Market Insights: Tuesday, February 4th, 2025
Market Overview
U.S. stocks closed higher on Tuesday as Big Tech led the way, helping the Nasdaq Composite recover from Monday’s losses. Investors closely monitored China’s swift response to President Trump’s newly imposed tariffs, alongside weaker-than-expected U.S. job openings data, which added to speculation about potential Federal Reserve rate cuts later this year.
The Nasdaq Composite outperformed, rising nearly 1.4%, while the S&P 500 added 0.7%. The Dow Jones Industrial Average gained 0.3%, as markets digested China’s latest counter-tariffs. Beijing announced new duties of 15% on U.S. coal and liquefied natural gas starting February 10, as well as 10% tariffs on crude oil, farm equipment, and some automobile imports. These retaliatory measures raise concerns about a deepening trade war, though some analysts believe China’s response signals an openness to further negotiations.
Adding to the optimism, President Trump indicated that a call with Chinese President Xi Jinping could take place within the next 24 hours, potentially opening the door for diplomatic progress. The U.S. dollar index weakened, falling 0.9% as trade tensions eased slightly. Meanwhile, China launched an antitrust investigation into Alphabet and placed Calvin Klein parent PVH and biotech company Illumina on its "unreliable entities list," escalating regulatory pressure on U.S. corporations operating in China.
SPY Performance
SPY closed at $601.66, up 0.65% for the day, after trading between a low of $597.28 and a high of $602.29. The ETF opened at $597.70 and remained volatile throughout the session as it tested key support and resistance levels. Volume was notably light at just 30 million shares, well below the daily average, suggesting that investors remain cautious despite the rebound. The $600 level remains a critical pivot point, with near-term support at $598 and $595, while resistance is seen at $603, $605, and $607.
Major Indices Performance
The Russell 2000 led gains, rising 1.37% as small-cap stocks outperformed. The Nasdaq Composite followed closely with a 1.13% gain, as major technology stocks rebounded strongly. The S&P 500 added 0.7%, while the Dow Jones Industrial Average posted a modest 0.26% increase. The gains were fueled by a mix of optimism over potential trade talks and anticipation of key economic data later this week.
Big Tech’s recovery played a crucial role in the broader market’s rally, with investors shrugging off lingering concerns over China’s countermeasures. Defensive sectors lagged as risk appetite improved, while energy stocks declined alongside falling crude oil prices.
Notable Stock Movements
The Magnificent Seven stocks had a strong session, with all finishing in positive territory. Alphabet, Tesla, and Apple each rose over 2%, leading the charge. Tesla rebounded after Monday’s sharp drop, while Apple gained as investors saw its recent sell-off as a buying opportunity. Nvidia also climbed, recovering from losses incurred earlier in the week.
Tech stocks broadly benefited from expectations that tensions with China may not escalate further, while consumer discretionary names also saw renewed buying interest. Meanwhile, defensive stocks took a backseat as risk-on sentiment returned.
Commodity and Cryptocurrency Updates
Crude oil declined 0.78% to settle at $72.59 per barrel, as concerns over demand resurfaced following China’s new tariffs. Gold continued its upward momentum, rising 0.61% to $2,874 per ounce, reflecting ongoing safe-haven demand despite improved equity sentiment. Bitcoin fell 2.87%, closing just above $98,000, as risk-sensitive assets saw mixed performance. The cryptocurrency market remains highly volatile, with investors closely watching macroeconomic trends for further direction. We are buyers of Bitcoin at $83,000 and $77,000. Lower and we will hold.
Treasury Yield Information
The 10-year Treasury yield edged down 0.73% to 4.510%, remaining just above the key 4.5% level, which is often a warning sign for equities. While yields remain elevated, the decline suggests that investors are cautiously positioning for a potential shift in Federal Reserve policy. A sustained rise toward 5% would likely increase pressure on stocks, while any signs of a move below 4.3% could provide relief for equity markets.
Previous Day’s Forecast Analysis
Monday’s forecast projected a trading range of $594.75 to $609, with resistance expected at $603, $605, and $607, while key support was identified at $600, $598, and $595. The analysis highlighted $600 as a critical inflection point, with a move above this level favoring further upside, while a failure to hold would indicate renewed selling pressure.
Market Performance vs. Forecast
SPY’s actual trading range of $597.28 to $602.29 closely aligned with the projected levels, with $600 serving as a key pivot. The forecast correctly anticipated a mix of consolidation and upside momentum, with resistance near $603 proving to be a challenge. The lighter trading volume suggested cautious participation, but traders who followed the forecasted key levels had multiple opportunities to capitalize on price movements.
Premarket Analysis Summary
Tuesday’s premarket analysis, posted at 9:24 AM ET, identified $597 as a critical decision level, with a downside bias expected early in the session. The report projected an initial target of $594, with a lower boundary of $592.50, while a potential rally could target $601 with an upper cap near $604. The analysis emphasized a cautious approach to long trades, recommending profit-taking on any rallies.
Validation of the Analysis
SPY’s price action largely validated the premarket analysis. The ETF briefly dipped near support at $597.28 before rebounding toward $601, with upside momentum stalling just short of the projected resistance zone at $603. The initial downside bias played out early, but the anticipated rally took hold as the session progressed. Traders who followed the premarket guidance were well-positioned to capitalize on both short and long opportunities.
Looking Ahead
Wednesday’s economic calendar features the ADP Non-Farm Employment report and the ISM Services PMI, both of which will provide key insights into labor market strength and economic activity. Investors will also monitor any new developments regarding U.S.-China trade relations, particularly if a scheduled call between President Trump and Chinese President Xi Jinping takes place.
Market Sentiment and Key Levels
SPY continues to trade in a volatile but upward-biased environment, with $600 acting as a key level. Near-term support is seen at $600, $598, and $595, while resistance remains at $603, $605, and $607. Market sentiment remains driven by macroeconomic data and geopolitical events, making it essential to monitor key levels for potential breakouts or reversals.
Expected Price Action
Our AI model projects a trading range of $595 to $607 for Wednesday, reflecting a mix of consolidation and trending potential. If SPY holds above $600, an attempt toward $605 is likely. However, a failure to maintain this level could lead to a test of $598 or lower. Traders should prepare for increased volatility as markets react to economic data releases and trade developments.
Trading Strategy
The market remains headline-driven, with trade policy and economic reports shaping sentiment. For Wednesday, long trades are favored above $600, with upside targets at $603, $605, and $607. If SPY clears $607, a continuation toward $610 is possible. Short trades are viable below $600 or on failed breakout tests of $605 and $607. Given the potential for sharp price swings, disciplined risk management remains crucial.
Model’s Projected Range
The model forecasts a maximum trading range of $594.75 to $609 for Wednesday, reflecting a broad but narrowing range that suggests some consolidation with periods of trending behavior. SPY remains Call-dominated, indicating slight bullish bias, though resistance near $603 remains firm. If SPY holds above $600, buyers could push toward higher levels, while a break below $598 may bring renewed selling pressure. $603 has been tested several times and is weakened so a concerted push above $603 will likely see price reach $605.
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 did little overnight, remaining in the same state all day, since 10 am Monday. In this state we do not favor directional trades as there is a less than 50% chance price will move from one level to the other. Therefore we tend to sit on our hands and wait for the MSI to trend. Overnight price moved lower toward MSI support at $595 and by the open, price attempted to move toward MSI resistance at $603.64. But price was only able to reach $602.30 where it stalled, closing just above the dividing line of $600. Currently MSI support is $594.79 with resistance at $603.64.
Key Levels and Market Movements:
As we stated yesterday 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”. And sure enough today was all about a tight range with little trending price action. By the open there was little to trade given price was below $600 and we were not inclined to go long without a failed breakdown. This did not present. While price popped to $602 and made a triple top, by the time that occurred, it was well after 3 pm ET, so we decided to take the day off and did not enter any trades today. When the MSI is in a ranging state, especially one that lasts a long time and one that is as wide as the one SPY finds itself in today, doing nothing is a strategy and appropriate. Save your powder for better opportunities which are sure to present later this week. Once again, the MSI told us who controlled the market, when they took control and where, which allowed us decide to take or pass on today’s trading opportunities. 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 Monday the “bulls remain in control overall with prices above $600” which remains true for tomorrow. Reviewing price action today, its clear the $600 level is a magnet with price hovering around this level, ending the day just above $600. The MSI range is wide but price is contracting so it’s likely the MSI rescales to a narrower range, which will provide more information. We would like to see the MSI rescale to a trending state before entering any trades. For Wednesday with economic news due out both premarket and at 10 am, as well as a slew of Fed officials speaking, watch for the market’s reaction to these events and for the MSI to rescale to a trending state. We continue to favor what we stated yesterday which is “seeking longs from $600 but given the risks, enter only on failed breakdowns”. We also continue to advise should “the MSI stay in a ranging state, we recommend holding off on any trades until it moves into a trending state”. The market may continue to consolidate, waiting on the always important jobs report on Friday. And again, as we said yesterday if “that is the case, we favor two-way trading” from our major levels of $595 and $605. Failed breakdowns and failed breakouts are your friend in this environment so continue to look for these patterns. Should price move above $605 seek longs to $610, but should $600 fail to hold there is a very high probability the market will turn decidedly bearish. 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 $602 to $606 as well as $608 to $610 and higher strike Calls, while also buying $607 Calls. This split with $607 being bought and not sold indicates the Dealers have some confidence price will be range bound tomorrow, only reaching a high of $606. But should $606 be surpassed, Dealers want to participate in any rally above $607 to as high as $610. They are clearly unsure about the direction of the market on Wednesday and are hedged multiple ways. To the downside Dealers are buying $601 to $585 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, implying a slightly bullish outlook for Wednesday. This positioning has changed from bullish to slightly bullish. Dealers continue to have a hard time positioning themselves appropriately, but for tomorrow, Dealers are looking for price to continue to drift higher.
Looking Ahead to Friday:
Dealers are selling $608 to $610 and higher strike Calls while buying $602 to $607 Calls implying Dealers desire to participate in any rally by the end of the week, to as high as $610. To the downside, Dealers are buying $601 to $587 and lower strike Puts in a 5:1 ratio to the Calls they are selling/buying, reflecting a bearish view for the week. Dealer positioning has changed from slightly bullish to decidedly bearish. This is likely due to the tariffs and the jobs report on Friday. We would be cautious given this bearish positioning is new and Dealers typically lead the market. While the bulls still control the narrative, Dealers are certainly ready for prices to fall. 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, $607, AND below $600. We continue to favor failed breakout and failed breakdown patterns as a trigger to entry. Given the news out of Washington combined with major economic releases, expect increased volatility. We suspect volatility will rise to mid-twenties at some point this month. Be sure to review the premarket analysis before 9 AM ET for updated insights to adjust the plan accordingly.
Good luck and good trading!
