Market Insights: Friday, December 13th, 2024

Market Overview:

Despite notable performances in select tech stocks, Wall Street ended Friday with mixed results. The Nasdaq Composite rose 0.1%, buoyed by Broadcom’s remarkable surge to all-time highs, driven by an AI-driven sales forecast that exceeded expectations and pushed its market cap past $1 trillion. Broadcom soared over 20%, with some peers like Marvell Technology and Taiwan Semiconductor also posting gains. However, Nvidia and AMD lagged, reflecting a mixed sentiment in the semiconductor sector. The S&P 500 and Dow Jones Industrial Average closed marginally lower, falling 0.02% and 0.1%, respectively. The Dow recorded its seventh straight losing session, its longest streak since early 2020. Tesla achieved a record close, contributing to the Nasdaq 100’s new highs, while healthcare giant UnitedHealth continued its slide, dropping over 15% for the week amid fallout from its CEO’s unexpected passing. Broader market sentiment remains cautious, with sticky inflation still weighing on Federal Reserve policy considerations.

SPY Performance:

SPY edged slightly lower, closing at $602.81, marking a decline of 0.02%. After opening at $604.21, the ETF reached an intraday high of $606.40 before retreating. Trading volume was modestly higher than recent averages, reflecting some profit-taking and hesitation among traders. Support at $602 held firm, with buyers stepping in to prevent a deeper slide.

Major Indices Performance:

The Nasdaq led the day, gaining 0.50%, bolstered by strength in tech stocks like Broadcom and Tesla. The Dow Jones Industrial Average followed with a modest decline of 0.30%, weighed down by the continued underperformance of defensive stocks. The S&P 500 closed flat, registering a negligible 0.02% drop, while the Russell 2000 lagged with a 0.69% decline, reflecting weakness in small-cap stocks. Sector performance highlighted a divergence, with tech driving gains while healthcare and industrials underperformed.

Notable Stock Movements:

The Magnificent Seven stocks experienced a mixed session. Tesla stood out with a 4% surge to a fresh record high, reinforcing its dominance among EV makers. Broadcom’s extraordinary rally, fueled by its AI-driven revenue forecast, drove its stock up over 20% and lifted its market cap above $1 trillion for the first time. Other tech names like Marvell Technology and Taiwan Semiconductor saw gains, while Nvidia and AMD faced selling pressure. Apple and Microsoft traded relatively flat, reflecting a more subdued broader tech sentiment while the others fell.

Commodity and Cryptocurrency Updates:

Crude oil climbed 1.81% to settle at $71.29, driven by tightening global supply concerns. Gold dropped 1.24%, ending the session at $2,675.80, as rising Treasury yields and a stronger dollar pressured the safe-haven asset. Bitcoin gained 0.86%, closing just below $101,000, reflecting resilience amid broader market caution and renewed interest in digital assets.

Treasury Yield Information:

The 10-year Treasury yield rose 1.64%, closing at 4.395%, a level that continues to challenge equity markets. The sustained breach above the critical 4.3% threshold signals potential headwinds for growth-oriented sectors, with higher yields elevating the cost of capital and weighing on risk assets. Its probable yields reach 4.5%. The last time the market approached this level was in October of 2023 which triggered a larger than 10% pullback in the broader market. Be forewarned.

Previous Day’s Forecast Analysis:

The forecast for Friday predicted a range of $602 to $608 with a bearish bias toward consolidation. Key levels highlighted included $605 as a pivotal point with $606 as an upper target. The forecast stated above $605 the bulls control the market and below the bears will exert some influence. The analysis suggested opportunities for long trades from support near $602 and short trades from resistance near $606 stating traders “should focus on short positions from resistance near $606, targeting $605 and $603 with tight stops above $608. Long trades from $602 and $600 could target $606 if support holds“.

Market Performance vs. Forecast:

The market adhered closely to these projections, with SPY oscillating between support at $602.81 and resistance just below $607, validating the forecast’s directional bias and actionable trade levels. SPY’s opening at $606.40 and testing resistance near $607 set up a textbook failed breakout short to $605 and lower. Below $605 and SPY continued to fall to the day’s lows where the anticipated consolidation materialized with more choppy sideways price action until the afternoon session. A failed breakdown from the day’s lows delivered a long @ 1 pm ET which moved SPY right back to the pivot just below $605. This action offered traders opportunities to capitalize on moves within the outlined levels with the bias toward trading from the edges of the range proving effective, particularly for short entries near $607.

Premarket Analysis Summary:

Friday’s premarket analysis, issued at 7:47 AM, forecast a constrained range between $605 and $607.75 for much of the day, with a bias toward bullish trades if $607.25 held as support. The session reflected this outlook, as SPY struggled to maintain upward momentum after testing the $607 zone, aligning with the cautious sentiment conveyed in the premarket guidance.

Validation of the Analysis:

Friday’s market action affirmed the premarket analysis, with SPY respecting the outlined levels and offering predictable movements within the projected range. The upper target near $607.75 acted as a cap on upward momentum, in line with the post market analysis. Readers of this newsletter know when both the pre and post market reports align, trade in larger size and with more confidence. This served our readers well today with the quick market sell off just after the open. The $602.75 level provided a robust floor for the day as suggested in the premarket analysis. Traders following the analysis found reliable entry and exit points, benefiting from the clear identification of key levels and sentiment.

Looking Ahead:

Next week brings a packed calendar of economic data, including PMI, Retail Sales, the FOMC statement, and GDP. These releases will likely drive increased volatility, particularly as traders anticipate clarity on Federal Reserve policy and inflation trends. Monday’s PMI may start the week off moving one way or the other. Certainly activity is expected to pick up sharply midweek.

Market Sentiment and Key Levels:

SPY closed at $602.81, reflecting a neutral to bearish sentiment. Resistance levels at $608 and $610 will be key hurdles for any rally, while support at $600 and $599 must hold to prevent further downside. The market remains balanced, with bulls and bears vying for control at critical pivots. $605 remains the dividing line between bulls and bears. This week was the first red week in four. The question now remains, is the Santa rally on its way or is price likely to move lower?

Expected Price Action:

The model projects a range of $602 to $608 for Monday, with a slight bearish tilt due to the close near session lows. A test of resistance at $608 is likely if buyers step in and break above $606. A break below $600 could open the door for a deeper decline toward $595. We anticipate more volatility next week but also believe the market will find its footing and the seasonal rally will pick up sometime next week. But with an array of economic news to be released, predicting how price will react is a fool’s errand. Monday consolidation remains the most probable scenario, with limited directional movement but once news is introduced to the market, trade what you see given without this information, our model’s accuracy will be impacted.

Trading Strategy:

Traders should continue to trade with the longer term bull trend and prioritize long entries from support near $600, targeting $605 with stops below $599. Short trades from resistance near $606 and $608 could aim for $605, with tight stops above $609. Given the likelihood of low-volume, rangebound trading on Monday, disciplined entries and quick exits are essential. Failed breakouts and breakdowns remain the most actionable setups in this environment but with news being released at 9:45 am Monday, be sure to trade what you see.

Model’s Projected Range:

The projected maximum range for SPY for Monday of $600.50 to $607.50 suggests choppy, sideways trading with periodic trends. Call dominance implies a slightly bullish tilt, but resistance at $606 and $608 will likely cap any upward momentum. Room to $595 on the downside and all-time highs on the upside reflects a balanced risk-reward setup heading into next week with SPY continuing to trade in the bull trend channel from the September lows. We expect SPY to break out of the $602 to $608 range it has been stuck in the last several days sometime next week.

Market State Indicator (MSI) Forecast:

Current Market State Overview:
The MSI is currently in a Bearish Trending Market State with price closing at support. There are no extended targets printing below. Extended targets did print both above and below price today. Early in the session and carrying over from an overnight rally, SPY did rally with the MSI in a Bullish Trending Market State, reaching the day’s highs with a brief print of extended targets, only to set up a textbook failed breakout trap for the bulls. Price then fell and the MSI rescaled through a Ranging Market State to a bearish state which remained for the bulk of the day. Extended targets below began printing at 10:45 am ET and continued to print off and on which pushed price to the day’s low and our premarket analysis major support level low @ 1 pm. The MSI range is narrow, which indicates a weak bear trend and without extended targets below, the bear trend may be losing steam. Price at the close is once again within striking distance of the $605 pivot between bull and bear control with MSI resistance at $604.71 and support at $604.01.
Key Levels and Market Movements:
A very small red day in a small red week with SPY closing flat which again, does nothing to dissuade the bulls from believing the market will move higher next week. SPY remains at a critical level hovering around the $605 pivot. Above the bulls control, below the bears certainly have influence which could lead to a test of a larger pivot at $600 and an even stronger level at $595. The model’s general lean is to defer to the broader trend, which is long and as long as $602.50 holds, the market will work its way higher. Above $605, SPY will work toward $606.50. If $602.50 fails the market will test major support at $600. At the open supported by a bounce off MSI support and an overnight rally with extended targets above, SPY popped to the day’s highs and set up a textbook failed breakout…a trap for the bulls. Price quickly failed at major resistance and the premarket level of $607.25, falling through several minor support levels, reaching the day’s lows by 1 pm. We were short from $606.75 after extended targets above stopped printing and took first profits at MSI support at $606. Once this gave way we sat on our hands and let our trailer work watching the MSI rescale lower, printing extended targets below. We closed our trade at $603.25 and waited for the opportunity to go long on a failed breakdown from major support at $602.75…another premarket level. And sure enough this pattern appeared and we were long at 1 pm to $604.50, MSI resistance and where done for the day, two for two. An excellent week once again without any losing trades, supported by the MSI and our model’s price levels. Once again the MSI gave us the confidence to enter our short and long trades and kept us trading on the right side of the market, providing levels to enter and to take profits with actionable intelligence to capture all that the market provided. We highly recommend incorporating the MSI into your trading toolbox to achieve your best results.
Trading Strategy Based on MSI:
The MSI's current state suggests a bear trend without herd participation. We stated yesterday “the herd may walk away overnight given how narrow the MSI range” and sure enough, last night the market rallied from $604 to $607. We also stated for “tomorrow should the MSI rescale to a bullish state we recommend longs from $605 to $607” which is where the market stopped today. We also stated  ”should price stay below $605 and should the MSI remain in a bearish state, we would short MSI resistance”. Again trade the MSI level to level and you will achieve a 70% win rate. For Monday we suggest longs on any retest of today’s lows on a failed breakdown pattern. We also like shorts from MSI resistance at $605 and higher but again, on a failed breakout pattern. Monday could be a day of chop and sideways price action as the market awaits a slew of economic news. There will likely be better opportunities later in the week. So once again we recommend doing what we ask you to do daily which is to use the MSI to identify the trend and levels to buy and sell to ensure you are on the right side of the market…the key to long term success.   

Dealer Positioning Analysis:

Summary of Current Dealer Positioning:
Dealers are selling $607 to $610 and higher strike Calls while buying $605 and $606 Calls indicating Dealers wish to participate in any move higher on Monday. If price does move higher, it appears $610 is the ceiling. To the downside, Dealers are buying $604 to $590 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying implying a neutral view of the market for Monday. This stance has not changed from today. As we stated yesterday, Dealers continue to believe and are positioned for the eventual Santa rally.  
Looking Ahead to Next Friday:
Dealers are selling $607 to $615 and higher strike Calls while also buying $605 and $606. Dealers are no longer selling Puts. Dealers remain positioned for new all-time highs but seem to have lost a bit of confidence this will occur next week. To the downside, Dealers are buying $602 to $590 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a slightly bearish view of the market for next week. This has changed from slightly bullish to slightly bearish. This is an interesting development given we are entering a seasonally strong period. While Dealers are not overly bearish, they have increased their protection just in case the Santa rally does not materialize. We advise continuing to watch Dealer positioning for clues of what is likely to develop in the near term as Dealers can change their positioning on a dime so stay tuned for daily updates.

Recommendation for Traders:

Traders should remain cautious while navigating the current neutral-to-bearish sentiment, focusing on $605 and $608 as critical levels. Long trades should target $606 if SPY holds above $602, while shorts near $608 should aim for $603, with stops above $609. Quick profits on shorts remain advisable, while long trades offer more potential in a slow, consolidating market. Adjust positions to minimize risk, especially given the low-volume conditions expected. Be sure to review the premarket analysis before 9 am ET for updated guidance.

Good luck and good trading!