Market Overview

Today, the stock market rally lost some steam as the S&P 500 and Dow slipped from their record highs. Despite some early gains, all three major indices closed mixed as investors continue to debate the health of the economy and the likelihood of another major rate cut. Concerns about the potential for a recession were heightened by a weaker-than-expected consumer confidence report. Additionally, the focus now turns to tomorrow’s second-quarter GDP report and Friday’s important PCE inflation reading, which is the Federal Reserve's favored inflation gauge. On the data front, new home sales in August declined, following a sharp rise the previous month. This drop is attributed to high mortgage rates and elevated home prices, which have kept many buyers on the sidelines. However, mortgage applications surged to their highest levels since 2022, driven by homeowners looking to refinance their loans amid falling interest rates and its possible as rates continue to fall, real estate activity at the retail level picks up significantly which possibly reignites inflation.

SPY Performance: SPY opened slightly lower today at $571.14 but faced a choppy session, reaching a high of $571.89 and a low of $568.91. Trading volume was lighter than usual, with just 33.18 million shares traded. SPY ended the day down 0.22%, closing at $570.04, as investors awaited upcoming economic reports. The market appears to be in a holding pattern as it digests recent gains and awaits more substantial catalysts.

Major Indices Performance: The Dow moved lower by 0.70% while the Nasdaq climbed slightly by 0.06% with the Russell 2000 losing 1.21%. The broader market continues to feel the impact of concerns about economic growth and the potential for further interest rate cuts.

Notable Stock Movements: The "Magnificent Seven" stocks were once again mixed with Amazon (AMZN), Google (GOOGL), Apple (AAPL) and Netflix (NFLX) losing ground while the others rallied, including NVIDIA which was up today 2.18%.

Commodity and Cryptocurrency Updates: Crude oil fell 2.49% while Gold rallied to a new high, up 0.26% with Bitcoin falling 1.73% remaining above $63K.

Treasury Yield Information: The 10-year Treasury yield rose 1.44% to close at 3.791%. 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 market continues to tread water as it awaits key economic data tomorrow. With the Bulls still in control, we continue to favor positions in Gold, Silver, and Bitcoin above $62K. While SPY remains strong, it may struggle to break above $573 without a major catalyst. We expect the market to continue consolidating until tomorrow's GDP release, after which we could see a breakout in either direction. Defensive positioning remains wise as volatility looms.

Previous Day’s Forecast Analysis

Recap of Previous Forecast: In yesterday’s newsletter, we predicted that SPY would stay within a tight range, with $573 serving as a major resistance level. We also noted that any dips toward $567 would present buying opportunities.

Market Performance vs. Forecast: Today’s session played out largely as expected, with SPY struggling to break higher but remaining within the anticipated range. Today’s price action confirmed our forecast, with SPY opening slightly lower. The low volume and lack of major news kept the market from making any substantial moves today, while intraday dips toward $569 provided opportunities for nimble traders to buy. SPY’s closing level of $570.04 was right within our expected range, and the Bulls continue to have the upper hand. We favored long trades over shorts however were open to mean reversion shorts from overhead resistance at $571. This set up nicely after the open with a double top which fell to the day’s lows where tactical longs also worked out back to the $570 level.

Final Thoughts: Once again, we saw the importance of watching key levels, as SPY respected support around $569 and struggled with resistance at $571. Today’s consolidation leaves the market well-positioned for a potential move after tomorrow’s GDP report. As always, we recommend keeping a close eye on key levels and maintaining a disciplined approach. Dips continue to be bought and while today was a red day, it was just slightly so. Probabilities continue to favor higher prices. The Bears are still not participating in any of these minor sell offs. There is sufficient energy stored with four days of consolidation where Thursday could provide more clarity to the future direction of the market. Without having the benefit of GDP on Thursday, probabilities continue to favor a break higher to at least $573. It’s also quite possible when SPY finally breaks lower, as we have stated for several days, price retests the lows from FOMC at $560 to trap Bears. Our model forecasts a VIX spike and a $10 sell off day coming within the next two weeks.    

Premarket Analysis Summary

Summary of Key Levels Identified: In today's premarket analysis at 8:03 am ET, we stated the market had an underlying desire to rise but was hesitant to take a major step. We anticipated a “jump and retreat” move which favored longs from $570 to $571.40 and below $570 we favored shorts to $569.10 where we would favor buys. Critical levels: Resistance at $571.40, support at $569.10, dividing line, $570.

Validation of the Analysis: The premarket analysis set up the perfect short after the “jump” to a double top and “retreat” to the lows of the day with the model forecasting virtually to the penny the day’s lows. And reversing long worked all too well back $570. The long trade actually set up twice in the afternoon session for nice gains on the day. Once again, three highly profitable trades showcase the power of these twice daily newsletters. Planning your trading session around these analyses will provide the directional bias and major levels to trade every single day.  

Looking Ahead: Economic News Releases

Summary of Upcoming Economic Data: Tomorrow’s economic calendar includes the second-quarter GDP report and unemployment claims, followed by a speech from Fed Chair Jerome Powell.

Anticipated Market Impact: The GDP report and Powell’s comments will be the key drivers of market movement tomorrow. Any surprises could lead to significant volatility, especially given the market's sensitivity to economic data and interest rate expectations.   

Guidance for Traders: VIX remains below 15.5. As we head into tomorrow, expect heightened volatility around the GDP report and Powell’s speech. Traders should prepare for potential sharp moves in both directions and adjust their positions accordingly. We continue to advise observing the market’s reaction to our major levels of $560, $566, $570, and $575. The situation in the Middle East is becoming much more concerning and at some point, will be priced into the market. As with all economic releases, be prepared to trade what you see on Thursday as well as Friday after PCE.      

Thursday’s Forecast

Market Sentiment and Key Levels: Control resides with the Bulls with SPY hovering just above the $570 dividing line. Tomorrow’s data could push prices higher or send the market back toward support at $566. Keep an eye on key levels between $567 and $573. Options data remains Call dominated with $571 building as major overhead resistance. Should $569 be breached to the downside, the market will trade to $566 and perhaps as low as $560. Above $571 the market will find resistance at $573 and then $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: We expect SPY to trade within a tight range overnight, with tomorrow’s action depending largely on the GDP report. If the market breaks above $573, we could see a run toward $575. On the downside, support at $567 should hold unless there is a significant negative catalyst. Today was the first red day in four but did little to move the needle. A strong GDP report should push price tomorrow to at least the all-time highs at $572.88. The Bulls want to break this level this week to move out of the current trading range. A poor GDP reading could move price lower quickly as 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: For tomorrow, we favor buying any dips toward $567, with stops placed just below support. Short trades from $573 are also recommended, as resistance remains strong at that level. Keep risk management tight and avoid getting caught in any sharp moves following the GDP report. Absent GDP information, we continue favor mean reversion shorts from $573 and higher and longs from $567 and lower.

Risk Management and Warnings: Our model’s projected range for Thursday has increased 50% from today implying an expanded range and trending price action for Thursday.     

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 Thursday of $565.75 to $574 implying trending price action for Thursday as a result of the volatility anticipated from GDP release.

Market State Indicator (MSI) Forecast

Current Market State Overview: The MSI is currently in a Ranging Market State with price closing just above mid-range. This is a transitionary state and as such price could move either way. But with Bulls in control of the market, there exists the likelihood that price will move out of this range to a Bullish Trending Market State sometime overnight, in anticipation of a positive GDP report. The current range has increased in size implying market participant uncertainty, with MSI support at $569.63 and resistance at $570.68.  

Key Levels and Market Movements: At the open the trend appeared quite strong with the MSI in a Bullish Trending Market State as extended targets printed above price. But quickly these ceased printing and after a textbook double top, the market fell. MSI users knew to sell the morning rally from $571 to $569 and lower. As the MSI shifted to a Bearish Trending Market state, several extended targets printed below price as the MSI rescaled lower several times. This implied a very strong trend which kept MSI users out of long trades, holding onto short positions as the market continued to fall. At the day’s lows, extended targets no longer printed and the market set up two failed breakdown long trades which played out perfectly.

Trading Strategy Based on MSI: With the MSI in a Ranging Market State and with Bulls in control of the market, we favor long trades from support with the market moving back to $571 and beyond with mean reversion shorts from overhead resistance as long as there are no MSI extended targets printing above price. The $569 - $570 zone continues to be chop filled however we suspect this range expands on Thursday, providing many more trading opportunities. Using the MSI to provide updated levels in real time is invaluable, especially when economic information is released to the market. Therefore we continue to advise looking for trades from MSI levels which align with our major levels as we continue to favor long over short trades.

Dealer Positioning Analysis

Summary of Current Dealer Positioning: Dealer positioning for Thursday suggests Dealers are selling $571 to $577 and higher strike Calls. This implies Dealers believe the market will may rally on Thursday to as high $577, but with major resistance at $573 and $575. To the downside, Dealers are buying $570 to $565 and lower strike Puts in a 1:1 ratio to the Calls they are selling, implying a slightly Bullish view of the market for Thursday. Dealers have maintained their Bullish positioning from today heading into tomorrow.   

Looking Ahead to Friday: Dealers are selling $572 to $580 and higher strike Calls while buying $571 Calls. This implies Dealers believe the market may rally by Friday to as high as $580, with $575 acting as major resistance. To the downside Dealers are buying $570 to $560 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, implying a neutral view of the market for the rest of the week. This view has not changed materially from today. Dealers continue to hold plenty of downside protection below $560 should the market fall for any reason but are otherwise fairly optimistic prices will continue to trend higher.     

Recommendation for Traders: As we get to the end of September, the seasonally Bearish month has yet to play out, which is why we do not trade seasonal patterns. While there are still two days left to September, we start to look to October where there will be more opportunities for the market to move higher given this year is an election year. We continue to advise monitoring Dealer positioning each day as the market may shift quickly and decisively as we close out September. Our goal remains to provide actionable insights for navigating daily market conditions. Good luck and good trading!