Market Insights: Friday, February 7th, 2025

Market Overview

US stocks tumbled on Friday as concerns over tariffs, inflation, and a weaker-than-expected jobs report weighed on investor sentiment. The S&P 500 fell nearly 1%, while the Nasdaq Composite saw a sharper 1.4% decline, marking the second straight week of losses for both indices. The Dow Jones Industrial Average also suffered a rough session, dropping more than 400 points, or 0.96%, in its worst daily performance in four weeks.

Investor worries escalated after President Trump hinted at potential reciprocal tariffs on American imports, adding another layer of uncertainty to the market. During a White House meeting with Japan’s Prime Minister Shigeru Ishiba, Trump suggested that tariffs on Japan could also be on the table, rattling trade-sensitive sectors.

Economic data provided little relief. Consumer sentiment plunged to a seven-month low in early February, missing forecasts, and underscoring concerns about inflation expectations. The University of Michigan’s survey revealed that Americans now expect inflation to run at 4.3% over the next year, a full percentage point jump from last month’s reading.

The January jobs report also disappointed, with the US economy adding 143,000 jobs, missing expectations. Despite the softer job creation number, the unemployment rate ticked down to 4.0% from 4.1% in December, fueled by a rise in hourly wages that suggested continued labor market resilience.

Tech stocks were among the hardest hit, particularly Amazon, which fell 4% after delivering an underwhelming revenue outlook. The e-commerce giant joined Google and other AI-driven firms in failing to meet Wall Street’s lofty growth expectations, fueling additional volatility in the sector.

SPY Performance

SPY struggled on Friday, closing at $600.87, down 0.90% for the session. The ETF opened at $606.72 and initially moved higher, reaching an intraday peak of $608.13 before selling pressure took over. A sharp decline in the afternoon session sent SPY to a low of $600.05, before it rebounded slightly into the close. Trading volume was 45.94 million shares, which was significantly above the most recent low volume days this week, indicating increased market participation and risk aversion. Major support remains at $600, while resistance has solidified around $606 and $610.

Major Indices Performance

The Nasdaq Composite led the decline, falling 1.23% as tech stocks faced renewed selling pressure. The S&P 500 followed closely, dropping 0.90%, while the Dow Jones Industrial Average slumped 0.96%, extending its recent underperformance. The Russell 2000 also struggled, down 1.18%, as small-cap stocks failed to find traction in the face of rising Treasury yields and economic uncertainty.

Sector-wise, nearly all eleven S&P 500 sectors finished in the red, with Consumer Discretionary, Materials, and Technology stocks suffering the steepest losses. Defensive plays like Utilities and Healthcare fared slightly better but were not immune to the broader sell-off.

Notable Stock Movements

The Magnificent Seven stocks had a mostly negative session, with all declining except for Meta and Nvidia. Amazon was the biggest loser, sliding 4% following a weak revenue outlook that disappointed investors. Google and Tesla also saw significant declines as profit-taking and macroeconomic concerns weighed on sentiment. Nvidia, however, managed to buck the trend, posting gains as AI-related optimism provided some support.

Commodity and Cryptocurrency Updates

Crude oil edged up 0.52%, closing at $70.98 per barrel, as traders assessed global demand prospects amid mixed economic data. Gold climbed 0.35% to settle at $2,887 per ounce, finding some support as investors sought safe-haven assets. Meanwhile, Bitcoin fell 0.90%, dipping just below $96,000 as profit-taking and broader risk-off sentiment in equities spilled into the crypto market. We are buyers of Crude at $60 and Bitcoin below $83K to $77K.

Treasury Yield Information

The 10-year Treasury yield rose 1.06% to close at 4.485%, climbing back toward the critical 4.5% level. Rising yields put pressure on equities, particularly growth stocks, as investors weighed the impact of higher borrowing costs. If yields push above 4.5%, the market could see more pronounced selling, and a move toward 5% would likely trigger a broader equity correction of 20% or more.

Previous Day’s Forecast Analysis

Thursday’s forecast projected a trading range of $598 to $611 for Friday, with a bias toward bullish consolidation as long as SPY remained above $605. The model anticipated that holding above $605 would open the door for a push toward $610, while a break below $600 would increase downside pressure. The outlook emphasized the impact of the jobs report, suggesting that a strong print would lead to selling, an inline report would support the market, and a weak report would create initial volatility before stabilizing.

Market Performance vs. Forecast

SPY’s actual range of $600.05 to $608.13 remained within the projected levels. And while the bullish bias and inline jobs report initially supported the market, comments about tariffs resurfaced which drove prices lower. SPY briefly touched $608 after which selling pressure took over, sending the ETF below the key $605 level and toward $600 support. The premarket bias level of $606 failed to hold, reinforcing the cautious sentiment expressed in Thursday’s report. Traders who adjusted to the weaker-than-expected jobs data and shorted into resistance at $608 had solid opportunities for profit.

Premarket Analysis Summary

Friday’s premarket analysis, posted at 7:30 AM ET, identified $606 as the key bias level, with expectations of an upward drift toward $610 and potentially $612. However, it warned that a failure to hold above $606 would lead to consolidation within a sluggish $606-$603 range, with downside risk toward $600. The analysis discouraged aggressive shorting but acknowledged that a rejection of $606 could offer a bearish setup.

Validation of the Analysis

The premarket analysis correctly identified the importance of the $606 level, which SPY failed to maintain, leading to a sharp decline toward $600. The sluggish consolidation between $606 and $603 materialized in the early session before selling accelerated. Traders who followed the bias level guidance and avoided premature longs below $606 were well-positioned to navigate the session.

Looking Ahead

Next week brings a crucial lineup of economic data, with the Consumer Price Index (CPI) report on Wednesday and the Producer Price Index (PPI) on Thursday. Friday’s retail sales data will also be closely watched. Given Friday’s weak market performance, traders should be prepared for heightened volatility around these releases, particularly if inflation data surprises to the upside.

Market Sentiment and Key Levels

SPY is at a critical juncture, hovering near key support at $600. The broader trend remains bullish, but sustained weakness below $600 could shift sentiment toward the bears. Resistance remains at $604, $606, and $610, while support extends from $600 to $596 and lower to $590. If SPY can reclaim $605, a move back toward the highs is possible, but failure to hold $600 could open the door to further downside pressure.

Expected Price Action

Sunday night and Monday our model forecasts additional selling which will test the $600 level’s strength. Our AI model projects a trading range of $595 to $608 for Monday. The market is currently Put-dominated with an expanding range, indicating the potential for trending price action. If SPY holds above $600, we anticipate a retest of $606 and possibly $610. However, a break below $600 could lead to a sharper decline toward $595. Traders should prepare for volatile moves, especially ahead of key inflation data midweek.

Trading Strategy

Long trades are favored above $600, with upside targets at $604 and $606, and potentially $610 if momentum picks up. Below $600, the bias shifts bearish, with short trades targeting $596 and $590. Failed breakouts near resistance or failed breakdowns near support will provide the best trade setups. Given the recent volatility, traders should manage risk carefully, keeping stop-losses tight and position sizes reasonable. Unexpected economic surprises could trigger sharp swings with the VIX moving to the mid $20s.

Model’s Projected Range

The model forecasts a maximum range of $593 to $608, suggesting room for both upside and downside movement. The market remains within the broader bull trend channel, with resistance at $610 and support at $596. A break above $610 could trigger new all-time highs, while failure to hold $596 could lead to increased selling pressure. A Put dominated market with price moving back to the $600 dividing line between the bulls and the bears does not bode particularly well for the market next week. The last three weeks the markets have sold off on Friday and Monday so if this pattern holds, expect the same next week.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Bearish Trending Market State, with price closing well below support. There are extended targets printing below. The MSI range is narrow after rescaling lower several times as the market sold off at 10 am. At the open the job report supported the market as forecast with the MSI printing extended targets above. Price reached major resistance at $608 before the MSI began rescaling lower. The MSI rescaled lower several times in a narrow range but by noon, the MSI printed extended targets below indicating the herd was participating in the decline and would likely see price move lower. Into the close price fell below MSI support (now resistance) as extended targets continued to print below. MSI resistance is currently $601.93 and higher at $603.07.  
Key Levels and Market Movements:
As we stated yesterday our “models are not convinced earnings have been good enough to drive prices materially higher, nor have macro threats to the economy been eliminated. We favor trading from the edges tomorrow using $598 to $600 as a back stop for longs on failed breakdowns, and $608 to $611 as major resistance for shorts on failed breakouts”. Clear instructions provided yesterday which once again were spot on for today’s price action. While the inline jobs report initially supported price, by 10 am, negative consumer sentiment moved the market lower and continued to fall as the administration mentioned possible tariffs on additional trading partners. At the open price was testing resistance at $607.50 so while our bias was long, we stated we would only trade the edges today and look for failed breakout/breakdown patterns to trigger entries. We got a perfect failed breakout at 10 am after the UoM inflation numbers were released and with price at our major resistance level of $608, we waited for extended targets to stop printing to go short. We took first profits at MSI support at $605 but held for lower levels given how quickly price fell. The MSI rescaled lower to a bearish state but without extended targets and with a fairly narrow range MSI, we did not add to our short. We continued to hold however and price found support at $601 where we took a second target and moved our stop to breakeven. We did this rather than reverse long given the MSI was printing extended targets below. While these stopped at 12:40 pm ET, we were not enticed to go long given the pattern to enter was simply a double bottom and not a failed breakdown. Price moved back to MSI resistance at $604 and with a double top we added to our short as the MSI rescaled back to a bearish state. We took first profits at MSI support at $602 and by 1:30 pm, news out of the White House about tariffs spooked an already tentative market and prices continued to fall. We held for $600, our major support level and while price didn’t quite reach $600, we closed our trade at the end of the day going two for two with little to no heat on either entry. Once again the MSI informed us who controlled the market, when they took control and where, which allowed us to trade the day 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:
We stated yesterday the “first move after the jobs report is often a trap which will see price reverse and rally the other way for the rest of the day.” Once again, today was no exception. We also stated “as price approaches the all-time highs, we will be looking for weakness in the form of failed breakouts” which we got at 10 am, leading to a perfect short. For Monday with the MSI in a narrow range bearish state but with extended targets below, expect prices to continue to fall on Sunday and perhaps Monday. Should the MSI rescale lower, watch for a break of $600 and enter short on any failed breakout. Be careful however as $600 has been well defended all week and may continue to be so. With a market dominated by news, having a bias is risky. A much better approach is to trade what you see as conditions present. That said, it is our job to provide advice and levels to trade. Absent any additional tariff talk, our general lean is price will continue lower to perhaps $598 before finding support, working its way back toward $605. Should $598 fail, price will move straight down to $595 and perhaps lower. Therefore for Monday look for failed breakdowns at $598 to $600 for longs and shorts from $604 to $608 on failed breakouts. Use the MSI as it is designed 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 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 $606 to $615 and higher strike Calls while buying $601 to $605 Calls implying the Dealers desire to participate in any rally on Monday. To the downside Dealers are buying $600 to $580 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, implying a neutral outlook for Monday. This positioning has changed from slightly bearish to neutral. While the Dealers looked to be on track to capitalize on a break of the all-time highs, poor economic data and the White House changed the narrative and Dealers have adjusted their positioning accordingly.  
Looking Ahead to Next Friday:
Dealers are selling $608 to $620 and higher strike Calls while buying $601 to $607 Calls implying Dealers desire to participate in any rally by the end of next the week, to as high as $620. To the downside, Dealers are buying $600 to $575 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 we “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 this was certainly advice to heed. Dealers remain loaded with protection in case the bull market unravels and given half of all companies have reported earnings, the rest of February will be driven by economic and macro events which will make it difficult and challenging to trade. Protecting profits is warranted in this environment. We 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

Our advice for Monday remains the same as yesterday: “Traders should continue monitoring the key $600 level but also watch $605 as a major level. As the bulls try to break the prior highs, $605 will need to hold on any pullback to keep the bulls in complete control. Should $605 fail, as long as there is not a failed breakdown, it’s very possible SPY tests lower levels. The bulls still have control above $585 but as price falls, they give up some of this control to the bears. But until that happens, continue to favor the trend and seek spots to go long”. Be sure to review the premarket analysis before 9 AM ET for any updates.

Good luck and good trading!