Market Insights: Thursday, January 23rd, 2025

Market Overview

The S&P 500 secured its first record close of 2025, driven by optimism sparked by President Trump's remarks at the World Economic Forum in Davos. The broad-based index rose 0.55%, reaching an all-time high, while the Dow Jones Industrial Average climbed 0.9%, just shy of its own record. The Nasdaq eked out a modest 0.2% gain, recovering from early-session losses.

Tech stocks, especially Nvidia, saw mixed fortunes as SK Hynix flagged uncertainty in chip demand. Meanwhile, Netflix's stellar earnings set a strong tone for Big Tech, leading the Magnificent Seven. President Trump called for immediate interest rate cuts and urged OPEC to lower oil prices, signaling potential economic catalysts. However, his tariff warnings stirred concerns, as businesses weigh potential inflationary pressures. Investors also digested jobless claims data, which showed an uptick to 223,000, slightly above forecasts. This dynamic backdrop reflects the market's ongoing focus on policy, corporate earnings, and economic data as January unfolds.

SPY Performance

SPY closed at $609.75, up 0.55%, marking a new all-time high. The ETF opened at $605.70 and reached an intraday low of $605.52 before rallying to its peak. Trading volume was notably below average, hinting at cautious sentiment despite the bullish close. The session showcased resilience as SPY successfully broke through key resistance at $606, setting the stage for a potential test of higher levels.

Major Indices Performance

The Dow led the day with a robust 0.9% gain, supported by strong performances in industrials and consumer staples. The S&P 500 followed, climbing 0.55% to reach record territory, while the Nasdaq posted a modest 0.2% increase, reflecting mixed sentiment in tech. The Russell 2000 rose 0.46%, benefiting from a slight rotation into small-cap stocks. Sector-wise, consumer discretionary and tech outperformed, while energy lagged as crude oil prices fell sharply. Defensive sectors, including utilities and healthcare, underperformed amid the bullish tilt in equities.

Notable Stock Movements

Netflix continued to shine among the Magnificent Seven, gaining over 3% on sustained optimism following its earnings. Meta also advanced more than 2%, contributing to tech's strength. Meanwhile, Tesla, Alphabet, and Apple posted slight declines, underscoring selective investor appetite. Nvidia's flat close reflected caution stemming from SK Hynix's comments on chip demand. These mixed results highlight the divergence within the tech sector as earnings season unfolds.

Commodity and Cryptocurrency Updates

Crude oil dropped 1.58% to close at $74.25 per barrel, pressured by ongoing demand concerns and President Trump's remarks urging OPEC to lower prices. Gold edged down 0.35% to $2,761, as risk-on sentiment reduced the appeal of safe-haven assets. Bitcoin declined 1.10%, ending just below $103,000, as speculative fervor moderated. Key support levels for Bitcoin remain at $83,000 and $77,000.

Treasury Yield Information

The 10-year Treasury yield rose 1.07% to close at 4.648%, intensifying pressure on equity valuations. Persistent yields above 4.5% signal caution for investors, with levels nearing 5% posing a serious threat to market stability. The rise in yields reflects heightened expectations for Fed policy shifts and inflation risks, underscoring the importance of monitoring fixed-income trends.

Previous Day’s Forecast Analysis

Wednesday’s forecast anticipated a bullish SPY trajectory, targeting $603 to $608, with key resistance at $608. The analysis highlighted $603 as critical support and suggested long trades above this level. The ETF adhered closely to expectations, breaking resistance at $606 and $608 to close near $610. Traders who followed the forecast capitalized on upward momentum, particularly around $608, which proved a pivotal level.

Market Performance vs. Forecast

SPY’s actual performance mirrored the forecast, trading within the projected range of $604 to $608 with a late day breakout on news to new highs. The ETF respected key levels, breaking resistance at $606 and $608 and reaching $609.75. The forecast correctly identified trading opportunities, with long positions from major support around $605 and $607 yielding strong returns. The analysis effectively guided traders in navigating the session’s price action.

Premarket Analysis Summary

Today’s premarket analysis, issued at 7:55 AM, predicted a choppy session with SPY likely oscillating between $604.50 and $609.50. The analysis emphasized trading from the edges of this range, cautioning against mid-zone trades. SPY adhered to this guidance, with resistance at $609.50 and support at $604.50 shaping intraday moves. The session’s performance validated the premarket forecast, reinforcing its value for traders.

Validation of the Analysis

The premarket analysis accurately anticipated a contained range, with SPY respecting both $604.50 and $609.50 as boundaries. Key levels guided market behavior, and traders who focused on edge-based entries profited from rebounds near support and resistance. The session’s price action confirmed the reliability of the analysis.

Looking Ahead

With PMI data due Friday and the FOMC meeting next week, volatility is expected to rise. These events could significantly influence sentiment, particularly if economic data surprises or Fed commentary signals policy shifts. Traders should prepare for potential market swings and adjust strategies accordingly, being sure to trade what they see.

Market Sentiment and Key Levels

SPY remains in a bullish posture, closing at $609.75 and the day’s highs. Immediate resistance lies at $610 and $612, with support at $606 and $600. A sustained move above $612 could signal a breakout toward $615, while a drop below $606 may indicate consolidation. The bulls currently control the narrative, but rising yields could test sentiment in the coming days.

Expected Price Action

Our model projects SPY to trade within a range of $604 to $610 on Friday, favoring a bullish bias. Resistance at $610 and $612 may limit gains, while support at $606 and $600 should anchor price action. The market is Call dominated so a breakout above $612 could lead to $615, while a breach of $606 risks a drop to $600 or lower. We expect prices to retrace the last ten minute breakout overnight but to find support at $608 and lower. Traders should anticipate a mix of consolidation and trending moves with SPY continuing to move to new highs and favor longs over short trades.

Trading Strategy

For Friday, consider long trades above $606, targeting $610 and $612, with stop-losses below $604. Short trades near $612 may provide opportunities if resistance holds, but maintain tight stops to guard against extended rallies and be sure to take profits quickly on any short entry. Volatility suggests disciplined risk management, particularly around key levels. The VIX remains at 15, reflecting moderate market confidence but caution for sudden shifts.

Model’s Projected Range

The model projects a maximum trading range of $604 to $612, with Call dominance supporting a bullish outlook. Resistance at $610 and $612 aligns with the current bull trend channel, while support at $604 and $600 anchors potential downside. The longer term price channel has been redrawn. Price is currently in the bull trend channel from the September lows and is mid channel. The bear trend channel from December 18th is no longer valid. This channel has all kinds of room both higher and lower so its likely price trades in this channel for some time. Highs are above $620 and lows are below $585.  Price remains mid-channel, with room for both upward and downward moves.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State, with price closing well above support. The MSI range is average and while extended targets printed for much of the session, they stopped printing at 1:32 pm ET, but starting again at the end of the day as market participants rallied on Trumps remarks at Davos. Price attempted to pull back from major resistance at $608 but after testing MSI support at 607.35, price reversed and continued its ascent to new all-time highs. While the end of the day move was impressive, the market is looking a bit parabolic with risks of a rug pull on any hawkish news. But as long as the MSI is printing extended targets, the trend will continue to move the markets higher. In the premarket price fell slightly with the MSI rescaling lower to a very narrow Bearish Trending Market State. While there were periods of extended targets below price, they did not last long and price reversed at MSI support at $604.75 with the MSI rescaling to a Ranging Market State. By 7:30 am ET the MSI rescaled to a Bullish Trending Market State and while extremely narrow, price held support and rallied into the open. At 10:30 am ET extended targets began printing indicating the herd was participating in the rally and prices quickly moved higher, stalling at major resistance at $608. The MSI did not rescale again until 1:16 pm ET which saw price continue to move higher to MSI resistance at $608.21. Only briefly after this rescale were there extended targets printing indicating the herd was more interested in profit taking than continuing to test the all-time highs. But in the last ten minutes price broke above MSI resistance at $608.21, and printed extended targets with price rallying to new all-time highs. MSI support is currently 608.21 and lower at $607.35.  
Key Levels and Market Movements:
While SPY continued to move higher overnight after a brief pullback, the MSI was extremely narrow and was indicating the bull trend was likely peaking. At the open, a triple bottom at MSI support and were long at $605.75, looking for a test of the model’s $608 resistance level. SPY reached $607.80 and printed a failed breakout so we exited this trade in full with a single profit target. We did not, however short given extended targets were still printing. SPY then set up another long with a double bottom at $607 so we decided to take a crack at this second long for a retest of $608. This target was quickly reached and with SPY creating a failed breakout, we decided to exit and reverse short at MSI resistance to see if we could reach MSI support. And sure enough the market pulled back so we took profits on our short at $607.35 and decided to once again stay with the trend and reverse long, seeking $608 once again. We know that the probabilities of success for this trade is over 70% so we will take those odds any day of the week. And sure enough, price reached MSI resistance at $608 where we took first profits. But SPY didn’t look ready to revert given no actionable pattern emerged so we held our runners to see how the market would react to the $608 level. Sure enough, extended targets began printing once again and in the last ten minutes of the session, price skyrocketed to new all-time highs, allowing us to exit our runners at the close. A wild session with four monster trades, all winners with substantial profits. Trading does not get much better than this. We stated yesterday “we favor longs from $603 and $600, particularly on failed breakdowns with the goal of moving toward $608. On any retest of today’s highs we also favor mean reversion shorts”, so once again we followed our plan to the letter and were handsomely rewarded. Knowing who controls the market with the MSI as your knowledge base, it becomes very clear what we should and should not do to maximize profits and probabilities of success. The MSI and our model kept us from attempting to fade this rally until the afternoon session and instead kept us trading with the prevailing trend. The MSI provides actionable information to assist traders in staying on the right side of the market and with the prevailing trend so we highly recommend integrating the MSI into your trading arsenal to maximize your long-term success.
Trading Strategy Based on MSI:
We stated yesterday the “bears are now in the mix once again, trying to push price lower. But after seven straight up days and killer earnings out of Netflix and others, any dip is likely to get bought”. And sure enough the dip to $604 overnight was bought and price rallied to new all-time highs. Our model suggests Friday may see an increase in volatility from PMI with more two way trading but the bulls are firmly in control and absent external information, dips are likely to get bought. With price breaking the all-time high there is risk of a rug pull at these extended levels. Certainly macro events can change the narrative quickly so be prepared to trade what you see should as information is released into the market. For Friday we favor long trades from major support at $607 and $606 on failed breakdowns. With price facing major resistance at $610 we certainly favor our favorite trading patterns, failed breakout, and failed breakdowns. While we do not believe the bull trend is over, after eight straight up days, at some point soon, profit taking will ensue and price will at least retrace some of the recent gains. We believe should price reach $605, the bulls will exert pressure to push prices back up again and recommend buying dips at this level to as low as $600. Traders should continue to focus on finding spots to get long to ride the trend but be aware that the market needs a red day to consolidate and gather energy to continue to push higher. Again failed breakouts and breakdowns provide the highest probability for success and any retest of today’s highs should provide the opportunity for mean reversion shorts entering on failed breakouts. But be certain to take short trade profits quickly given the strength of this trend is not to be denied. We favor long trades with some opportunity for two-way trading from the edges, trading level to level, while watching the MSI to identify the trend and key levels to trade to ensure alignment with prevailing market conditions. If you do not have this tool, we highly suggest contacting your representative to secure a copy.

Dealer Positioning Analysis

Summary of Current Dealer Positioning:
With today’s end of day rally Dealers didn’t have lots of time to get new positions on given many of the Calls they sold ended ITM. Take this into consideration for tomorrow. Dealers are selling $610 to $615 and higher strike Calls implying the Dealers believe the market will likely peak on Friday @ $612. We stated yesterday “Dealers seem ready for new all-time highs as soon as tomorrow” and on que, we got new all-time highs today. To the downside Dealers are buying $609 to $603 and lower strike Puts in a 6:1 ratio to the Calls they are selling, implying a bearish outlook for Friday. This has changed from neutral to bearish reflecting Dealers’ belief that the current rally is topping. That said, we repeat, Dealers have few options for tomorrow so it’s highly probable Dealers load up on new positions in the morning and during the day on Friday. They most likely protected their book today with Futures which we have no visibility into. 
Looking Ahead to Next Friday:
Dealers are selling $610 to $620 and higher strike Calls implying Dealers believe there is a ceiling in the current rally next week at $615. To the downside, Dealers are buying $609 to $575 and lower strike Puts in a 10:1 ratio to the Calls they are selling, reflecting a strongly bearish view for the week. Dealers have become more bearish from today. That said, the same hold true for next week’s options expiry; we highly suspect this positioning changes materially by the end of the day tomorrow so do not read too much into this positioning today. Dealers loaded up on OTM Puts in case something unforeseen causes a sell off. But given the late rally, they were unable to sell many Calls given all that they sold ended up ITM. We said yesterday positioning “is in conflict with the view for Wednesday and we think maybe this ratio is not as relevant as the fact Dealers are selling Puts. Long time readers of this newsletter know Dealers do not sell Puts unless they are convinced of higher prices.” And sure enough price did move higher today. The lesson here is you must use common sense when analyzing information in order to come to the proper conclusions. Fortunately we have the benefit of highly sophisticated models which point us in the right direction and those are still highly bullish. Surely today’s Dealer positioning will change so it’s essential to monitor these updates each day for shifts in sentiment.

Recommendation for Traders

For Friday, focus on long trades from $606 and $600, targeting $610 and $612. If resistance at $612 holds, consider short trades, but keep tight stops to limit risk. Rising yields and upcoming PMI data suggest elevated volatility, making disciplined risk management critical. Favor failed breakout/breakdown patterns. Tighten stop-losses as SPY approaches key levels, and maintain smaller position sizes in uncertain conditions. Review our premarket analysis posted before 9 AM ET for updated insights.

Good luck and good trading!