Market Insights: Wednesday, January 8th, 2025
Market Overview
U.S. markets struggled for direction on Wednesday, closing flat after an indecisive trading session marked by light volumes and a lack of major catalysts ahead of Thursday’s holiday. SPY ended just barely in the green, reflecting investor caution as markets navigated mixed macroeconomic signals. The Nasdaq and Russell 2000 underperformed, weighed down by the ongoing pressure on growth stocks amid persistent inflation worries. Treasury yields slightly cooled, offering some respite to equity valuations, though the broader sentiment remained muted as investors awaited Friday’s delayed December jobs report. Commodities showed mixed results, with oil prices dipping on demand concerns while gold edged higher, capitalizing on its role as a safe haven. Bitcoin extended its recent losses, reflecting continued risk aversion in digital assets. Overall, the market remains hesitant, with participants focusing on key support and resistance levels for guidance.
SPY Performance
SPY closed at $588.49, a marginal 0.15% gain, after a day of sluggish price action. The ETF traded within a narrow range, opening at $588.58, peaking at $590.58, and finding support at $585.20. Volume was slightly below average at 41.22 million shares, underscoring the lack of conviction among market participants. SPY’s inability to sustain momentum above $590 reflects the ongoing tug-of-war between bearish pressures from elevated yields and bullish hopes for easing macroeconomic conditions later this year.
Major Indices Performance
The Dow Jones led with a modest 0.21% gain, supported by defensive sectors. The Nasdaq slipped 0.03%, reflecting continued pressure on tech-heavy growth stocks. The Russell 2000 fell 0.45%, highlighting weakness in smaller-cap names amid elevated borrowing costs. The broader S&P 500 mirrored SPY’s flat performance, as market participants appeared content to hold positions steady ahead of upcoming economic data. Sectorally, defensives like utilities and healthcare outperformed, while cyclicals lagged behind.
Notable Stock Movements
Within the "Magnificent Seven," Microsoft, Tesla, Amazon, and Apple were the exceptions in an otherwise subdued group, each posting slight gains. Meta struggled the most, down over 1.1%, continuing its recent losing streak amid valuation concerns. The group as a whole reflected broader market trends, with muted enthusiasm for high-growth names as interest rates remain elevated. Tesla’s resilience stood out as investors reacted positively to reports of robust delivery numbers, while Microsoft benefited from defensive buying within the tech space.
Commodity and Cryptocurrency Updates
Crude oil fell 1.23% to $73.34, pressured by demand concerns and mixed signals from economic data. Gold rose 0.58% to $2,681, continuing its climb as a favored hedge in an uncertain macroeconomic environment. Bitcoin dropped 2.75%, closing just above $93,900, as profit-taking and caution among investors dominated the cryptocurrency landscape. The ongoing slide in Bitcoin reflects the sector’s vulnerability to macroeconomic headwinds, with traders watching for key support levels near $83,000.
Treasury Yield Information
The 10-year Treasury yield declined slightly by 0.09%, settling at 4.681%. While this dip offered some breathing room for equity valuations, yields remain at levels that historically challenge risk assets, especially growth sectors. A break below 4.5% could bolster market sentiment, but levels above 5% would likely reignite selling pressure across equities.
Previous Day’s Forecast Analysis
Tuesday’s forecast anticipated a range of $581 to $591 with a bearish bias. Resistance was expected at $590 and $591, while support was projected at $586 and $585. The forecast clearly stated the bears were in control of the market and to fade any rallies to as high as $591. The model also stated to seek longs from $585 on failed breakdowns. SPY’s performance closely aligned with these projections, testing resistance at $590.58 before pulling back toward the lower end of the range. The recommendation to short near $590 and target $586 proved actionable, as did the long at $585, offering profitable opportunities for traders following the outlined strategy.
Market Performance vs. Forecast
SPY adhered to Tuesday’s forecast, trading within the projected range and with a bearish lean. After opening near $588.50, the ETF tested resistance at $590.58 before retreating toward support at $585.20. Traders who followed the recommendation to fade resistance levels and buy near support found success, particularly with tight stop-losses to navigate the session’s choppy action. The accurate identification of key levels once again highlighted the reliability of the model.
Premarket Analysis Summary
In today’s premarket analysis posted at 8:24 AM, SPY was expected to trade between $586 and $591, with a downside bias while under $588.50. Resistance was projected at $591 and $595, while support was outlined at $586 and $583.50. The forecast advised traders to fade edges and anticipate sideways action within a constrained range, emphasizing the importance of clear rejections at key levels.
Validation of the Analysis
The day’s price action adhered to the premarket analysis, with SPY respecting resistance at $590.58 and finding support near $585.20. The forecast’s emphasis on fading edges proved effective, as traders capitalized on the predictable reversals at resistance and support levels. The session’s muted volatility validated the expectation of sideways action, reinforcing the analysis as a reliable guide for intraday strategies.
Looking Ahead
With markets closed on Thursday, traders are turning their attention to Friday’s delayed December jobs report. This key economic release is expected to provide insights into labor market strength and its implications for Federal Reserve policy. Volatility is likely to increase as the data approaches, with potential repercussions for interest rate expectations and broader market sentiment. On Friday while our model does a great job forecasting where the market is likely to find support and resistance, when new information is introduced its important to temper the model’s forecast with price discovery after the release of this information. We like to say trade what you see and this is highly applicable for Friday.
Market Sentiment and Key Levels
SPY’s close at $589.49 highlights a market caught in limbo, with resistance at $590 and $595, and support at $586 and $585. Breaking below $585 would expose $580 as the next target, while a push above $590 could trigger a rally toward $595. However, the prevailing sentiment skews bearish, with traders favoring selling into rallies until clear bullish catalysts emerge.
Expected Price Action
Our model forecasts a large trading range due to the jobs report of $580 to $595 with a bearish bias for Friday. If SPY breaches $585, expect further downside to $580 and perhaps as low as $576.74, which would close the gap from November 5th. Conversely, clearing $590 could target $595, though sustained momentum remains unlikely without positive macro developments. Be certain to update your strategy once the jobs report is released. Probabilities suggest the first move higher or lower after the report will be a trap and that the market will reverse. This is typical for a major economic release. While nothing is 100%, this has a high enough probability that as traders, you should be aware and not get caught on the wrong side of the market. This actionable intelligence suggests a cautious approach, favoring shorts near resistance and longs near support.
Trading Strategy
Traders should focus on shorting SPY near resistance at $590 and $595, targeting $585 and $580. Conversely, long trades near $585 and $580, with an upside target of $590, offer favorable setups. We remain cautious for any longs given the bearish tilt of the market. We recommend only entering longs on failed breakdowns given the probability of success for this pattern is typically higher than a knife catch long from major support. As volatility remains elevated, tight stop-losses ($1.50 to $2) are recommended to manage risk effectively. The VIX remains elevated so traders should prepare for increased swings surrounding Friday’s jobs report.
Model’s Projected Range
The model projects a range of $579.50 to $596.75, reflecting a Put-dominated market and an expanding bearish trend. SPY remains in a bear trend channel, with resistance at $590 and $595, and support at $585 and $580. A break below $580 could accelerate selling, while reclaiming $595 is necessary to challenge bearish dominance. The bear channel has contained price since the 19th of December and while it is a shallow trend, should this hold prices will continue to drift lower.
Market State Indicator (MSI) Forecast
Current Market State Overview:
The MSI is currently in a Bullish Trending Market State, with prices closing mid-range. The range is narrow and there are no extended targets printing above, which implies a weak bull trend for Friday. The MSI opened the day in a bearish state that carried over from yesterday’s close and spent much of the day in this range before the MSI rescaled lower. But after FOMC minutes were released at 2 pm the MSI rescaled to a ranging state then to a bullish state with price moving back toward major overhead resistance. Extended targets printed sporadically below price in the morning session indicating the herd was participating in the move to today’s lows. These ceased printing at 12:36 pm ET and the MSI rescaled a bit higher indicating a temporary end for the day to the bear trend. The MSI spent much of the afternoon in a ranging state with price chopping around in the lower half of the range before rescaling a bit higher to a narrow Bullish Trending Market State. MSI support is $589.19 and resistance is $590.43.
Key Levels and Market Movements:
As forecast SPY continued its decline in today’s morning session reaching major support at $585.20 as well as MSI support at this level. The ETF traded to MSI resistance at $590 at 11:40 am ET which set up our short to MSI support at $586.95. Users of this tool know the odds of success trading from, in this case, resistance to support is 70%. The MSI rescaled lower and we held our short runner to wait for price to reach major support at $585. A textbook failed breakdown at 12:30 pm and with the MSI no longer printing extended targets below, and rescaling higher, we reversed long and traded to MSI resistance at $588.49 holding our runner to see if price would reach our next major level of $590. Price did in fact reach $590 and we decided to bank profits on trade number two and call it a day. We were done by 2:30 pm given the market is closed Thursday and probabilities suggested the late afternoon session would be nothing but chop. And it was choppy with price trading in a very narrow range into the close. But today was another solid trading day for the MSI going 2 for 2 with the MSI once again doing its job, showing us the strength of the trend and where we would find major support and resistance. The MSI continues to provide actionable information and levels to assist traders in staying on the right side of the market. We highly recommend integrating the MSI into your trading toolbox to maximize long-term success.
Trading Strategy Based on MSI:
We stated yesterday the “MSI currently forecasts the possibility of a continuation of the bear trend on Wednesday. The bears are in control and the bulls have lots of work to do to change that situation. Clearing $590 on volume may start a bounce, but any real short squeeze doesn’t start until price clears $595. Otherwise market participants will sell every rally as the market struggles”. And true to form this forecast played out perfectly once again with rallies being sold with additional market weakness during the morning session. With the bears in control nothing has changed our view, especially given the bulls were not able to overcome $590 today. Our forecast for Friday is unchanged from yesterday given “price is in no man’s land where above $590 price could rally to $595 where it is likely to sell off. Or price may fall below $587 which opens the door to $585 and $580.” This continues to be the forecast until a major catalyst, such as Friday’s jobs report, changes market participants view of the future. So again as we said yesterday, “between $586 and $591, price will move in a choppy, sloppy manner which should be traded from the extremes and from one level to the next”. We continue to favor leaning bearish and recommend rallies be faded. Friday will be pivotal in defining the direction of the market for the rest of January so we suggest watching this event to be prepared to trade what you see. Absent external catalysts, Friday will likely see price retest today’s lows and attempt a rally to as high as $595 where we forecast it will once again fail. As we stated yesterday, price “will have a difficult time moving beyond $591” and “should price move lower to $585, expect price to fall to $580”. This forecast remains accurate for Friday. That said, the jobs report could change everything stated above so be prepared to trade what you see. Friday will be a day where watching the MSI for clues to help you identify the trend and key levels to trade will ensure alignment with prevailing market conditions. If you do not have this tool, we suggest contacting your representative to secure your copy.
Dealer Positioning Analysis
Summary of Current Dealer Positioning:
Dealers are selling $594 to $605 and higher strike Calls while buying $590 to $593. This implies Dealers wish to participate in any rally on Friday, possibly anticipating a short squeeze to as high as $600, which looks to be the ceiling for Friday. To the downside Dealers are buying $588 to $560 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a slightly bearish outlook for Friday. This has changed from neutral to slightly bearish, reflecting Dealers increasing concerns about lower prices. That said, their positioning is still not overly bearish.
Looking Ahead to Next Friday:
Dealers are selling $597 to $615 and higher strike Calls while buying $589 and $596 Calls indicating their desire to participate in any market rally to as high as $610 by the end of next week. $605 appears to be the ceiling for next week. To the downside, Dealers are buying $588 to $550 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, reflecting a slightly bearish view for the week. This positioning remains unchanged from today. Dealers continue to add significant quantities of out of the money protection which implies some fear of falling prices. Dealers are prepared for any market decline that may develop. But again, this positioning is not overly bearish. Dealer positioning changes daily so it’s essential to monitor these daily updates for shifts in sentiment.
Recommendation for Traders
Traders should stay nimble and align with the bearish bias, focusing on short trades near $590 and $595 while targeting $586 and $585 for profits. For long trades, $585 to $580 offers attractive entry levels with a target of $590. Risk management remains paramount, with tight stop-losses recommended to navigate the current market’s elevated volatility. As Friday’s jobs report approaches, be prepared for heightened activity and adjust strategies accordingly. Remember to review the premarket analysis posted before 9 AM ET for updated insights on the model’s outlook and dealer positioning.
Good luck and good trading!
