Market Insights: Tuesday, January 28th, 2025

Market Overview
The Nasdaq and S&P 500 made a strong comeback on Tuesday, shaking off Monday’s AI-induced sell-off driven by the news from Chinese startup DeepSeek. Nvidia led the charge, rebounding nearly 9% after losing a historic $589 billion in market cap the prior session. This recovery helped the Nasdaq surge more than 2%, while the S&P 500 climbed 0.9% and the Dow Jones Industrial Average edged up by 0.3%.

The tech sector’s two-day reversal is the largest in over two years, underscoring renewed investor optimism despite lingering fears about DeepSeek’s impact on U.S. AI leadership. Nvidia’s sharp gains signaled investor faith in its ability to compete despite new competition. Meanwhile, attention has turned to major tech earnings from Apple, Tesla, Meta, and Microsoft, as traders evaluate whether these bellwethers can deliver on high expectations.

Geopolitically, tariff tensions resurfaced after President Trump advocated for universal tariffs “much bigger” than the proposed gradual increase by his Treasury Secretary nominee. These developments, alongside Wednesday’s Federal Reserve interest rate decision, continue to fuel market volatility. The Fed is expected to hold rates steady, citing recent robust economic data. The dollar gained strength amid renewed tariff concerns, as traders anticipate potential headwinds from a revived trade war narrative.

SPY Performance
SPY closed at $604.44, up 0.85%, bouncing back strongly from Monday’s AI-related decline. The ETF hit an intraday high of $605.37 and a low of $597.26 before closing near its highs. Trading volume remained below average at 38.68 million shares, reflecting cautious optimism. The day’s rally was led by tech-heavy names, providing support to broader market sentiment.

Major Indices Performance
The Nasdaq was the best performer, surging 1.45%, driven by Nvidia and other recovering tech stocks. The S&P 500 followed with a 0.9% gain, while the Dow Jones Industrial Average rose modestly by 0.21%. The Russell 2000 edged higher by 0.11%, underperforming the broader market as small-cap stocks struggled to gain traction. Tech’s resurgence stood in contrast to more stable performance from defensive sectors, which were outpaced as investors rotated back into risk-on assets.

Notable Stock Movements
The Magnificent Seven saw a broadly positive day, with Nvidia stealing the spotlight with an 8.8% surge. The rally followed its steep Monday decline, signaling investor confidence in its longer-term prospects despite emerging competition from DeepSeek. Other tech leaders like Apple, Meta, and Amazon posted moderate gains, while Netflix remained flat. The sector’s rebound highlights its pivotal role in driving market sentiment, particularly during earnings season.

Commodity and Cryptocurrency Updates
Crude oil rose 1.15%, closing at $74.01 per barrel, supported by easing concerns about global growth following Monday’s sell-off. Gold also climbed 1.15%, settling at $2,798 as investors balanced safe-haven demand with improved risk sentiment. Bitcoin remained relatively flat, dipping 0.15% to close just above $101,000, as cryptocurrencies faced mixed demand amid market uncertainty.

Treasury Yield Information
The 10-year Treasury yield ticked up slightly by 0.18%, closing at 4.536%. While still above the critical 4.5% threshold that pressures equities, the modest rise suggests the market is pricing in steady Fed policy. Persistent yields near or above this level could limit equity gains, with a move above 5% signaling significant correction risks.

Previous Day’s Forecast Analysis
Monday’s newsletter forecasted SPY to trade between $590 and $605, with a slightly bearish bias with resistance at $600, $602, and $605. The analysis identified $595 as critical support and while the general lean was bearish, the forecast correctly stated “a late in the day rally to $600 could quickly reverse today’s sell-off. A breakout above $600 could target $605”.

Market Performance vs. Forecast
SPY closely followed Monday’s forecast, opening at $600.64, trading between $597.26 and $605.37, and closing at $604.44. The forecasted resistance levels were respected, offering opportunities for short-term trades. The actual performance validated the predictions, as SPY rallied within the projected range, testing resistance at $600 at the open and again at $602 before breaking higher to $605. Traders capitalized on long opportunities as SPY respected support and reversed higher, despite Monday’s AI-driven uncertainty. The bearish bias softened as the session progressed, validating the model’s suggestion to trade cautiously and favor key levels.

Premarket Analysis Summary
Today’s premarket analysis, posted at 7:46 AM, anticipated a trading range of $596 to $605, with a bias level at $599. SPY adhered closely to this analysis, respecting the bias level and consolidating above it. The upside target of $605.50 was nearly achieved, with SPY closing at $604.44. The analysis highlighted the fragility of the rally, urging caution, which aligned with the day’s measured momentum and consolidation near support.

Validation of the Analysis
Today’s market action aligned with the premarket analysis, with SPY stabilizing above the bias level of $599 and testing key support and resistance levels. The analysis accurately anticipated choppy consolidation and identified actionable levels for both long and short trades. The guidance to favor long entries near $599 proved profitable as SPY climbed steadily, demonstrating the model’s reliability.

Looking Ahead
Wednesday’s FOMC meeting is the week’s centerpiece, with the Federal Reserve expected to hold rates steady. Earnings reports from Microsoft, Meta, and Tesla after the bell will also dominate sentiment. Traders should prepare for heightened volatility, with Thursday’s GDP and unemployment data adding further market-moving potential. Friday’s PCE inflation report will round out a pivotal week, shaping expectations for future Fed policy.

Market Sentiment and Key Levels
SPY is trading near $604, with resistance at $605, $607, and $609. Support lies at $602 and $600, with $595 as a critical downside level. The market leans cautiously bullish, supported by a tech rebound and steady economic data, though geopolitical risks and the FOMC decision loom large. A breakout above $605 could target $609 and beyond, while a break below $600 risks retesting $595. Traders should brace for sharp moves and remain flexible as new data emerges.

Expected Price Action
Our model projects SPY to trade between $596 and $609 on Wednesday, with a bullish bias favoring a test of resistance at $605 and $607. A move above $609 could open the door to $612 or higher, while failure to hold $600 risks a slide toward $595. FOMC days are typically quiet by 11 am with little to do but sit on one’s hands waiting for the release. But fireworks fly after 2 pm and Traders should expect trending behavior given the wide projected range, with opportunities centered around key support and resistance levels. Be mindful of traps which immediately reverse which is typical on FOMC days.

Trading Strategy
For Wednesday, focus on long trades near $602 and $600, targeting $605, $607, and $609. Tight stops are advised below $599, as a breakdown could see SPY falling toward $595. Short trades are favored near $609, with stop-losses above $611, targeting a pullback to $605 and $602. We continue to favor failed breakout and failed breakdown trades, however given the huge, anticipated range, once the trend is established, find a way to jump on it and ride it to major levels. Given elevated volatility, smaller position sizes are recommended. Monitor the FOMC announcement closely, as it will dictate late-day price action.

Model’s Projected Range
The model forecasts a maximum trading range of $596 to $609 for SPY on Wednesday, with resistance at $605, $607, and $609 and support at $602 and $600. The market remains in a bull trend channel, suggesting room for further gains if SPY holds above key support. Calls dominate the options landscape, reinforcing a bullish outlook. There is a gap at $606.80 that will likely be filled on Wednesday. Traders should watch for trending behavior and prepare for volatility as macro events unfold.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State, with price closing just below resistance. The MSI range is wide and there are no extended targets printing above. Overnight the MSI rescaled higher and printed extended targets pushing price up to MSI resistance at $601.59. By the open extended targets had ceased printing and the MSI briefly entered a ranging state which saw price fall to the lows of the day at $597.25. But price quickly moved higher and the MSI remained in a bullish state for several hours, with extended targets printing above. At 1:14 pm ET the MSI rescaled higher once again and price moved to the highs of the day. MSI support is currently $601.59 with resistance at $604.70.  
Key Levels and Market Movements:
SPY saw some follow through buying overnight with the MSI rescaling several times higher to a bullish state. By the open however price had stalled at MSI resistance at $601.59, opening mid MSI range. Price then fell just after the open and the MSI ever so briefly rescaled to a ranging state. Given ranging states are transitionary states without the herd participating, we typically look for price to resume the prior trend and for the MSI to rescale back to its prior dominant state. And this is precisely what happened with SPY setting up a textbook failed breakdown in the upper range of the MSI which led to the perfect long and the continuation of the overnight rally. With the MSI rescaling to a Bullish Trending Market State we were confident price would reach MSI resistance at a minimum, allowing us to capture first profits at $601.59. Given the strength of the move, we held our long trailer for larger targets since extended targets began printing, indicating the herd was participating in the rally. Price reached $603.58, which was above our models major resistance level of $602 so we closed our long and waited for another opportunity to trade. We did not short given our model yesterday advised against shorting below $605. Extended targets were also printing above which users of this tool understand do not fade the MSI trend. Price pulled back to MSI support at $601.59 (resistance becomes support) and on a triple bottom we entered long once again with the goal of reaching the model’s major resistance level of $605. We took first profits at $604 and held runners seeking major overhead resistance. And sure enough a late in the session pop allowed us to close our runner at $604.67, which was MSI resistance. Two highly profitable trades that didn’t take even a tiny bit of heat. After a day like yesterday without a single trade, today was a blessing, made possible by the MSI and our model laying out the perfect plan. Knowing who controls the market with the MSI as your knowledge base, combined with our model’s trading plan, provides our readers with the highest probability trades day in and day out. This allows traders to maximize profits and increase the probabilities of success. The MSI keeps users out of trouble with actionable information to assist traders in staying on the right side of the market, trading with the trend while providing levels to take profits. We highly recommend integrating the MSI into your trading arsenal to maximize your long-term success.
Trading Strategy Based on MSI:
We stated Monday should “the MSI rescale to a bullish state, we would favor longs off MSI support, especially if extended targets print above. These can be at levels the model projects as support OR resistance if price moves above resistance levels. This includes $595, $600, and $602”. And as stated above, today this played out to perfection. We also stated “are the bulls still in control after a $17 sell-off? The answer is still yes”. This one piece of information should be the basis for your day’s trading. Trading becomes so much easier when you learn to accept who controls the market and trade with the controlling party. Do not constantly fight the trend, thinking price has to stop or reverse. Not only will you lose on any trade taken, but you also give up all kinds of opportunities for profit…a double whammy to any trading account. Tomorrow is a big data day with not only FOMC incoming but also earnings from several tech titans after the close. This means price is unlikely to settle until AFTER the close. We witnessed yesterday a selloff related to AI that reversed today. It only takes one of these biggies to introduce something unexpected into the market to move the entire market. Be wary and aware, prepared to trade what you see. Our model absent this data leans toward a continuation of the bull trend from today. As long as $602 holds, SPY can continue working higher beyond $605 to $606 and $609, gunning for new all-time highs. Should $602 fail, price drops to $600 quickly, which becomes a level the bulls must defend to see higher prices. A failure of $600 and price will retrace all of today’s rally. As we said yesterday “a single test of $590 leads us to believe the bulls stepped in and supported price” which is exactly what they did. Advantage and therefore control is still in the bulls hands so favor longs over shorts, but be ready for anything that comes from the release of new data into the market. While markets tend to quiet late morning prior to the 2 pm release, FOMC days can be the most challenging and complex days to trade, so we caution inexperienced traders to trade small and watch out for traps. More often than not the first move after the FOMC statement will be a trap and price will reverse and rally $10 the other way. Having a tool that updates in real time, like the MSI, is even more critical to trading success on days like tomorrow. The gap from yesterday remains open and is a clear target for the bulls, therefore we do not favor any shorts until that gap is closed at $606.80. Above this level we would consider short trades on failed breakouts. And certainly use the MSI to guide your decisions given it updates in real time. 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:
Dealers are selling $609 to $620 and higher strike Calls while buying $605 and $608 Calls. Dealers are also selling $602 Puts implying Dealers believe there is a floor in the market tomorrow at $602 and that prices are more likely to rally than fall. Dealers do not sell close to the money Puts unless they are supremely confident prices will move higher. Dealers are clearly positioned for prices to continue to rise on Wednesday to as high as $614. To the downside Dealers are buying $604 to $592 and lower strike Puts in a 1:1 ratio to the Calls/Puts they are selling/buying, implying a slightly bullish outlook for Wednesday. Dealers were neutral coming into today and have shifted to bullish, which implies a continuation of the rally on Wednesday. 
Looking Ahead to Friday:
Dealers are selling $610 to $620 and higher strike Calls while buying $605 to $609 Calls implying the Dealers desire to participate in any rally that may develop this week. Dealers appear to be signaling a ceiling in the current rally at $620. To the downside, Dealers are buying $604 to $580 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying, reflecting a bearish view for the week. Dealer positioning has not changed from today. While still bearish, this positioning appears to be more out of concern for a data surprise than an actual belief that prices will fall. When there is a conflict between short term and longer term positioning, you need to question what is most likely. The longer term positioning has not changed materially meaning the Dealers have not updated or adjusted their view heading into Friday. But they have adjusted the daily view which is clearly bullish. We tend to believe this is a more accurate representation of true Dealer feelings about the current market. It could also imply Dealers are confident about tomorrow but less so about Friday’s PCE. We continue to advise reviewing Dealer positioning for clues to the market’s direction and given Dealer positioning changes daily, it’s essential to monitor these updates every day for shifts in sentiment.

Recommendation for Traders
For Wednesday, focus on long trades near support at $602 and $600, targeting $605, $607, and $609. Short trades are advisable near resistance at $609, with tight stop-losses above $611. Tighten stops aggressively, particularly if SPY breaks below $599 or tests $602 support. With the FOMC decision likely to shake markets, smaller position sizes are recommended to manage risk. Review the premarket analysis posted before 9 AM ET for updated guidance on key levels and Dealer Positioning.

Good luck and good trading!