Market Insights: Wednesday, February 12th, 2025

Market Overview

U.S. stocks saw another mixed session on Wednesday as investors remained on edge ahead of the pivotal Consumer Price Index (CPI) report. The S&P 500 ended the day slightly lower, losing 0.26%, while the Dow Jones Industrial Average fell 0.53%, pressured by weakness in financials and industrials. The Nasdaq Composite, however, managed to rise 0.16%, benefiting from a rebound in select mega-cap tech stocks.

Market sentiment remains cautious as traders brace for the inflation data, which could dictate the Federal Reserve’s next move. While Fed Chair Jerome Powell reassured markets that the central bank remains data-dependent, the persistent uncertainty around interest rate cuts has kept investors in wait-and-see mode. The recent tariff announcements from President Trump—imposing 25% duties on all steel and aluminum imports—continue to add an extra layer of uncertainty, particularly for manufacturing-heavy sectors.

The broader market movement has been relatively contained, with investors positioning ahead of key economic releases. Thursday's Producer Price Index (PPI) and Friday’s retail sales data are also on the radar. But with a hotter than expected CPI, market dynamics could shift significantly as rate cut expectations diminish, leading to increased volatility.

SPY Performance

SPY closed at $603.75, slipping 0.26% for the session. The ETF opened at $599.30 and reached a high of $604.55 before retreating slightly. The low of the day was $598.51, marking a brief dip below key psychological support at $600. Trading volume was elevated at 48.64 million shares, reflecting a more active session as traders positioned ahead of the CPI report. Major resistance remains at $606 and $610, while support sits at $600 and $597.

Major Indices Performance

The Nasdaq Composite led the market with a 0.16% gain, as strength in select tech stocks offset broader market weakness. The Dow Jones Industrial Average lagged, dropping 0.53%, weighed down by weakness in financials and industrials. The S&P 500 followed suit, declining 0.26% in a session marked by low conviction trading. The Russell 2000 underperformed, falling 0.74%, as small-cap stocks struggled amid rising Treasury yields and uncertainty surrounding economic growth.

Defensive sectors such as utilities and consumer staples outperformed, while cyclical sectors like industrials and materials lagged. The overall market posture remains cautious, with investors hesitant to take aggressive positions before key economic data.

Notable Stock Movements

The Magnificent Seven stocks had a mixed session, with Tesla leading the rebound, surging more than 2% in what appeared to be a relief rally. Tesla has been under pressure recently, and while today’s move was strong, we continue to forecast a retest of $300 before finding material support. Amazon, Alphabet, Nvidia, and Microsoft all posted losses, weighing on the Nasdaq, while Apple and Meta managed to finish in positive territory.

The broader tech sector saw choppy trading, with investors taking profits ahead of the PPI report. While select mega-cap names saw relief buying, overall sentiment remains cautious as traders weigh potential risks tied to inflation and Fed policy.

Commodity and Cryptocurrency Updates

Crude oil fell 2.70% to settle at $71.34 per barrel, as concerns over global demand outweighed supply-side constraints. Gold also edged lower, declining 0.31% to $2,923 per ounce, reflecting modest profit-taking ahead of the PPI report. Bitcoin, however, extended its recent rally, jumping 2.63% to close just above $97,500. The cryptocurrency market continues to show resilience, with Bitcoin maintaining its uptrend. We remain buyers of Bitcoin at $83,000 to $77,000.

Treasury Yield Information

The 10-year Treasury yield surged 2.18% to close at 4.636%, climbing further above the critical 4.5% threshold. Historically, moves above 4.5% have led to market pullbacks, and if yields continue rising toward 5%, equities could see increased downside pressure. Should yields breach 5.2%, we anticipate a 20% or greater correction in equity markets. The bond market remains a key focus as traders gauge potential shifts in Federal Reserve policy expectations.

Previous Day’s Forecast Analysis

Tuesday’s forecast projected a trading range of $600 to $610, with a bias level at $605. The analysis suggested that if SPY remained below $605, downside movement would be favored, while a push above that level could lead to further upside. Expected resistance levels were $608 and $610, while key support sat at $600 and $597.

The model also indicated that traders should anticipate consolidation ahead of CPI, with potential for range-bound price action prior to the report’s release. Short trades were favored below $600 and above $605, while longs were recommended from major support levels of $600. Longs were favored over shorts given the bulls control the market.

Market Performance vs. Forecast

SPY’s actual trading range of $598.51 to $604.55 closely aligned with the forecasted levels. The ETF found support at $600 but briefly dipped below before recovering, reinforcing the importance of key psychological levels. The forecast correctly anticipated a subdued session ahead of CPI, with price action remaining largely contained. Once the report was released, however, price fell to major support and at the open, provided excellent opportunities for longs for traders who followed the model’s guidance. Traders had additional opportunities to fade resistance near $605 in the afternoon session.

While SPY did not reach $608, the model’s projected range captured the day’s movement well, reinforcing the effectiveness of the forecast. With PPI on deck, traders should remain vigilant for potential volatility shifts.

Premarket Analysis Summary

Wednesday’s premarket analysis, posted at 7:25 AM ET, anticipated a fairly wide range with a neutral stance leading into CPI. The bias level was identified at $605, with resistance at $607 and $610, and support at $602 and $598. The analysis suggested that staying below $605 would favor downside movement, while a move above could push SPY higher.

Traders were advised to expect limited aggressive positioning ahead of the data, with sideways action likely dominating the session. A failure to break $605 was noted as a key factor that could pressure the market lower.

Validation of the Analysis

The premarket analysis was highly accurate, as SPY struggled to sustain levels above $604.75 and remained largely range-bound throughout the session. The expected resistance at $605 held firm, preventing any substantial move higher. Support at $602 also played a role, with price action respecting these key levels.

Traders who followed the analysis had clear opportunities, particularly by fading resistance and looking for support-based long entries. The market’s reluctance to break higher confirmed the neutral stance heading into CPI, validating the premarket outlook.

Looking Ahead

Thursday’s focus shifts to the Producer Price Index (PPI) report, which will provide additional insights into inflation trends. While CPI is typically the primary market-moving event, PPI can still influence rate expectations. Friday’s retail sales data will also be key, offering a glimpse into consumer strength. With the FOMC minutes on the horizon next week, traders should remain flexible and prepared for sudden shifts in sentiment.

Market Sentiment and Key Levels

SPY is consolidating near $603, with resistance at $606 and $610. Support levels remain at $600, $597, and $595. The market remains in a neutral posture, with traders awaiting a major catalyst. While today’s CPI provided a catalyst with the market falling initially close to 1%, buyers stepped in at the $600 major level and bought the dip in mass to push price back toward $605. A sustained push above $605 on volume will see price move to $610 which could fuel upside momentum toward all-time highs, while a move and close below $600 will open the door to further downside pressure. $600 remains key to the direction of the market.

Expected Price Action

Our AI model forecasts a trading range of $599 to $608 for Thursday, with a consolidation bias. The market is currently Put-dominated, suggesting a more cautious stance. If SPY breaks above $608, it could target $612 and $615, while a failure to hold $600 could lead to downside tests of $595 and $590. Traders should remain cautious ahead of key economic data given the model does not have the benefit of PPI or other economic data prior to its release.

Trading Strategy

With the market in a consolidation phase, traders should look for long opportunities near $598 and 600, targeting $603 and $606. Defer to the long trend as long as price remains above $598. Shorts should be considered on failed breakouts above $606, with targets at $602 and $600.  Volatility remains contained at $16, but a spike in the VIX could signal an increase in market turbulence.

Model’s Projected Range

The model forecasts a maximum trading range for Thursday of $598 to $609, emphasizing consolidation with potential trend shifts post-PPI. While the range is wide, it is narrowing implying more consolidation than trending price action on Thursday. Resistance is at $606 and $610, while support sits at $600, and $597. The market remains in a broad bull trend, with room to move higher or lower based on incoming data.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a narrow, Bullish Trending Market State, with price closing mid-range. There are no extended targets above implying a weak bull trend. The MSI rescaled both higher and lower overnight, entering CPI in a very narrow bullish state. A hot CPI and price fell hard with the MSI rescaling to a Bearish Trending Market State several times. But with each rescale there were no extended targets below but for one brief period, indicating the herd was not participating in the sell off and that the drop was simply a trap set by the bulls. Sure enough the MSI slowed rescaling and by the open, price found a bottom at MSI support at $598.50 where it reversed and trended higher for the rest of the session. The MSI rescaled to a very wide ranging state by 9:40 am and moved from a ranging state to a bullish state, settling in a trending state into the close. MSI support is currently $603.02 and resistance is $604.55.  
Key Levels and Market Movements:
As we stated yesterday “with CPI looming the day is more about trading what you see after CPI than a fixed plan” and today the MSI made it quite clear what we were seeing post CPI was not to be trusted. We also stated ”CPI days are trap filled so using failed breakout/breakdown patterns is key to trading successfully” and today was no exception. The initial drop was nothing more than a trap and after a failed breakdown prior to the open, on the retest of MSI support and without any extended targets below, we were long out of the gate taking first profits at MSI resistance at $600.25. Price continued to rally and the MSI rescaled to a ranging state. Given the strength of the failed breakdown, we moved our stop to breakeven and held our runners to see if price would reach major overhead resistance at $605. A quick pullback to MSI support at $600 and we followed our plan from yesterday and added to our long at this major support level, taking first profits at $601.50 or MSI midrange. Typically this trade has no better than 50% odds of success but we felt confident the MSI was telling us not to worry about the sell off from CPI given how quickly the MSI rescaled higher, and given there were no extended targets below when the MSI was in a bearish state. We continued to hold our runners and moved our stop to MSI resistance turned support at $600.25. The MSI then rescaled higher to a Bullish Trending Market State but again, did not print extended targets above. In addition the bullish range was narrow and MSI overhead resistance was lower than the prior ranging state resistance. That was our sign to exit our long trade at MSI resistance at $603.00. Immediately after we exited price set up a perfect failed breakout at $603, but given we were looking for higher levels to short, we passed what turned out to be a great trade. We sat on our hands for an hour while price chopped around with the MSI rescaling to a ranging state. But another failed breakdown just before noon at major support at $600.50 and we were long once again looking for MSI resistance as a first target. That came quickly and the MSI rescaled higher several times to a bullish state. When the MSI rescales several times in rapid succession we know to stay with the trend and seek larger targets. And once again the MSI delivered with price reaching $604.50, just shy of our major resistance level of $605. With another failed breakout at a level we were stalking all day, we reversed short at MSI resistance taking profits at MSI support at $603. We held our runners to see if price might continue to fall but price held firm so we exited prior to the close given our plan was quick profits on short countertrend trades. Yet another four for four day without taking any heat or feeling any pressure. Trading in this fashion is far less stressful and less taxing on your emotions. Using the MSI, our major levels and failed patterns, we eliminate many psychological issues related to day trading. This is a major benefit of trading with our model’s plan and the MSI. The MSI informs who controls the market, when they took control and where, which allows us to trade our plan profitably. The MSI does this every single day, day in and day out. The MSI keeps users out of trouble with actionable information to ensure traders stay 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:
For Thursday with PPI looming, once again the day is more about trading what you see than a fixed plan. Be nimble and prepared. Absent this information, with the MSI in a Bullish Trending Market State, we expect prices to drift higher overnight toward $606 and possibly $608. The projected range is narrowing implying more consolidation than trending price action so its likely tomorrow is a day to trade from the edges both long and short. Do not fight the trend, however, if the MSI is printing extended targets, OR if the MSI range widens substantially. We continue to favor longs over shorts but will seek short set ups from failed breakouts above $606 or below $598. While PPI is not typically as impactful as CPI, the market will likely sell off on a hotter than expected PPI so continue to seek failed breakout/breakdown patterns as triggers to entries, deferring to the bull trend. A failure of $600 is no longer an automatic short as price may test $598 before finding support, like it did today. But certainly a move below today’s low and price is likely moving toward $595. Should SPY break $606, $610 is the next stop higher. Continue to use the MSI given it is designed to keep you safe, positioning you on the right side of the market, which is critical to trading success, especially on a major news days. If you utilize our model’s levels with the MSI to stalk entries and exits, trading on the right side of the market, your odds of success increase dramatically. If you do not have this invaluable tool, we highly suggest contacting your representative to secure a copy.

Dealer Positioning Analysis

Summary of Current Dealer Positioning:
Dealers are selling $608 to $615 and higher strike Calls while buying $604 to $607 Calls indicating the Dealers desire to participate in any rally tomorrow post PPI. Dealers look to have set a ceiling for tomorrow at $610. To the downside Dealers are buying $603 to $590 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, implying a neutral to slightly bearish outlook for Thursday. This positioning has changed from neutral to slightly bearish, but is not overly bearish.   
Looking Ahead to Friday:
Dealers are selling $608 to $620 and higher strike Calls while buying $604 to $607 Calls indicating the Dealers desire to participate in any rally by Friday to as high as $610. Dealers are not positioned for a break of the all-time high this week. To the downside, Dealers are buying $603 to $575 and lower strike Puts in a 4:1 ratio to the Calls they are selling/buying, reflecting a bearish view for the week. Dealer positioning has changed from slightly bearish to bearish. Dealers have increased their protection slightly heading into the end of the week. CPI was hotter than expected yet the market shrugged off these concerns and ended the day flat. Dealers have added to their downside protection given this new information but are not overly bearish. More of an add just in case things unravel. But the move toward an all-time high this week without a major catalyst looks like a low probability. We continue to “advise any long book purchase protection to the downside in the form of VIX Calls or SPY/SPX Puts or shorts in the Futures market”. We also advise reviewing Dealer positioning daily for clues to the market’s direction and given Dealer positioning changes and it’s essential to monitor these updates for shifts in sentiment.

Recommendation for Traders

Our advice for Thursday is to trade what you see and look for failed breakout and breakdown patterns from major levels. $600 and $606 remain major levels with $600 continuing to prove this is a line the bulls do not want to fail. At the same time the bears are sitting higher keeping price contained as it works toward the all-time high. Eventually this consolidation will end and given the market is setting up a bull flag, the probability of a resolution higher is likely. For intraday trading using the MSI makes trading simpler than using price action alone, given it updates in real time. And like today, do not have a bias heading into PPI. Instead be prepared to trade what develops…trade what you see. Continue monitoring the key $600 level but also watch $605 as a major level given the bulls will attempt to break the prior highs and $605 needs to hold on any retest of this level for the bulls to remain in complete control. Be sure to review the premarket analysis before 9 AM ET for any updates.

Good luck and good trading!