Market Insights: Monday, September 30, 2024

Market Overview
Today, the U.S. stock market closed out September on a high note, with all three major indices gaining ground. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite surged as investors digested favorable economic reports and optimism surrounding future Federal Reserve policy. The U.S. Consumer Confidence Index came in higher than expected, boosting market sentiment. Wall Street also responded positively to commentary from Federal Reserve Chair Jerome Powell, signaling that while further rate cuts are on the table, the central bank remains committed to fostering economic stability. Crude oil prices rose slightly amid easing supply concerns, while Gold edged lower on reduced safe-haven demand.

SPY Performance
SPY opened at $570.42 and moved within a range of $568.08 to $574.38 during the session. Despite a brief pullback mid-day, SPY closed at $573.76, up 0.40% for the day. Volume was notably higher than average at 59.33M shares traded, a sign of increased investor activity as traders positioned themselves ahead of upcoming economic data releases. Key levels to watch moving forward include resistance at $574.75 and support near $570.

Major Indices Performance
The Dow was flat for most of the day but managed a late surge, closing with a 0.04% gain. The tech-heavy Nasdaq outperformed, rising 0.27%, while the Russell 2000 gained 0.25%. Investors showed a renewed appetite for riskier assets, supporting small-cap stocks despite broader market volatility.

Notable Stock Movements
The "Magnificent Seven" stocks had a good day overall. Apple (AAPL) and Google (GOOGL) led the charge, with gains of 2.24% and 1.15%, respectively, while Amazon (AMZN) was the only stock in the group to close in the red, slipping 0.87%. NVIDIA (NVDA) was flat on the day.

Commodity and Cryptocurrency Updates
Crude oil edged higher by 0.25%, while Gold slipped 0.49%. Bitcoin took a sharp downturn, losing 3.20% to close just below $64K. The crypto market faced headwinds today, contributing to the decline.

Treasury Yield Information
The 10-year Treasury yield edged higher by 0.97%, closing at 3.785%. Investors continue to anticipate further interest rate cuts from the Federal Reserve, and the bond market remains a critical indicator of future economic expectations. Treasury yields will likely remain volatile in the near term as the market evaluates inflation risks and upcoming Federal Reserve policy actions.

Final Thoughts on Market Positions
Given today’s market performance, we continue to see strength in the equity market despite mixed data in commodities and cryptocurrencies. Our focus remains on sectors showing resilience, especially in the tech-heavy Nasdaq and SPY. Gold has shown some weakness, but we still favor Bitcoin above $62K as a potential long-term play. Crude oil’s slight upward movement keeps us neutral, with no major positions expected until a more significant trend develops. As always, it’s crucial to stay flexible and adjust positions according to key market levels and movements. The market's near-term direction will hinge on upcoming economic data, particularly this week's ISM Manufacturing PMI and JOLTS Job Openings reports. Traders should remain cautious and continue to monitor key support and resistance levels, especially in SPY and the major indices.

Recap of Previous Forecast
In Friday's newsletter, we expected the Bulls to maintain control, particularly if support at $570 held. We noted key resistance at $575 and predicted that any successful break above this level could see SPY move quickly toward $578. However, we also warned that failure to hold the $570 level could lead to a pullback as deep as $566, especially if Monday’s economic data surprised to the downside. Our forecast for the SPY price action suggested trading in a range of $570 to $575.50, with potential for a breakout above $575 if buying pressure increased. We also highlighted the possibility of consolidation or a downside move toward $566 if the $570 support level failed. Additionally, we emphasized that the market could see heightened volatility following key economic reports, particularly the PMI, and suggested long trades from support at $570, while short positions from resistance at $575 would remain viable.

Market Performance vs. Forecast
Friday’s forecast anticipated that the SPY would trade within the range of $570.50 to $576.25, and we projected resistance near $575. SPY indeed tested the forecasted range, opening around $571.50 and reaching as high as $574.38, just below our projected resistance. By midday, SPY saw a pullback to the lower end of the forecasted range, testing support at $571 before selling off to the lows of the day at $568.41. A break of $570 as forecast led to lower prices and given, we favored longs for today, a buy after a perfect failed breakdown trade near the lows was exactly as forecast. We continue to reiterate in a choppy market, looking for failed breakout and failed breakdown trades is an excellent and simple way to find points where the market will reverse course. Today was no exception. The market demonstrated a bit more volatility today than expected, but the predicted key levels were respected throughout the day. This confirms the usefulness of the provided levels in navigating choppy trading conditions, and traders were able to capitalize on both the resistance and support plays outlined in the premarket analysis.

Final Thoughts
Friday’s forecast played out with impressive accuracy, as key levels identified in our premarket analysis provided traders with effective entry and exit points throughout the day. Despite some unexpected volatility, the forecasted range held firm, allowing traders to capitalize on both resistance and support levels. This further reinforces the importance of planning trades with a clear understanding of the market's technical boundaries. As we move into Tuesday, our focus remains on the same key levels, while staying vigilant for potential volatility that could impact these levels.

Summary of Key Levels Identified
In today’s premarket analysis, posted at 8:09 AM ET, key levels were identified both above and below the SPY’s spot price of $570.30. The main targets above included $572.35 and $574.75, with resistance expected around those levels. Below, we anticipated $570 as a critical level, followed by $568.60 and $567.20 as further support areas. The overall expectation for the day was moderate movement, with the market generally tied to the $570 level, and a tendency towards chop around that level unless a breakout occurred above $574.75 or below $567.20.

Validation of the Analysis
The premarket analysis for today proved to be accurate in its identification of critical levels. SPY remained tightly bound around the key $570 level for much of the session, with no significant breakout above $572.35 or breakdown below $567.20. After opening just above $570, SPY tested the upper resistance of $572.35 but was unable to break through, confirming the resistance as anticipated. Support held firm at $570 during mid-morning, as predicted, with no further downside breach. The afternoon saw a quick sell off which fell virtually to the penny to our lower target of $568.60, where again, the perfect failed breakdown long set up. The day was largely defined by the expected chop except for a quick sell off in the 2 pm hour and the very late in the day rally to the day’s highs. The accuracy of our premarket levels and the value of following these targets made today a very easy day to trade in an otherwise challenging environment.

Summary of Upcoming Economic Data
Tuesday brings the ISM Manufacturing PMI and JOLTS Job Openings reports, both critical for gauging economic activity and labor market conditions. Additionally, several Federal Reserve officials are scheduled to speak, which could further influence market sentiment. On Wednesday, the focus shifts to the ADP Non-Farm Employment Change report, providing an early look at employment trends ahead of the official numbers later in the week. Thursday will deliver the Initial Jobless Claims and Factory Orders reports, offering further insights into employment and industrial demand. Finally, Friday will feature the highly anticipated Nonfarm Payrolls and Unemployment Rate reports, likely creating significant market reactions.

Anticipated Market Impact
Tuesday's ISM Manufacturing PMI and JOLTS Job Openings reports could provide significant market direction, especially if they show unexpected shifts in manufacturing activity or labor market conditions. The market remains highly sensitive to any data that suggests changes in the economic outlook, especially given the current focus on inflation and potential interest rate adjustments. The Fed speeches could add to the market's volatility as traders look for clues about future monetary policy. Any hawkish or dovish remarks could lead to significant intraday movements. Wednesday’s ADP Non-Farm Employment Change report will likely serve as an early indicator of how the labor market is performing ahead of Friday’s more comprehensive nonfarm payroll data. As for Thursday’s Initial Jobless Claims and Factory Orders, these reports will be watched for signs of economic resilience or weakness. The market could react strongly if the data deviates significantly from expectations. Friday’s Nonfarm Payrolls report will be the main event of the week, with the potential to influence market sentiment heading into the next trading week.

Guidance for Traders
As we head into Tuesday’s trading session, traders should prepare for potential volatility around the ISM Manufacturing PMI, JOLTS Job Openings, and speeches from several Fed officials. With key economic data and statements from the Federal Reserve on tap, intraday movements could be sharp and unpredictable. Traders are advised to closely monitor these reports and be ready to adjust their positions accordingly. Be sure to trade what you see after these reports are released into the market. Wednesday’s ADP Non-Farm Employment Change will likely add to market volatility, leading up to the main event of the week, Friday’s Nonfarm Payrolls report. With such high-impact data releases throughout the week, caution is advised, particularly around these times. Given the heightened potential for market swings, we recommend maintaining flexibility in trading strategies, using well-defined stop-losses, and remaining agile in response to changing conditions.

Market Sentiment and Key Levels
As of Monday’s close, SPY is trading around $575, which is heavy overhead resistance. Price is likely to pullback from this level overnight with immediate support between $570 and $573. The bulls have defended this zone, but any sustained move below $570 could open the door to a deeper pullback toward $566. On the upside, a break above $575 and the market may be signaling a continuation of the bullish momentum, potentially pushing SPY towards $580. The market sentiment remains cautiously bullish, with traders eyeing these key levels for any potential breakouts or breakdowns. The bears will be focused on breaking below the support zone, while the bulls will aim to reclaim and hold above $575 to set up a move higher later in the week.

Expected Price Action
For tomorrow, we anticipate that SPY will trade within the $570 to $575 range, with a bias toward testing both of these boundaries. If bulls manage to push above $575, we could see SPY aiming for the $580 level, which would indicate strong bullish momentum. However, if bears take control and break below $570, the next significant support lies near $566, which could result in a pullback. Expect price action to be driven by economic data, particularly the ISM Manufacturing PMI and JOLTS Job Openings reports, along with the speeches from several Fed officials. These releases could trigger volatility, especially if they differ from expectations. Keep an eye on how SPY reacts to the key levels mentioned, as breaks in either direction could set the tone for the rest of the week. SPY has not had more than three red days in a month and it is due for a quick and violent pullback. Our models suggests this could come at any time and possibly one day this week.

Trading Strategy
For Tuesday, we recommend a cautious approach given the upcoming economic data releases. The primary strategy would be to look for long entries if SPY holds above the $570 level, with a target around $575 and $580 as an extended upside target. Consider tightening stops as SPY approaches the $575 mark, as this area may act as a resistance zone. If momentum is strong and volume supports a breakout above $575, holding for a test of $580 could be profitable. On the short side, consider entries if SPY fails to hold $570, with downside targets at $566 and potentially $560 if selling pressure increases. However, be cautious of sharp recoveries as volatility could spike with the economic releases. We continue to favor mean reversion trades from both end of this trading range. Overall, it's important to react quickly to changes in sentiment around the economic data, using levels like $570 as key pivots for either long or short trades. Ensure tight risk management, especially around volatile periods, and adjust stop-losses according to the strength of the moves.

Risk Management and Warnings
Be mindful of increased volatility tomorrow due to the release of the ISM Manufacturing PMI and JOLTS Job Openings report. Additionally, several Fed speakers throughout the day may cause unexpected market swings. It's important to be cautious around these events, as sudden movements can lead to both quick gains and unexpected losses. For long positions, consider tightening stops as SPY approaches $575. On the downside, if SPY breaks below $570, be ready to close long positions or shift to shorts with stops placed above $570. Always remember that volatile markets require a more conservative approach to risk management, especially when trading around key economic releases. Be prepared to step aside if the market behaves erratically, and never force trades during uncertain conditions. Maintain flexibility and be ready to adjust positions if the market exhibits unexpected moves following the economic data releases or Fed commentary.

Model’s Projected Range
Our model projects a range of $567.75 to $576.50 for Tuesday. The range is relatively tight, suggesting we might see continued consolidation throughout the session. However, potential market catalysts, such as the upcoming JOLTS Job Openings data and several speeches from Federal Reserve officials, could result in volatility that might drive prices to test either end of the range. Traders should remain cautious, particularly if SPY approaches key support or resistance levels near $570 and $575, respectively. As always, the possibility of a breakout remains if market conditions align with positive economic data or unexpected developments. In a ranging market we favor looking for failed breakout/breakdown patterns.

Market State Indicator (MSI) Forecast
Current Market State Overview
The MSI is currently in a Bullish Trending Market State with price closing well above upper resistance. There are no extended targets printing, and only a few scattered throughout the day both on the long and short side. The MSI expanded its range slightly today, implying prices tomorrow should continue to move higher.

Key Levels and Market Movements
The MSI opened in a Bearish Trending Market State and price bounced around until moving into a Ranging Market State. In this state our users know to sit on their hands and wait for price discovery. Once $571.20 failed around 2 pm ET, the MSI was clearly indicating a good short trade given the probability of price reaching $570 was close to 70%. Price quickly hit the other side of the MSI with extended targets printing below, indicating the herd was participating in the move lower. Finally when price hit MSI support at 568.41 and stopped printing extended targets below, we had a green light to go long on a failed breakdown pattern all the way into the close. Easy money with two great trades set up by the MSI.

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. Woth support currently at $573, its likely price moves through this level lower before finding major support. The $570 to $575 zone is simply chop and as such, we want to use our failed breakdown/breakout pattern to initiate trades unless they are the extreme levels our model indicated. $566 and $575 are these extreme levels. Trades in between these levels should be verified by using our favorite pattern to reduce risk. The $569 - $570 zone is chop-filled, and our model suggests trading in this zone has risks due to its narrow size. 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
Dealers are selling $575 to $580 and higher strike Calls. This implies that Dealers believe prices may move above $575 but not likely above $580. There is a wall of resistance at $575 which market participants need to overcome for prices to move higher. Dealers To the downside, Dealers are buying $572 to $568 and lower strike Puts in large size in an 8:1 ratio to the Calls they are selling, indicating a Bearish view for Tuesday. Dealers were had a bearish positioning heading into today and have kept this for Tuesday. There is little in Dealer positioning to imply higher prices than $576 on Tuesday. 

Looking Ahead to Friday
Dealers are selling $578 to $585 and higher strike Calls while buying $574 to $577 Calls, indicating a desire to participate in any move higher by Friday. To the downside Dealers are buying $573 to $565 and lower strike Puts in a 4:1 ratio, maintaining their downside protection. While not overly Bearish, Dealer positioning is in place to capitalize on any weakness heading into Friday.

Recommendation for Traders
While very short-term Dealer positioning still supports long trades, there is enough downside protection to imply Dealers are unsure what this week may provide. Traders should be cautious of any sharp moves below $569, which could either be a trap or the beginning of a much deeper pullback. Today the break of $570 was a trap…tomorrow may not be as clear. We recommend reviewing the premarket analysis for additional insights. Good luck and good trading!