Market Insights: Friday, February 21st, 2025

Market Overview

The stock market plunged Friday as investors grew increasingly wary of economic headwinds, fresh tariffs, and fading consumer confidence. The Dow Jones Industrial Average dropped more than 700 points, or 1.7%, while the S&P 500 slid 1.7% and the Nasdaq Composite fell over 2%, reversing early-session gains. The week’s losses pushed all three major indices into negative territory, raising fears that a larger market correction could be underway.

Retailers and consumers continue to face uncertainty as President Trump’s tariffs introduce new economic pressures. Walmart’s recent warning on its 2025 outlook accelerated the market’s decline, with the company citing tariffs as a contributing factor. Meanwhile, consumer sentiment weakened sharply, with the University of Michigan’s index falling to 64.7, well below economist expectations. Inflation expectations jumped as well, climbing to 4.3% from last month’s 3.3%, marking the highest reading since November 2023.

Economic data released Friday signaled additional softness, as US business activity growth nearly stalled in February, according to flash PMI survey data. The report revealed that businesses are growing more cautious, weighed down by federal policy uncertainty. UnitedHealth (UNH) shares tumbled over 7% after news emerged that the Department of Justice is investigating the company’s Medicare billing practices. In contrast, Celsius Holdings (CELH) surged more than 30% after announcing a $1.8 billion acquisition of Alani Nutrition.

Friday’s rout capped off a difficult week for stocks, with all major indices logging declines. The downturn has left investors on edge, as growing economic and geopolitical uncertainties continue to drive volatility.

SPY Performance

SPY fell 1.72% to close at $599.90, marking its first close below the psychologically significant $600 level in weeks. The ETF opened at $610.02, briefly reached a high of $610.30, and then collapsed to an intraday low of $599.47 as sellers dominated the session. Trading volume spiked to 64.1 million shares, well above the daily average, signaling increased investor participation as downside momentum accelerated.

Major Indices Performance

The Russell 2000 led Friday’s losses, sinking 2.90% as small-cap stocks continued to struggle under macroeconomic pressures. The Nasdaq declined 1.99%, as selling in tech stocks intensified. The Dow dropped 1.73%, shedding over 700 points, while the S&P 500 lost 1.7%, erasing gains from earlier in the week.

The defensive sectors failed to provide much protection, with healthcare and utilities also trading lower. Meanwhile, cyclical names, including financials and industrials, suffered the steepest declines as investors grew increasingly concerned about slowing economic growth.

Notable Stock Movements

The Magnificent Seven stocks had a rough session, with all seven trading in the red. Tesla and Nvidia led the losses, each sinking over 4%, adding to the Nasdaq’s struggles. Other major names like Apple, Microsoft, Meta, and Amazon also suffered notable declines.

Walmart continued its downward spiral after warning about a weaker-than-expected 2025 outlook. UnitedHealth saw a sharp 7% decline on concerns over a potential Department of Justice probe into its Medicare billing practices. Meanwhile, Celsius Holdings was a rare bright spot, soaring over 30% after announcing its acquisition of Alani Nutrition for $1.8 billion.

Commodity and Cryptocurrency Updates

Crude oil dropped 3.04% to settle at $70.26 per barrel, remaining in a downtrend toward the model’s projected $60 target. Gold dipped 0.26%, closing at $2,948, but remains near record highs as economic uncertainty continues to drive safe-haven demand.

Bitcoin fell 3.06%, closing just above $95,100. Despite the decline, the cryptocurrency remains in a long-term uptrend, with strong buy zones identified between $83,000 and $77,000.

Treasury Yield Information

The 10-year Treasury yield declined 1.62% to 4.426%, remaining below the critical 4.5% threshold. Any move back above 4.8% could begin to exert significant downward pressure on equities, while a push past 5% would likely lead to a much larger correction. A rise to 5.2% could trigger a market decline of 20% or more.

Previous Day’s Forecast Analysis

Thursday’s forecast projected a trading range of $606 to $613 with a slightly bullish bias. Resistance was expected at $613, $615, and $617, while support was identified at $610, $608, and $606. The expectation was that as long as SPY held above $610, it would attempt to push higher, but a failure to hold key support could result in a sharper selloff. We stated “a break below $608 will lead to a drop to $606. A failure of $606 to hold will see prices fall quickly.”

Market Performance vs. Forecast

SPY’s actual range of $599.47 to $610.30 fell well below the forecasted range due to the introduction of new economic data into the market. We state often trade what you see after new information is introduced. The ETF briefly tested $610 before selling off aggressively, breaking through key support levels at $610 and $607 before closing just below $600. The failure to hold above $610 negated the slightly bullish bias, resulting in a strong downside move while the break of $608 quickly led to a test of $606, below which our model’s bias switched to bearish with prices falling quickly to the next major level of support at $600. Traders who followed the short setups near resistance had excellent opportunities as SPY declined nearly $11 intraday.

Premarket Analysis Summary

Friday’s premarket analysis, posted at 8:47 AM ET, projected upside targets at $613.50, $615, and $617, while downside targets were identified at $610, $607, and $605. The expectation was that as long as SPY remained above $610, it would drift toward $613.50, but a break below $610 would increase the likelihood of downside momentum.

Validation of the Analysis

The premarket analysis proved to be highly accurate, as SPY failed to hold $610 and quickly dropped to $599. Support at $607 and $605 was breached, confirming the bearish momentum. Traders who followed the forecasted levels had multiple profitable short opportunities, especially on rejections near $610.

Looking Ahead

Next week’s economic calendar is packed with important releases. Consumer Confidence data is set for Tuesday, followed by Nvidia’s earnings report after the close on Wednesday, which could significantly impact tech stocks. Thursday brings Unemployment Claims, and Friday’s PCE inflation report will be a critical gauge for market sentiment.

Market Sentiment and Key Levels

The market has shifted into a more bearish stance, with $600 now serving as the key battleground between bulls and bears. Below $600, downside momentum is likely to accelerate, with major support at $598, $595, and $593. On the upside, resistance now sits at $601, $605, and $609, with bulls needing to reclaim $605 to stage any meaningful recovery with discussion of a bottom holding no water until $608 is reclaimed

Expected Price Action

The AI model forecasts a broad trading range of $593 to $607 for Monday, with a bearish bias. If SPY remains below $600, expect further declines toward $598 and $595. A reclaim of $605 could allow for an attempt at $608, but sellers are likely to remain in control as long as price remains below $605. While Monday could see a relief rally, this may fade quickly should today’s lows break and give way to $598. Below $598 the market will take another leg lower, eying $585 as a realistic target.

Trading Strategy

Short setups should be favored on failed breakouts above $601 to $605, targeting moves toward $600 and $598 and lower. Long trades should only be considered on a confirmed reclaim of $608, with upside targets at $609 and $613 or on failed breakdowns below $600 given the bears have the ball and the advantage. The VIX rose over 16% today indicating higher volatility, so traders should reduce position sizes and prepare for sharp intraday swings.

Model’s Projected Range

The model’s maximum projected range for Monday is $592.75 to $608, with a Put-dominated structure implying continued downward momentum. The range is wide, which implies trending price action on Monday. While there is no economic news scheduled for Monday, the market has turned bearish, with limited upside unless bulls can reclaim $605 or higher. $600 continues to be the dividing line between the bulls and the bears, but much damage has been done to the bull case. Below $600 the bears will press to push price lower and below $593 there is little support until $585. Above $605 the bulls will attempt to reestablish momentum which will likely fail unless $608 is reclaimed. Price is trading in the redrawn bull trend channel from the September lows and is nearing the bottom of the channel. There is room higher to $628 and lower to $589.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Bearish Trending Market State, with price closing at support at the lows of the day. The MSI range is wide and extended targets printed below for much of the session implying the likelihood of further weakness on Monday. The MSI rescaled lower several times today as Flash Services PMI came in much weaker than forecast. In addition Consumer Sentiment weakened while inflation climbed to 4.3%, well above the Federal Reserve’s target of 2%. After the news the MSI began a series of rapid rescalings lower with extended targets below. The MSI finally stopped rescaling at major support at $600, entering a wide bearish range. Extended targets stopped printing indicating a potential bottom for the session with price closing at MSI support near the lows of the day. MSI resistance is currently $602.95 with support at $599.55.  
Key Levels and Market Movements:
We stated yesterday there were several events which could move the market today and that any “of these events could rock the market but with all three, it’s extremely important to trade what you see after each of these events unfold”. We also stated “$608 remains critical to the bulls continuing to keep complete control over the market. A failure to hold $608 and price will work toward $606. Should $606 fail, the bears will step on the gas and the market could collapse.” And finally we stated, “if the opportunity presents, our bias will quickly change to bearish and institutional algos will kick in and drive price lower.” And if you didn’t believe in the power of our models prior today, there isn’t much more we can do to make you a believer. Not only did our model tell you what to look for but specifically what would happen at each of our major levels. This is no accident. While the day started with the MSI in a ranging state as soon as PMI was released at 9:45 am the market began to test MSI support at $609. A break of this level and knowing from our premarket report that a failure to hold $610 would lead to lower prices and we were short from MSI resistance at $608.50. We took quick profits given we knew $608 was a major level the bulls wanted to defend. We took first profits at $607 but the MSI then rescaled lower and started printing extended targets below. While price chopped around $606.50 for close to 90 minutes, another major level, we knew to hold onto our runners and look for an opportunity to add to our short to get us back to full size on a break of $606. And that opportunity came when $606 failed. We stated in our plan yesterday we “would almost prefer to see $606 fail before hoping on a short set up” so once $606 failed we loaded the boat, adding to our short knowing the market was in trouble and probabilities favored materially lower prices. And sure enough the market delivered as the MSI continued to rapidly rescale lower with extended targets below. We knew we had a homerun so we held until extended targets stopped printing at 3 pm ET when we closed our entire trade in one shot at $600, a level known to us as major support. Two great trades which delivered massive profits thanks to the MSI showing us who controlled the market and when and where they took control. The MSI does this every single day, day in and day out keeping 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:
Monday has no economic news but damage has been done to the bulls with the bears now in control. Any hint by this administration of more tariffs or taking over other countries, or of more mass firings or any other macro event and the market will push materially lower. Take a look at December 18, 2024, and see what followed. While a relief rally is always possible, until the bulls reclaim $608, the bears have the ball and rallies will be sold. Monday could see a relief rally to as high as $605 where we favor shorts as long as the MSI is not printing extended targets above. A break of today’s lows and we also favor shorts to at least $598 if not lower. We stated a few days ago we see inflation running at a 6% annual rate which is high enough that rate HIKES are in store and that cuts are completely off the table. If this starts to become the narrative and if interest rates follow with the 10 year treasury moving closer to 5%, this market will drop like a stone. For Monday, with the MSI in a wide bearish state look for a short set ups on failed breakouts near MSI resistance or higher, to as high as $605. Above $605 be careful shorting. And while a relief rally may come at any time, we do not favor longs until price breaks today’s lows, tests the next major level at $598 and recovers. Should this occur we will look for longs on a failed breakdown, targeting $605. Volume was higher than normal today indicating large players are back in the game so prepare for more trending price action and continue to use the MSI to keep you safe, positioning you on the right side of the market, which is critical to trading success. If you utilize our model’s levels with the MSI to stalk entries and exits, trading with the controlling party, your odds of success increase dramatically. If you do not have this valuable tool, we highly suggest contacting your representative to secure a copy.

Dealer Positioning Analysis

Summary of Current Dealer Positioning:
Dealers are selling $609 to $615 and higher strike Calls while buying $600 to $608 Calls implying the Dealers desire to participate in any relief rally on Monday to as high as $610. To the downside Dealers are buying $599 to $578 and lower strike Puts in a 1:1 ratio to the Calls they are selling/buying, implying a slightly bullish posture for Monday. This positioning has changed from slightly bullish to bullish. Dealers once again cashed in on many of their Puts today and it's entirely possible they are loaded with Futures to protect from further downside. We will not see this reflected until sometime on Monday as Dealers reload their protection. But as of today, Dealers are signaling a possible bottom at $600 with a likely relief rally on Monday. Dealers were wrong about today so we would caution against assuming they are always correct. Nothing is 100%...70% is considered truly amazing and Dealers are at least this accurate.      
Looking Ahead to Next Friday:
Dealers are selling $610 to $620 and higher strike Calls while buying $600 to $609 Calls indicating the Dealers desire to participate in any rally next week to as high as $615. To the downside, Dealers are buying $599 to $570 and lower strike Puts in a 3:1 ratio to the Calls they are selling/buying, reflecting a neutral to slightly bearish view for next week. Dealer positioning is unchanged from today. We stated yesterday given Dealer positioning “we would heed this increase in bearish positioning and “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””. And today the VIX spiked over 16% while SPY/SPX and the Futures market dropped close to 2%. Again timeless advice for our readers preparing them for today’s broad based sell off. Dealer positioning tells us a lot about what is likely to follow so we advise reviewing Dealer positioning daily for clues to the market’s direction given Dealer positioning changes and it’s essential to monitor these updates for shifts in sentiment.

Recommendation for Traders

Our advice for Monday is to continue to seek failed breakout and failed breakdown patterns from our model’s major levels. We favor shorts over longs but advise keeping an open mind, being prepared for a potential relief rally. Dealers seem to think a relief rally is possible on Monday. Our models advises selling rallies at major levels until $608 is reclaimed. We reiterated yesterday “at any moment the market could experience a rug pull with prices dropping to $605 or lower” and certainly today we got day two of the rug pull. Will there be a day three? Possibly so stay nimble and continue to monitor key levels seeking trades from our major levels. Be sure to review the premarket analysis before 9 AM ET for the day’s updates.

Good luck and good trading!