Market Insights: Monday, February 3rd, 2025

Market Overview

U.S. stocks ended mixed on Monday as investors grappled with the Trump administration’s imminent tariff rollout, while a last-minute concession granted to Mexico helped the Dow claw back some losses. The Nasdaq Composite led declines, closing down 1.2%, followed by the S&P 500, which lost 0.7%, while the Dow Jones Industrial Average managed a 0.3% drop after recovering from deeper losses earlier in the session.

The market faced early pressure as the White House reaffirmed its plan to impose 25% tariffs on imports from Canada and 10% on China starting Tuesday. However, a phone call between President Trump and Mexican President Claudia Sheinbaum resulted in a temporary reprieve for Mexico, as Sheinbaum agreed to deploy 10,000 soldiers to the U.S. border in exchange for a one-month delay in the tariffs. This news helped soften investor concerns but failed to reverse the overall downward trend.

Technology and consumer discretionary stocks were among the worst performers, as major names including Nvidia, Apple, and Tesla all declined more than 2.5%. Automakers also took a hit on fears that tariffs could impact production costs and supply chains. Meanwhile, defensive sectors such as utilities and healthcare saw relative outperformance as investors sought safety. The U.S. dollar initially surged to a two-year high but later retraced some gains as traders speculated on potential retaliatory measures from Canada and China.

Oil prices pared earlier gains, with West Texas Intermediate crude rising just 0.5% to $72.89 per barrel, as traders assessed the impact of tariffs on global trade demand. Gold, in contrast, benefited from market uncertainty, climbing 0.78% to $2,857 per ounce. Meanwhile, Bitcoin slipped 3.38% to close just above $101,000, continuing its volatile trend amid shifting risk sentiment.

SPY Performance

SPY closed at $597.71, down 0.68% after reaching a high of $600.29 and a low of $590.49. The ETF opened at $592.55 and initially sold off, hitting an intraday low of $590.49 before bouncing off key support and rallying toward the close. Volume surged to 58.41 million shares, well above the average, signaling heightened uncertainty. Support remains in the $600-$595 zone, while resistance sits near $603, $605, and $608.

Major Indices Performance

The Dow Jones Industrial Average was the most resilient major index, slipping only 0.26% as defensive stocks helped cushion its losses. The S&P 500 followed with a 0.7% decline, while the Nasdaq Composite underperformed, dropping 0.82% due to the weakness in technology stocks. The Russell 2000 struggled the most, shedding 1.17% as small-cap stocks faced elevated volatility.

Markets initially faced steep losses in reaction to the White House’s confirmation that tariffs would move forward as planned. However, the late-session relief regarding Mexico helped indices claw back some of their declines. Despite the recovery, investors remained cautious ahead of potential retaliatory actions from Canada and China.

Notable Stock Movements

The Magnificent Seven stocks mostly ended in the red, with the exception of Netflix and Meta, which posted slight gains. Tesla was the hardest hit, dropping over 5%, while Apple declined more than 3% amid ongoing concerns about supply chain disruptions and weaker iPhone sales in China. Nvidia also suffered, reflecting broader pressure on the semiconductor sector.

Tech-heavy names struggled due to a combination of tariff fears and profit-taking after their strong January performances. The sell-off in consumer discretionary stocks also reflected concerns about potential price hikes on imported goods, which could dampen consumer spending. Defensive stocks, particularly in healthcare and utilities, outperformed as investors sought safer assets.

Commodity and Cryptocurrency Updates

Crude oil rose 0.50% to settle at $72.89 per barrel, trimming earlier gains as traders reassessed the impact of tariffs on global demand. Gold climbed 0.78% to $2,857 per ounce, benefiting from safe-haven demand as geopolitical risks weighed on market sentiment. Bitcoin dropped 3.38%, closing just above $101,000 as risk appetite waned. The decline followed a broader sell-off in risk assets, although some investors viewed the dip as a buying opportunity given Bitcoin’s strong performance in recent months.

Treasury Yield Information

The 10-year Treasury yield edged down 0.72% to 4.534%, holding above the key 4.5% level that has signaled caution for equity markets. A sustained move above 4.5% could lead to increased selling pressure in stocks, while a rise toward 5% would likely trigger a more significant market correction.

Previous Day’s Forecast Analysis

Friday’s forecast projected a trading range of $589.50 to $607, with major resistance expected at $603, $605, and $608, while key support was identified at $599, $595, and $590. The analysis highlighted that $600 would serve as a key dividing line between bulls and bears, with a move above potentially leading to a test of new all-time highs.

Market Performance vs. Forecast

SPY’s actual trading range of $590.49 to $600.29 closely matched the projected range, with resistance at $600 proving significant. The premarket forecast correctly anticipated a volatile session, with an initial sell-off followed by a late-day recovery. Traders who followed the forecast had opportunities to capitalize on both long and short trades near the identified levels.

Premarket Analysis Summary

Monday’s premarket analysis, posted at 8:52 AM ET, identified $592.50 as a key pivot level, suggesting that holding above it would lead to a push toward $597.50, with a potential high at $603.50. On the downside, $590 was noted as an initial target if early selling pressure continued, with a max downside of $584 in extreme conditions. The report also highlighted significant volatility expected throughout the session.

Validation of the Analysis

SPY’s price action largely validated the premarket analysis. The ETF dipped below $592.50 early in the session, reaching an intraday low of $590.49 before rallying toward the $597.50 target and closing just below it. The anticipated resistance near $600 held firm, preventing further upside. Traders who followed the key levels from the premarket analysis were well-positioned to take advantage of the intraday moves.

Looking Ahead

Tuesday’s economic calendar features the JOLTS job openings report, which will provide insights into labor market conditions. Given the Federal Reserve’s data-driven approach, any signs of weakening in job openings could reinforce expectations for rate cuts later this year. Investors will also be watching for any further trade-related developments, particularly regarding Canada’s response to the newly imposed tariffs.

Market Sentiment and Key Levels

SPY remains in a volatile environment, with $600 acting as a key level and $595 providing near-term support with $605 as near term resistance. The market is at a crucial inflection point, with sentiment hinging on economic data and geopolitical developments. A break above $600 could pave the way for a move toward $605-608, while a drop below $600 could trigger a retest of $590 and $585.

Expected Price Action

Our AI model projects a trading range of $600 to $608 for Tuesday, indicating a mix of consolidation and trending behavior. If SPY holds above $600, an attempt toward $605 is likely. However, a failure to maintain support at $600 could lead to a move toward $595, $590, or lower. Traders should anticipate heightened volatility as the market digests the latest economic data and trade developments. Tariffs have just been put on hold for Canada as well so its highly likely the market remains above $600 and begins cautiously working its way back toward $605.

Trading Strategy

We are a headline driven market where the next move will be determined by White house terrify policy. We recommend vigilance and being aware that any strategy our models provide can be made moot with the wrong tweet from this administration. Absent this, the general lean is bullish with a gap above that the bulls will attempt to close. For Tuesday, long trades are favored above $600, with upside targets at $603, $605, and $608. If SPY clears $608, a continuation toward $610 is possible. Short trades are viable below $600, or on a test of $605 and $608 with a failed breakout. Below $590, a move toward $585 is likely. Given the potential for sharp price swings, disciplined risk management is essential.

Model’s Projected Range

The model forecasts a maximum trading range of $589.50 to $607 for Tuesday, reflecting a large but narrowing range, suggesting some consolidation. SPY remains Put-dominated, indicating downside risk, though support near $590 remains strong. $600 is the line in the sand above which the bulls will exert more and more control, while below, the bears will push the market lower. The market is currently trading mid-channel from the September lows, with room both higher and lower.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Ranging Market State, with price closing midrange. The MSI range is wide indicating a confused market which can move either way. The MSI overnight rescaled lower, continuing the bearish state from Friday, but did not print extended targets below, implying a bottom was likely in at MSI support at $590.36 which was also our model’s major support level. The MSI bearish range premarket was average indicating a bear trend to be respected but one which was seeking a bottom. And just after the open, price respected MSI resistance at $595 and fell to $590.36 before reversing course. Price then moved higher on news of a reprieve on Mexican tariffs and by 10:30 am ET, the MSI had rescaled to its current, ranging state. Users of this tool know we do not favor trading when the MSI is in a ranging state given the probabilities of success are low. Currently MSI support is $594.79 with resistance at $603.64.  
Key Levels and Market Movements:
SPY fell hard on risks of trade wars with our three largest trading partners, with the biggest gap down for the S&P Futures market in over a decade. Fear drove prices lower Friday afternoon but on Sunday night, price chopped around in a range between $590 and $595 seeking a bottom. The MSI did not print extended targets indicating the herd was not planning to push prices lower. At the open on a test of MSI resistance at $594.50 we decided to hop on the bear trend given we knew the odds of price reaching the other side of the MSI is 70%. We took just one target at $590.75 given there were no extended targets below, and price put in a solid failed breakdown. We reversed long and took first profits from our long at MSI resistance at $594.80. We held our runner to see if price would continue higher, given the administration announced a pause on Mexican tariffs. Our model has been advising for days that $600 is the line in the sand between the bulls and the bears so we looked to take final profits at this level, which came late in the session. While we thought about a short from $600, given the MSI was in a ranging state and given the time as 3 pm ET, we decided two trades was enough to pay the bills and called it a day. The MSI once again told us everything we needed to know about the strength of the trend and where to enter and to take profits. This is extremely valuable information, particularly when you combine the MSI with the levels we outline as major areas of support and resistance. The MSI told us today who controlled the market, when they were in control and where, which allowed us to secure the highest probability trades for the day. The MSI does this for us every single day, day in and day out. The MSI keeps users out of trouble with actionable information to ensure traders work 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 Friday “given the current MSI state, price is likely to continue to move lower to $600 where there are buyers waiting to step in. That said these buyers will sit on their hands initially to ensure the worst is over. This is what creates failed breakdowns. We advise seeking longs from $600 but given the risks, enter only on failed breakdowns.” And today with price opening below $600, this level became major resistance which allowed us to wait for a failed breakdown to initiate a long entry. This information should be clear and actionable for those who use this product and read these newsletters. We also stated trading “under this White House will be like having an FOMC report every hour of every day. You must be aware of the news out of Washington and be prepared to “trade what you see””. Good news and the market reacts positively…bad news and it falls off a cliff. By having the MSI, which updates in real time, you give yourself significantly higher odds of success. The stock market likes certainty so uncertainty creates volatility which increases risk so having the right tools and an understanding of who is in control of the market and at what levels, is how you make higher volatility work to your advantage. For Tuesday given the current MSI state, price is likely move higher to test MSI resistance as tariffs on Canada are now off the table, at least temporarily. While tariffs on China are still in play, perhaps those go away as well and the market rallies. We suggest watching the MSI to see if it rescales higher and if so, hop on the long trend near support at $603 and ride it to $605 and higher. Should the MSI stay in a ranging state, we recommend holding off on any trades until it moves into a trending state. While the model projects a huge range for tomorrow, it’s possible the market takes a day or two to digest all this news and ranges between $599 and $605. If that is the case, we favor two-way trading from these levels. Failed breakdowns and failed breakouts will be your friend in this environment so continue to look for these patterns from the levels advised in this newsletter. Should price move above $605 on news that the tariffs are no longer being applied, seek longs to $610. On the flip side, should $600 fail to hold and tariffs are put back or kept on China, there is a very high probability the market will turn decidedly bearish. The bulls remain in control overall with prices above $600. Be careful not to fade any strong trends unless the MSI tells you it’s safe to do so. Otherwise, get with the trend ride them MSI level to level. The MSI is designed to keep you safe and on the right side of the market, which is critical to trading success. If you use our model’s levels with the MSI to find entries and exits, trading on the right side of the market, your odds of success increase dramatically. 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 $603 to $610 and higher strike Calls while also buying $598 to $602 Calls indicating the Dealers desire to participate in any rally on Tuesday to as high as $610. To the downside Dealers are buying $597 to $585 and lower strike Puts in a 1:1 ratio to the Calls they are selling/buying, implying a bullish outlook for Tuesday. This positioning has changed from slightly bullish to bullish. With all the tariff announcements, Dealers seem to be having a difficult time positioning themselves appropriately. But at least for tomorrow, Dealers are looking for a relief rally with prices resuming the trend higher.
Looking Ahead to Friday:
Dealers are selling $607 to $610 and higher strike Calls while buying $598 to $606 Calls implying Dealers desire to participate in any rally by the end of the week, to as high as $610. They have lowered the ceiling for this week to $610. To the downside, Dealers are buying $597 to $575 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, reflecting a slightly bullish view for the week. Dealer positioning has changed from slightly bearish to slightly bullish. Dealers were correct positioning $590 as a line in the sand which would be defended by the bulls. Price hit this level twice today and could not break it. 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

Traders should focus on key support and resistance levels, adjusting strategies accordingly, while at the same time staying on top of developments out of Washington. The bias remains slightly bullish above $600, while short trades are viable near $605, $608, AND below $600. Given all the news out of Washington combined with economic releases, expect increased volatility. Be sure to review the premarket analysis before 9 AM ET for updated insights to adjust the plan accordingly.

Good luck and good trading!