Market Insights: Thursday, November 7th, 2024

Market Overview:

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) achieved record highs as a Fed rate cut and continued optimism from Donald Trump’s election win fueled a tech-led rally. The Federal Reserve’s anticipated 25 basis point rate cut lowered the benchmark rate to 4.5-4.75%, further buoying investor sentiment. The S&P 500 gained approximately 0.7%, surpassing 5,930, while the Nasdaq rallied nearly 1.5%, driven by Nvidia (NVDA) and Amazon (AMZN), reaching new highs. The Dow Jones Industrial Average (^DJI) remained relatively flat, following its record-breaking 1,500-point gain the previous day, marking its strongest one-day performance since 2022. The 10-year Treasury yield (^TNX) dipped by 8 basis points to 4.34%, providing a brief reprieve from recent upward pressure on yields. Investors remain optimistic about Trump's proposed corporate tax cuts and deregulation, which could drive further economic gains. Fed Chair Jerome Powell, pressed about the election’s implications, asserted that policy decisions remain unaffected, even addressing speculation on his future under the Trump administration. Arm Holdings (ARM) shares rose roughly 4% amid the broader tech rally despite tempered revenue forecasts, while Trump Media & Technology Group (DJT) saw declines following initial post-election gains.

SPY Performance:

The SPDR S&P 500 ETF Trust (SPY) closed at $595.52, reflecting a modest 0.76% increase after reaching an intraday high of $596.65. Trading volume stood at 40.9 million shares, slightly above the average as traders digested the Fed's rate cut alongside the broader post-election rally. Key support holds at $590, with potential upward momentum aiming toward $600 if resistance at $595 can be decisively broken. A fallback to $590 remains possible should traders lock in profits or react to unforeseen developments, keeping SPY’s upward trajectory in a cautiously bullish stance until $595 is cleared with conviction.

Major Indices Performance:

The Nasdaq led major indices with a 1.51% surge, spurred by strong performances in tech, particularly among the “Magnificent Seven,” as Meta and Tesla both posted over 3% gains. The Dow closed flat as industrials took a brief pause following Wednesday’s surge, while the Russell 2000 index saw a mild pullback of 0.37%, reflecting some profit-taking in small-cap stocks after a huge move yesterday. This broad-based rally reflects market optimism around Trump's pro-growth policies and the Fed’s accommodating stance, with financials, tech, and industrials expected to benefit in the near term.

Notable Stock Movements:

In the commodities sector, crude oil gained 0.45% as investor sentiment leaned risk-on, though ongoing concerns about global demand capped further advances. Gold rebounded by 1.34% following its Wednesday decline, as some investors opted for safe haven hedges amid the evolving market landscape. Bitcoin edged up by 0.46%, continuing to trade above $76,000, supported by renewed interest from both institutional and retail investors. Tesla outperformed among the tech giants, buoyed by speculation that Trump’s policies may provide favorable conditions for the electric vehicle sector, alongside ongoing investor enthusiasm for Elon Musk’s leadership.

Commodity and Cryptocurrency Updates:

Oil prices ticked upward reflecting investor optimism while noting that strong dollar dynamics and demand uncertainties kept gains in check. Gold rose as investors hedged risks amidst a buoyant yet cautious equity environment post-Fed. Bitcoin’s steady rise, closing above $76,000, signals confidence in its long-term potential as an inflation hedge, while the broader cryptocurrency market consolidates following recent gains. Institutional interest continues to bolster Bitcoin, with expectations for sustained momentum as financial markets adjust to the current macroeconomic setting. We expect Bitcoin to reach $100, 000 in the near term.

Treasury Yield Information:

The 10-year Treasury yield fell by 2.17% to 4.335%, offering temporary relief to equities. This decline in yields may support growth stocks and interest-rate-sensitive sectors if it holds. Still, the 4.3% level remains critical as a threshold where heightened yields could again apply pressure to equities. 5% 10-year Treasuries would be problematic for the broader markets and investors are advised to monitor these yields, as any increase above this level could signal potential headwinds for risk assets, particularly as markets react to further economic indicators and fiscal policy expectations.

Previous Day’s Forecast Analysis:

Wednesday’s forecast correctly identified a bullish trajectory driven by the election outcome and expected Fed rate cut, with an emphasis on long positions as the market opened strong and rallied through key levels. The forecast anticipated that any break above $590 would likely drive SPY higher toward $595, setting up a target range that ultimately held as a crucial support level into today’s premarket. Traders were advised to ride the trend upwards, with a strong recommendation to monitor key resistance levels near $590 to $593. The forecast also underscored caution at these levels due to potential profit-taking or volatility, given that much of Wednesday’s gains came overnight, leaving room for swift market adjustments during Thursday's session. A strong close above $590 yesterday reinforced the outlook that bullish sentiment could carry over, potentially extending SPY’s range closer to $595 or higher should resistance break. However, it also highlighted that any rejection near $593 could signal a pullback, especially with the added factor of today’s Fed rate cut decision. By positioning the $590 level as a strategic entry and exit zone, the forecast set the stage for cautious trades, advising traders to favor long entries from support while remaining ready to react if resistance holds or if volatility intensifies around the Fed’s announcement.

Market Performance vs. Forecast:

Wednesday’s forecast successfully anticipated a bullish continuation, with the market dynamics not only matching expectations but also benefiting from the election-driven momentum and the subsequent rate cut. The prediction of a breakout above $590 proved accurate, providing a solid foundation for SPY to push through $595, a critical resistance level that was decisively broken. This movement aligned with the forecast's guidance to favor long entries above support, positioning traders effectively for the rally. Additionally, the forecast identified the $590 to $593 range as a key battleground where potential consolidation or profit-taking might occur before any further advancement. As projected, today’s opening found SPY navigating this resistance zone, testing the forecast's suggestion that a sustained move above $593 could open the door for further gains toward $595 or beyond. Conversely, the forecast also highlighted the possibility of a pullback if resistance held, acknowledging the potential for volatility surrounding the Fed's rate cut decision. This caution was warranted, given the rapid overnight gains and the uncertainty that high-impact economic events can introduce. The price action adhered closely to these predictions, underscoring the importance of adaptability as traders assess the unfolding dynamics in response to evolving market conditions and policy announcements.

Premarket Analysis Summary:

As of 7:49 AM ET, SPY was positioned at $592.36, with upper targets forecasted at $593.30 and $594.20. The analysis highlighted this range as a critical resistance zone, suggesting that a convincing break above it would likely support continued upward movement. Conversely, the outlook anticipated that if SPY encountered rejection in this area, an initial downside target of $590 could come into play, favoring short entries from resistance. The tone remained cautiously optimistic, with a bullish tilt provided support held at $590. Given the imminent Fed rate decision, the forecast advised traders to look for breakout confirmation before committing heavily to long positions, expecting that markets would likely remain responsive to any developments from the Fed's announcement later in the day.

Validation of the Analysis:

Thursday’s market performance validated the forecast’s predictions, with SPY moving decisively through key support and resistance levels as expected. The $590 level provided a solid foundation, as anticipated, leading SPY higher toward $594.20 and beyond. Traders who followed the forecast's guidance were well-positioned to capitalize on long entries from these support levels. The resistance zone at $593.30 to $594.20 noted as a potential consolidation or reversal area, indeed became an active level, testing the bullish momentum as SPY approached it. This price action underscored the accuracy of the forecast’s range projections, which correctly suggested that traders remained cautious in light of the Fed announcement. The adherence of SPY’s movement to forecasted levels reinforced the value of disciplined trading around these critical zones, as volatility stayed within the projected bounds ahead of key policy developments.

Looking Ahead:

The projected trading range for SPY extends from $588.75 to $601.50, with upside bias. The market appears ready to continue its upward trajectory, although any break below $590 would signal the beginnings of a retracement. The market has made major gains in the last three days and will need some time to digest them before continuing to march higher. There is little news or external catalysts due which may move the market either way. Therefore our model predicts more controlled price action as the market continues to make new highs. Our model forecasts SPY reaching $600 before any material resistance comes into play. Traders are encouraged to monitor price action closely at these levels as high-stakes economic and policy updates may introduce further volatility.

Guidance for Traders:

We advise a cautious trading stance following the election-driven surge and Fed rate cut, suggesting modest position sizes and disciplined risk management. Long entries remain preferable above $590, with additional buying interest likely around $593 and $595. Short positions should are high risk in this environment and we do not favor entertaining shorts until the market slows a bit or reaches $600. If considering counter trend trades, we would only start looking at $600 and higher. This is a big round number with all kinds of options activity and as such it will not be overcome quickly. $595 on the other hand has established itself as very strong support. A break below this level will test $592 but the bulls will remain in complete control even on a pullback to $590 or lower. Some of the most difficult trading comes after monster moves like we have seen this week. You MUST stay long but the further we get from accepted levels, the riskier they become. As such, in the event of unexpected volatility, shorter timeframes will allow for nimble adjustments, favoring responsive trades that align with evolving market conditions.

Market Sentiment and Key Levels:

Key support is positioned at $595, while resistance aligns at $600. A sustained breakout above $595 could encourage additional bullish action, with $600 emerging as a psychological milestone which is likely to be reached. Any move below $595 would signal potential retracement risks, calling for tighter risk management and reduced exposure until clarity resumes with price testing $592 and then $588. These are the major levels to watch tomorrow for a reaction.

Expected Price Action:

The projected range for SPY is $590 to $601, with a bullish tilt. Long positions are favored from support, while shorts should not be attempted. Any desire to short should only come from $600 and higher and be brief and aligned with resistance levels. A major break of several levels of support, meaning below $585 would also open the door to short trades…a low probability for Friday.

Trading Strategy:

With the Fed’s rate decision and election behind us, the market should start to scale back in the size and range of its moves. While tomorrow is still projected to be a strong trend day with a large range, expect the market at some point to start trading sideways, drifting higher as opposed to blasting higher. When this happens, we favor scalping longs and mean reversion shorts from higher levels. But until then, every dip should be bought as the market will keep moving up until institutional traders decide to book profits.

Risk Management and Warnings:

Given elevated uncertainty and the last three days price action, strict risk management and cautious entries are essential. A disciplined approach will help mitigate risks as markets navigate the intersecting impacts of political and monetary events. In the very near term, we recommend scaling down in size and tightening stops a bit.

Model’s Projected Range:

The model forecasts a range between $588.75 and $601.50, underlining an optimistic outlook with a very large range in a Call dominated market. Active market conditions suggest trending price action, with support at $595 and resistance at $600 serving as pivotal levels. SPY is back in the bull trend channel from the September lows and is trading just below mid channel. There is plenty of room both higher and lower. As such the bull trend is solidly intact until SPY breaks below $590. Traders should continue to focus on support and resistance breaks, aligning entries with observable price trends.

Market State Indicator (MSI) Forecast:

Current Market State Overview: The MSI is currently in a Bullish Trending Market State with price closing at resistance. The range is large. There are no extended targets above. This indicates a solid bull trend but perhaps one that is set to slow over the next couple of days. Yesterday MSI perfectly predicted the overnight and today’s move to new all-time highs The MSI did not rescale overnight but printed extended targets for several hours until 1 pm ET. The MSI then rescaled higher in the afternoon session in the last hour of the day and printed extended targets which reinforced the final push up into the close. MSI support is $589.41 and $596.48.
Key Levels and Market Movements: The MSI began printing extended targets well before the open, which indicated the herd was pushing the market to new highs. The MSI correctly identified this very strong trend as the market simply drove higher from yesterday’s close until the 1 pm hour when extended targets stopped printing. At that time SPY attempted a brief pullback from $596 but was only able to get to $595 before the MSI rescaled higher and starting printing extended targets above price once again. The bulls were simply too strong to allow even a small mean reversion short. Remember mean reversion trades are no better than 40% successful and in such a strong bull market, are ill advised. In the last hour the MSI stopped printing extended targets and again a quick mean reversion short provided only little profit. The strategy for the day was to get long and stay long using the MSI to confirm the strength of the trend.     
Trading Strategy Based on MSI: The MSI's current state suggests the bulls remain in control with price moving sideways to slightly higher overnight. We continue to advise caution given these size of these moves. Friday market participants may take a breather and two-way trading opportunities may emerge. But any shorts will be short lived so we continue to favor the long side, looking for failed breakdowns near MSI support at $589.43 and the levels provided above.

Dealer Positioning Analysis:

Summary of Current Dealer Positioning: Dealers are selling $596 to $600 and higher strike Calls while also selling $592 to $595 Puts. We often state when Dealers sell Puts, price is very likely moving higher. Dealers sold Puts yesterday which fueled today’s rally. Given the quantity and range of Puts they are selling, Dealers do not believe prices will move below $592 on Friday. This is very close to the current spot price which implies extreme confidence by the Dealers that prices are moving higher on Friday. To the downside, Dealers are buying $591 to $580 and lower strike Puts in a 1:1 ratio to the Calls/Puts they are selling, implying a bullish view of the market for tomorrow. We stated yesterday Dealers had positioned themselves “all in this bull trend” for today and that proved to be the case. For Friday they are a bit less bullish but bullish, nonetheless. 
Looking Ahead to Next Friday: Dealers are selling $596 to $600 and higher strike Calls while also selling $590 to $595 Puts in size, implying the Dealers believe the market will move higher next week. But interestingly the Dealers are not selling many Calls above $600 which implies while they see higher prices coming next week, perhaps the market will peak near the $600 level before deciding its next path. To the downside, Dealers are buying $589 to $572 and lower strike Puts in a 3:1 ratio to the Calls/Puts they are selling. While Dealers have been reducing their protection the few days, today it appears Dealers added protection for next week. Perhaps Dealers believe once the market reaches $600, the odds of a more material pull back increase. We suggest watching this very closely over the next few days as Dealers will provide clues as to what will happen in the near term.  

Recommendation for Traders:

As we head into Friday, traders should continue approaching the market with a balanced mix of optimism and caution. The post-election rally, coupled with the Fed's recent rate cut, has set a strong bullish tone, but key support around $595 and the psychological $600 mark may introduce volatility as profit-taking or end-of-week adjustments come into play. For Friday, it’s recommended to prioritize long positions on pullbacks to support near $590 and $585, provided these zones continue to hold. However, with the market already elevated, entry points should be well-timed to manage potential fluctuations as the week closes out. Short entries remain ill-advised and should only be attempted near very stronger resistance points, ideally around $600 and higher, as these levels could serve as potential reversal zones if bullish momentum stalls. Due to the heightened optimism, shorts should be short-lived, with a focus on quick profits and clear exit strategies. Traders may also benefit from reducing position sizes and limiting overnight risk, as any shift in sentiment could prompt a pullback. As always, disciplined risk management is key, with a preference for responsive trades that align with observable price action around support and resistance levels. Staying adaptable and prepared for rapid adjustments will be essential, particularly as markets digest the latest policy impacts and prepare for upcoming economic data. We recommend checking in with the premarket analysis which is posted daily before the open by 9 am ET.

Good luck and good trading.