provided very specific and exact levels to trade both long and short today. While we continued to favor buying dips, shorts below $569.10 matched the $570 dividing line in the post market and allowed for a mean reversion short at the open to support at $567.90 where a long was initiated. Long term readers know when levels align in both reports, load the boat as the probability of success increases. And sure enough, again today, short from $569.10 to support at $567.90 was easy money which panned out quickly. Then the long from $567.90 was too a great trade straight back to $570. Two highly profitable trades, taken in size once again showcased the power of these twice daily newsletters. If you are not planning your day around these analyses, you are doing yourself a tremendous disservice given the accuracy and power of the directional bias and major levels provided in these newsletters.

Looking Ahead: Economic News Releases

Summary of Upcoming Economic Data: Wednesday does not have any material economic news releases.    

Anticipated Market Impact: The market is waiting for GDP on Thursday and PCE on Friday before making a major move higher or lower. Without any news tomorrow, Wednesday is setting up to be another day like today with slightly higher prices overnight and a continued grind up.   

Guidance for Traders: VIX is now sub 15.5 as market participants continue to be complacent. We expect to VIX to pop to 30 at some point after the market puts in its long-awaited pullback. We continue to advise observing how the market reacts at our major levels of $560, $566, $570, and $575 with the situation in the Middle East being of major concern. The market, with the exception of Crude, is not pricing in a wider conflict and at some point, it will. Be forewarned.     

Wednesday’s Forecast

Market Sentiment and Key Levels: Control resides with the Bulls with $570 as a dividing line. For Wednesday, support continues to be $566 while $573 is major overhead resistance. Options data continues to be Call dominated. Should $566 be breached to the downside, the market will trade to $564 and perhaps as low as $560. Above $570 the market will find resistance at $573, while a break above $573 will stall at $575. Below $560 on volume will bring in significantly lower prices, but as we continue to reiterate, Bears will not fully engage until price breaks $550 therefore expect higher prices.

Expected Price Action: Today once again saw price move higher, closing on its highs, which should allow the market to push price tomorrow to at least the all-time highs at $572.88. The Bulls want the market to stay above $570 for several days to move out of the $566 to $570 range it has been stuck in the last three days. We expect chop to continue until Thursday with generally higher prices. We continue to forecast price moving between the major levels of $567 to 573 yet we continue to forecast a better than 60% probability price rolls over within the next two weeks with the market possibly retesting the $560 level.  

Trading Strategy: We continue to favor long trades over shorts as long as the Bulls remain in control. In a trading range, look for two-way trading from major levels. We favor mean reversion shorts from $573 and higher and longs from $567 and lower. We continue to advise caution trading around $570. We do not anticipate prices falling on Wednesday below $565 or rising above $573, and continue to favor longs on any pullbacks to major support levels. 

Risk Management and Warnings: Our model’s projected range for Wednesday is about the same as today, implying a tight and narrow trading range for Wednesday. Probabilities favor a sideways market with two-way, level to level trading.     

Model’s Projected Range: SPY is in the middle of the Bull Channel from the August lows with room both higher and lower. We forecast price remaining in this channel for the foreseeable future. Our model projects a range for Wednesday of $565.75 to $574 continuing to inch up slightly, but remaining tight implying sideways price action for Wednesday.

Market State Indicator (MSI) Forecast

Current Market State Overview: The MSI is currently in a Bullish Trending Market State with price closing just above upper resistance. There are no extended targets printing and were only a couple on the long side all day today. The MSI expanded its range slightly today therefore it implies prices tomorrow should continue to move higher.

Key Levels and Market Movements: There were no extended targets printing at the open therefore a mean reversion short from overhead resistance at the open had a green light. A double top from resistance at $570.85 set up perfectly right after the open which fell to MSI support at $568.08 once MSI entered a Bearish Trending Market State. But again, without extended targets below, after a double/triple bottom and a failed breakdown pattern, a mean reversion long from support set up a long trade back to overhead resistance initially at $568.87 with a trailer all the way to $570.86 by noon ET. The MSI then rescaled back to a Bullish Trending Market State and with a couple of brief extended targets above, verified the trend was long and to stay long into the close. This was rewarded with a late push to MSI overhead resistance at $571.20. Without any extended targets currently printing above, a mean reversion short from $571.20 has a 40% probability of success, with price reaching at least $570.42.

Trading Strategy Based on MSI: With the MSI in a Bullish Trending Market State but without extended targets above, we favor a mean reversion short from overhead resistance to lower support where we would initiate longs on any failed breakdown pattern. The $569 - $570 zone is chop filled and our model suggests trading in this zone has risks due to the narrow size of this zone. Therefore we continue to advise looking for trades from MSI levels that align with our major levels and favor long over short trades.

Dealer Positioning Analysis

Summary of Current Dealer Positioning: Dealer positioning for Wednesday suggests Dealers are selling $572 to $574 and higher strike Calls while also selling small quantities of $571 Puts. Dealers typically do not sell Puts unless they are extremely confident prices will move higher. This implies Dealers believe the market will continue to rally on Wednesday to as high $574, but with major resistance at $573. To the downside, Dealers are buying $570 to $565 and lower strike Puts in a 2:1 ratio to the Calls/Puts they are selling, implying a slightly Bullish view of the market for Wednesday. Dealers have shifted their positioning to more Bullish from neutral heading into Wednesday.   

Looking Ahead to Friday: Dealers are selling $574 to $580 and higher strike Calls while buying $572 and $573 Calls. This implies Dealers believe the market may rally this week to as high as $580, with $575 being major resistance. To the downside Dealers are buying $571 to $565 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a neutral view of the market for the rest of the week. This view has shifted from a Bearish view to a more neutral view. That said, Dealers have plenty of downside protection below $565 should the bottom fall out for any reason.    

Recommendation for Traders: We remind you that the last two weeks of September are seasonally the most Bearish of the year, therefore we advise monitoring Dealer positioning closely to anticipate potential market shifts and adjust strategies accordingly. Our goal remains to provide actionable insights for navigating daily market conditions so stay alert. Good luck and good trading!