Market Insights: Wednesday, February 5th, 2025

Market Overview

US stocks rebounded on Wednesday, closing higher despite mixed earnings from Big Tech. The Dow Jones Industrial Average led the way, climbing 0.7%—a gain of over 300 points—while the S&P 500 added 0.4%. The Nasdaq Composite saw a more muted 0.2% increase, weighed down by sharp losses in Alphabet, which fell nearly 7% after missing expectations on its cloud revenue. The miss raised concerns about whether the company's heavy AI investment would deliver the expected returns.

Nvidia was a bright spot, rallying over 5% as investors saw it as a major beneficiary of increased AI spending. The chipmaker helped push the broader indices back into positive territory after an early session slump caused by earnings disappointments from Alphabet and AMD. AMD initially saw strong results but delivered a weaker-than-expected data center revenue forecast, sending shares down over 6% and sparking concerns that AI-driven momentum may be cooling.

Meanwhile, geopolitical and policy risks lingered in the background. The ongoing tariff dispute between the US and China continued to weigh on tech stocks, particularly Apple, which briefly fell 2% before recovering on news that China may be investigating its app store under antitrust laws. Additionally, President Trump’s unexpected comments about the US potentially developing the Gaza Strip into a "Riviera of the Middle East" created confusion among investors about future policy directions.

On the interest rate front, the 10-year Treasury yield dropped nine basis points to 4.42%, its lowest level since December 2024. Falling yields provided a tailwind for rate-sensitive sectors, with real estate stocks leading the market higher. The small-cap Russell 2000 also saw solid gains, adding 1.1% as lower yields alleviated pressure on growth stocks.

SPY Performance

SPY closed at $604.24, up 0.41% for the day, after trading between a low of $598.58 and a high of $604.37. The ETF opened at $600.64, quickly testing the $598.50 level before rallying throughout the session. Volume was light at just 26.73 million shares, well below the daily average, suggesting that investors remain cautious despite the rebound. Resistance remains at $605, $607, and $610, while key support is seen at $600, $598, and $595.

Major Indices Performance

The Russell 2000 led the market, rising 1.11% as small-cap stocks outperformed on lower bond yields. The Dow Jones Industrial Average followed, climbing 0.68%, buoyed by gains in financials and industrials. The S&P 500 added 0.4%, while the Nasdaq Composite lagged with a 0.38% gain, weighed down by Alphabet’s sharp decline.

Big Tech saw mixed results, with Nvidia soaring over 5%, offsetting losses in Alphabet (-7%), Tesla (-3%), and Amazon (-2%). Defensive sectors took a backseat as real estate stocks surged nearly 1.6%, benefiting from the drop in Treasury yields.

Notable Stock Movements

It was a mixed day for the Magnificent Seven stocks. Nvidia stole the spotlight, jumping over 5%, as investors saw it as a major winner in the AI spending race. However, Alphabet took a beating, plunging nearly 7% on disappointing cloud revenue. Tesla fell over 3%, continuing its recent struggles, while Amazon slipped 2%. Apple briefly dropped 2% on concerns over a Chinese antitrust probe but managed to recover.

The broader tech sector struggled with AMD also losing over 6% following a cautious data center outlook. However, the sector’s decline was cushioned by Nvidia’s strong rally, which helped the market shake off early weakness.

Commodity and Cryptocurrency Updates

Crude oil dropped 2.04%, settling at $71.21 per barrel, as concerns over weakening demand pressured prices. Gold ticked up 0.19% to $2,881 per ounce, maintaining its safe-haven appeal amid continued macroeconomic uncertainty. Bitcoin declined 1.44%, closing just above $97,000, as traders booked profits following its recent rally. The cryptocurrency market remains volatile, with key levels to watch at $83,000 for support and $105,000 for resistance.

Treasury Yield Information

The 10-year Treasury yield declined 1.86% to close at 4.429%, hitting its lowest level since December. While still above the crucial 4.3% level, the drop in yields provided relief for equities, particularly rate-sensitive sectors like real estate and small caps. However, if yields rebound toward 4.5% or higher, market pressure could resume, and a move past 5% would likely trigger a broader selloff. Dollar strength with the USD/EUR moving to parity is pushing yields lower. We still forecast higher bond yields after the dollar peaks out.

Previous Day’s Forecast Analysis

Tuesday’s forecast anticipated a trading range of $595 to $607, with $600 identified as the key pivot level. The analysis suggested that a move above $600 would favor upside momentum toward $605, while a breakdown below this level could see a test of $598 or lower. Resistance was noted at $603, $605, and $607, while support was seen at $600, $598, and $595. The model continued to favor long over short trades.

Market Performance vs. Forecast

SPY’s actual trading range of $598.58 to $604.37 was largely in line with the forecast, with the $600 level once again acting as a key battleground. The anticipated resistance at $603 was tested but not decisively broken, and the session remained within the projected consolidation zone. Traders who followed the forecasted levels had multiple opportunities to capture both long and short trades, particularly as SPY held above $600 for most of the session.

Premarket Analysis Summary

Wednesday’s premarket analysis, posted at 7:33 AM ET, identified $599 as the day’s natural pivot, suggesting that holding above this level would favor upside moves toward $601.50 and $603.50. The downside targets were noted at $597.50 and $595.50, with a recommendation to take early profits on shorts near these levels.

Validation of the Analysis

The premarket analysis proved to be highly accurate and aligned closely with the post market newsletter. Readers know when these two align, trade with confidence and in size, which proved to be quite fruitful for the day. SPY tested the $599 level early in the session but quickly rebounded, climbing toward $604 by the close. The resistance zone around $603.50 acted as a temporary cap, reinforcing the analysis’ call for profit-taking near this level. The downside support near $598.50 held firm, validating the premarket guidance.

Looking Ahead

Thursday’s economic calendar features Unemployment Claims along with speeches from multiple Federal Reserve officials. Investors will be closely watching for any signals on interest rate policy, particularly in light of recent moves in Treasury yields. The market will likely take a pause on Thursday as it awaits the monthly jobs report on Friday.

Market Sentiment and Key Levels

SPY remains in a consolidating pattern, with $600 continuing to serve as the dividing line between bulls and bears. Key support levels are at $600, $598, and $595, while major resistance remains at $605, $607, and $610. The market is navigating a tightening range, and a decisive move above or below these levels could set the tone for the next directional move. Volume the last two days has been extremely low and as such, while the bias is long and we continue to favor upside, we caution that the smart money is sitting on the sidelines waiting for more information before committing additional capital.

Expected Price Action

Our AI model projects a trading range of $600 to $607 for Thursday. The market remains Call-dominated, suggesting a slightly bullish bias, but the narrowing range implies continued consolidation on Thursday. If SPY holds above $600, an attempt toward $605 is likely and a break above $605 will likely test $607. A break below $600 could trigger a test of $598 where our model suggests buyers will step in to support price.

Trading Strategy

Long trades remain favored above $600 and perhaps from any test of $598 on a failed breakdown. Certainly any failure of $598 and the market will fall hard so be careful should price test this level. Upside targets are $603, $605, and $607. A move past $607 would open the door to $610 and potentially new all-time highs. Short trades are viable below $600, targeting $598 and $595 as well as from higher levels of resistance such as $605 and $607. We favor failed breakouts as triggers to entries for any shorts and recommend taking quick profits given the bullish bias. Given the potential for sharp moves, disciplined risk management is crucial. The VIX remains relatively low, but traders should prepare for increased volatility heading into Friday’s jobs report.

Model’s Projected Range

The model forecasts a maximum trading range of $597.50 to $609.25, signaling potential consolidation before a breakout. Call dominance suggests a slightly bullish outlook, though resistance remains strong near $605 and $607 and particularly at the all-time highs. $600 continues to be the dividing line between bulls and bears. SPY is trading in a carbon copy of last week so look to last week’s price action for clues of what is to follow the rest of this week. The market continues to trade within the bull trend channel established since September, with room to move in both directions.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Ranging Market State, with price closing in the upper end of the range. The MSI range is wide indicating a market which can move either way. The MSI rescaled lower overnight to a bearish state which saw price fall to major support at $598. By the open however, the MSI had rescaled to its current state which saw price trade around $600, the dividing line between bulls and bears, before breaking out and moving higher into the close. The MSI has not rescaled to a trending state since 10:30 am today. In a ranging state we do not favor directional trades as there is a less than 50% chance price will move from one level to the other. We exercise extreme caution in this state and given the low volume of the day and yesterday, clearly the MSI is warning about current market conditions. MSI support is $600.29 with resistance at $605.47.  
Key Levels and Market Movements:
As we stated yesterday “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””. Today while the premarket had a short trade triggered by the MSI, we only focus on the regular session in these newsletters. By the open, SPY and the MSI were hovering around the $600 level waiting on PMI at 10 am. A weaker than expected number gave the market reason to believe the Feds would lower rates sooner rather than later. SPY put in a textbook failed breakdown at 10:04 am ET to trap shorts at major support. We followed our own advice and entered long taking first profits at $601, but held runners to see if price would move higher. While there was another opportunity to add to this long, given the low volume and MSI ranging state, we held onto our one long trade to see if price would reach major resistance at $603. Sure enough, following our plan, we took second profits at this level and with a stop at $600, had little to fear holding our runner into the close. With the late in the session push to $604 we closed out our long for a one and done, highly profitable trade. The $599 to $600 level was a level identified in today‘s premarket analysis, aligned with the post market level. This tells us to trade heavy and with confidence. As such this one trade was effectively the equivalent of three trades given we traded in size and held for bigger targets. This is how professional traders earn a living trading the markets. Most are not scalping pennies a hundred times a day. They stalk a level, wait for verification from their tools and go in heavy to earn substantial profits on one or two trades a day. Learn to do the same and the life of a successful prop trader will become a reality. Once again, the MSI told us who controlled the market, when they took control and where, which allowed us to know how to trade 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 yesterday failed “breakdowns and failed breakouts are your friend in this environment so continue to look for these patterns” as triggers to entries. The bulls remain in control as long as price remains above $600. Should price dip to $598, we favor longs on failed breakdowns above this level. Should price continue to rally overnight and reach $605 and higher, we would certainly consider quick shorts on failed breakouts as long as there are no extended targets printing above price. Should $598 fail, our bias switches to bearish and as such we do not favor long trades, but instead will look for shorts on any retest of $598 or lower. The market is following last week’s pattern to the letter so perhaps SPY makes a to higher levels, only to fail at or near the all-time high. We do not see price reaching the all-time highs on Thursday but this is a distinct possibility for Friday. Once again we would like to see the MSI rescale to a trending state before entering any trades on Thursday, which is likely to happen if price breaks above $605.50. The market may consolidate on Thursday, waiting on Friday’s jobs report so this favors two-way trading from major levels for Thursday. Given the proximity to $605, this is a major level to look for shorts on failed breakouts. Should price move above $605 on volume, seek longs to $607. The MSI is designed to keep you safe and 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 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 $605 to $611 and higher strike Calls implying a likely ceiling in the market for tomorrow at $610 with $607 being a more realistic high for Thursday. To the downside Dealers are buying $604 to $588 and lower strike Puts in a 2:1 ratio to the Calls they are selling, implying a slightly bullish outlook for Thursday. This positioning is unchanged from today. Dealers are no longer buying Calls or selling close to the money Puts which implies a wait and see approach to the market. They are not convinced prices will move higher but also not overly concerned about lower prices on Thursday.
Looking Ahead to Friday:
Dealers are selling $608 to $612 and higher strike Calls while buying $605 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 $604 to $575 and lower strike Puts in a 10:1 ratio to the Calls they are selling/buying, reflecting a heavily bearish view for the week. Dealer positioning has changed from bearish to heavily bearish. We have not seen a 10:1 ratio in some time and while it’s entirely possible this is just temporary due to concerns about Friday’s job report, given this positioning we advise any long book purchase protection to the downside. This can be in the form of VIX Calls or SPY/SPX Puts or shorts in the Futures market. Dealers are loaded for bear having bumped up this week’s protection. Given Dealers typically lead the market, it behooves all that read this newsletter to mimic what the Dealers are doing to protect your portfolio. As we stated yesterday, the bulls still control the narrative but the 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 continue monitoring the key $600 level, which remains the market’s inflection point. Long trades above $600 remain favorable, while short setups are viable below $598 and at major resistance at $605 and higher. Expect increased volatility as we approach Friday’s jobs report and be sure to review the premarket analysis before 9 AM ET for any updates.

Good luck and good trading!