Market Insights: Wednesday, January 29th, 2025

Market Overview

Tech stocks weighed on the broader market Wednesday as investors digested the Federal Reserve’s latest decision to leave interest rates unchanged. The Nasdaq led the decline, slipping 0.56%, followed closely by the S&P 500, which lost 0.45%, while the Dow Jones Industrial Average dipped 0.21%. The Fed’s statement notably removed prior language about progress toward its 2% inflation goal, which sent mixed signals to investors about future rate policy. Fed Chair Jerome Powell, however, downplayed the change, calling it a “language cleanup,” which briefly helped markets bounce off their lows.

Adding to the pressure was Nvidia, which tumbled 4% after reports surfaced that the Trump administration may impose additional restrictions on its AI chip exports. Other tech giants followed suit, with Microsoft and Meta sinking post-earnings due to disappointing cloud revenue and weak guidance. Tesla, on the other hand, initially dropped 6% after missing Wall Street’s estimates but reversed course to close 3% higher in after-hours trading. Meanwhile, IBM saw an 11% surge after reporting strong AI-driven revenue growth. Bitcoin bucked the trend, rallying over 2.5% to trade above $103,800.

With markets still digesting the Fed’s stance and big tech earnings, all eyes now turn to Thursday’s GDP and Unemployment Claims data, followed by the PCE inflation report on Friday. These economic releases will likely set the tone for broader market sentiment heading into the final stretch of the week.

SPY Performance

SPY closed at $601.81, down 0.45% for the session after trading between $599.22 and $604.12. Despite opening at $603.85, the ETF struggled to gain traction as selling pressure emerged throughout the day. Volume remained light at 31.03 million shares, well below average, indicating cautious positioning ahead of key economic data releases. The $600 level continues to act as an important psychological and technical support level, while resistance remains near $604-$605.

Major Indices Performance

The Nasdaq led Wednesday’s decline, falling 0.56% as selling in Nvidia, Tesla, and Microsoft weighed heavily on the index. The S&P 500 dropped 0.45%, pressured by broad-based weakness in tech and concerns about the Fed’s unclear inflation stance. The Dow Jones Industrial Average fared slightly better, slipping 0.21% as investors rotated into defensive stocks. Small caps in the Russell 2000 also edged lower, declining 0.23%, as risk-off sentiment took hold. Overall, the market remained in a wait-and-see mode, with traders looking toward key economic data to determine the next major move.

Notable Stock Movements

The Magnificent Seven saw mixed results, but Nvidia and Tesla stood out as the biggest losers of the session. Nvidia fell after reports suggested the Trump administration might introduce stricter AI chip export regulations, spooking investors about its future growth potential. Tesla initially dropped 6% following weak earnings and margin compression but managed to reverse gains, closing up 3% in after-hours trading. Microsoft slipped 5.5% after missing cloud revenue expectations, while Meta tumbled 5% post-market due to increased spending and weak forward guidance. IBM was the standout performer, surging 11% after reporting strong AI bookings and a higher-than-expected free cash flow forecast.

Commodity and Cryptocurrency Updates

Crude oil fell 1.31% to settle at $72.98 per barrel as concerns over global demand resurfaced. Gold slipped 0.16% to $2,758, reflecting a slight pullback in safe-haven demand after Powell’s comments reassured some investors. Bitcoin, however, continued its upward trajectory, gaining 2.54% to close just above $103,800, supported by ongoing institutional adoption and broader optimism in the crypto space.

Treasury Yield Information

The 10-year Treasury yield declined by 0.42% to 4.530%, remaining above the key 4.5% threshold that typically pressures equities. With rates still elevated, the equity market remains vulnerable to further downside if yields continue their upward march. A break above 5% would likely trigger a deeper correction, but for now, the bond market appears stable following the Fed’s policy decision.

Previous Day’s Forecast Analysis

Tuesday’s forecast called for a trading range between $596 and $609, with a bias around $605. It suggested that SPY could test $609 on the upside if it maintained support above $605 but warned of potential downside risks to $601 and $598. The forecast also anticipated choppy price action leading up to FOMC, with the real movement coming after the Fed’s statement.

Market Performance vs. Forecast

SPY followed the forecast closely, trading between $599.22 and $604.12, largely respecting the expected support and resistance levels. The bias level at $605 proved to be a key battleground, as SPY struggled to move above it, ultimately closing lower at $601.81. The analysis correctly predicted that the market would be hesitant before the Fed announcement, with most of the movement happening after Powell’s comments. Traders who followed the forecast were able to capitalize on moves around $602-$605 for longs from $602 and short trades from $605. After the FOMC longs from $599-$600 also worked well.

Premarket Analysis Summary

Today’s premarket analysis, posted at 9:42 AM, anticipated a choppy session with an upward bias as long as SPY held above $605. It projected upside targets at $609 and $613.50, while downside support levels were noted at $603, $601, and $598. The analysis emphasized cautious trading ahead of the Fed’s decision, expecting volatility to pick up later in the session.

Validation of the Analysis

The premarket analysis was largely accurate, as SPY remained choppy within the projected range before breaking lower post-Fed. The key level of $605 acted as a ceiling, with SPY unable to hold above it, confirming the cautionary approach outlined in the premarket notes. The downside targets at $603 and $601 were hit, validating the expectation of a weak session. Traders who followed the guidance were able to take advantage of the expected price swings.

Looking Ahead

Thursday’s session will be heavily influenced by GDP and Unemployment Claims data, which could impact rate expectations. Additionally, after-hours earnings from Apple and Amazon could set the tone for tech stocks into Friday. With the PCE inflation report on deck to close out the week, volatility is likely to remain elevated.

Market Sentiment and Key Levels

SPY is trading near $601, with resistance at $606, $608, and $610. Support sits at $601 and $600, with $595 as a critical downside level. Market sentiment remains cautious, as traders assess macroeconomic risks and the Fed’s stance. A break above $606 could see a push toward $608 to close the open gap from Monday, while failure to hold $600 may trigger a test of $595. $600 has become the battleground between the bulls and the bears with the bulls having more influence above this level with the bears showing their teeth below.

Expected Price Action

Our model projects SPY to trade between $598 and $606 on Thursday, with Put positioning suggesting downside risks. The bulls still control the narrative but ever so slightly. Resistance levels at $606, $608, and $610 will be key, while support at $600 and $595 will determine whether the market stabilizes or trends lower.

Trading Strategy

For Thursday, while the options market is bearish, the bull trend is not to be denied. Price is trading in a messy, $4 range between $601 and $605. As long as $601 holds, price can consolidate in this range and work higher. Should $601 fail and subsequently $600, the market will sell off to $595 at a minimum. Given the strength of the bull trend, we continue to favor long trades above $600 targeting $605 and $606. Short trades are advisable near $607 and higher targeting a pullback to $601. Given the likely price action heading into Thursday, we continue to advise looking for entries on failed breakouts and failed breakdowns. There were a few today but given their proximity to the FOMC news release, they were difficult to trade and easy to miss. There is much more news due out this week which could produce similar conditions as today so be careful and trade what you see as this information is introduced to the market. With the elevated volatility, smaller position sizes are recommended.

Model’s Projected Range

The model forecasts a wide, maximum trading range of $594 to $602.25, suggesting a heavily trending market. The market remains Put-dominated, increasing downside risks. Price is trading mid bull channel with room above to $620 and below to $582. If SPY breaks $600, expect a slide to $595. If it holds above $605 look for a move toward $610. As these major levels break, the other side becomes stronger therefore stay with the trend and only fade the trend from major support and resistance levels, seeking failed patterns as a trigger to entry.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Ranging Market State, with price closing just above support. The MSI range is average. Overnight the MSI remained in a bullish state which held for the entire morning session. There were no extended targets above indicating a weak bull trend. Between 1 pm and 2 pm ET the MSI rescaled to a ranging state until FOMC, after which it rescaled to a narrow Bearish Trending Market State, briefly printing extended targets below. Price did fall but found major support at MSI support at $599.22. This level held and the MSI began rescaling higher by 2:34 pm ending the day in the current ranging state. MSI support is currently $601.01 with resistance at $603.47.  
Key Levels and Market Movements:
SPY did virtually nothing all morning, trading in a very narrow range. The MSI did not print any extended targets and with a narrow MSI, price traded mid channel the entire morning, we didn’t see any opportunity to trade prior to FOMC. We stated yesterday that late morning before FOMC the market tends to quiet and boy was that the truth. There was failed breakdown at 1 pm which looked like a decent long, but given we tend to hold our trades for a few hours, we decided to pass this solid set up until after FOMC. And after the report was released the MSI rescaled lower three times, but only printed extended targets for a minute or two. The MSI range was quite narrow so we knew the strength of the sell off was weak. When price reached MSI support at $599.22 we entered a mean reversion long and looked for a first target at $601. We stated yesterday 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”. While price didn’t move $10, we knew the first move was nothing more than a trap and the MSI confirmed our plan, giving us the confidence to enter this long trade at one of our major support levels. The MSI then rescaled to a ranging state so we took our final profits at MSI resistance at $602.50 given price put in a less than textbook failed breakout. Given the time of day, we didn’t take what was an obvious short from this level. As readers of this newsletter know, we are careful trading when the MSI is in a ranging state given the odds of success are only 50%. Those who did take this late day trade, however, did well, closing it out at MSI support at $601. Two or three solid trades for the MSI with one for us in an otherwise difficult trading session. We will take this every time as a green day is always a good day. Once again with the MSI we knew who controlled the market. When we combine this knowledge with our model’s trading plan, our readers are able to secure the highest probability trades day in and day out. 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 Tuesday 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.” Today was certainly trap filled before and after FOMC. FOMC and PCE days are two of the hardest days to trade. We trade a systematic, momentum based Futures strategy at our affiliate fund which trades 20 markets and today it got creamed. Even though we are fully aware of the risks on these days, our own strategies have a difficult time trading them. Given we build our strategies for the 250 days a year the markets trade, and not just for FOMC or PCE days, these days can be difficult for our strategies. We tell you this so you understand that losses are part of trading. While risk management is crucial, and all our systematic strategies have strict risk controls, we are unable to avoid losing days, which is why we trade multiple strategies to hedge risk. This is much harder to do as a retail trader, which is why we advise you to wait for price to come to a major level before initiating a trade. If you trade from our model’s levels and use the MSI to find entries and exits, as well as keep you trading on the right side of the market, your odds of success increase dramatically. The rest of this week will likely be quite difficult to trade as well. We will feel lucky to get one trade tomorrow and one on Friday. The good news is that the data being released tomorrow and Friday comes out premarket so by the time we sit down to trade with the MSI, price may have picked a direction so all we have to do is find a suitable entry. For tomorrow that means looking for longs from $600 to $601 and higher, while looking for shorts from $607 to as high as $610. Longs are favored over shorts, so quicker profit targets on shorts and smaller size than longs. Given the bulls have the edge, we suggest failed breakouts for short trades as long as the MSI is not printing extended targets above. For longs, while failed breakdowns provide a high probability entry, double bottoms, and other patterns from MSI support is also workable. Our advice for tomorrow is the same as yesterday, as long as $600 “holds, SPY can continue working higher” beyond $606 to $608 and $610, gunning for new all-time highs. Should $600 fail, price drops to $595 which becomes a level the bulls must defend to realize higher prices. Having a tool that updates in real time, like the MSI, is critical to trading success on days like we saw today and will likely experience tomorrow and Friday. The gap from Monday is a clear target for the bulls, therefore we do not favor shorts until this gap is closed at $606.80. We will also consider shorts if price falls below $600 on volume. Above $606.80 we advise short trades on failed breakouts and certainly advise using 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 $605 to $612 and higher strike Calls while buying $602 and $604 Calls indicating the Dealers desire to participate in any rally on Thursday. Dealers are no longer selling Puts. To the downside Dealers are buying $601 to $590 and lower strike Puts in a 3:2 ratio to the Calls they are selling/buying, implying a slightly bullish outlook for Thursday. This positioning is relatively unchanged from today.
Looking Ahead to Friday:
Dealers are selling $610 to $620 and higher strike Calls while buying $602 to $609 Calls indicating 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 $601 to $587 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, reflecting a slightly bearish view for the rest of the week. Dealer positioning has changed significantly from heavily bearish to virtually neutral. It appears all of the bearish positioning rests at $590 which looks like a very strong line in the sand for the Dealers. While our model sees $595 as a major support level, Dealers have this lower at $590 and as such, this may become the major battleground. We will have to see how this changes next week. Therefore 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

Focus on trades near major support and resistance levels, maintaining a cautious stance ahead of the remaining economic releases this week. Forecast levels and areas to trade to and from are stated clearly above. Use this information to develop a plan for the day and prior to trading, review the premarket analysis before 9 AM ET for updated insights to adjust the plan accordingly.

Good luck and good trading!