Market Insights: Thursday, February 20th, 2025

Market Overview

The stock market took a breather on Thursday as the Dow Jones Industrial Average tumbled roughly 450 points, or about 1%, leading declines across major indices. The S&P 500 pulled back 0.5% after two consecutive record closes, while the Nasdaq Composite mirrored that loss, weighed down by disappointing corporate outlooks and continued uncertainty surrounding President Trump’s trade policies.

Walmart was the major drag of the day, plunging more than 6% after issuing cautious guidance for its fiscal year 2026, despite reporting better-than-expected quarterly profits. Its drop, coupled with roughly 4% declines in Goldman Sachs and JPMorgan, created a downward spiral for the Dow. Investor sentiment was also rattled by Trump’s latest policy shifts, including an 8% reduction in Pentagon spending, which hit defense contractor Palantir particularly hard, sending its stock down 5%.

Trade uncertainty continues to loom over the market, as automakers like General Motors weigh significant operational shifts in response to proposed tariffs. The global backdrop remains tense, with geopolitical risks mounting after a diplomatic clash between President Trump and Ukraine’s leader, further fueling risk-off sentiment. Investors turned to safe havens, propelling gold to a fresh record high.

SPY Performance

SPY declined 0.41%, closing at $610.44 after an intraday low of $607.02. The ETF opened at $611.44 and hit a session high of $611.68 before rolling over, as sellers stepped in at resistance. Trading volume came in at 33.15 million shares, slightly below average, reflecting cautious participation as investors weighed Walmart’s earnings miss and broader economic uncertainties.

Major Indices Performance

The Nasdaq led the day’s declines with a 0.49% drop, followed closely by the S&P 500, which fell 0.5% after briefly flirting with another record high. The Dow was the hardest hit, sinking 1%, as blue-chip names like Walmart, Goldman Sachs, and JPMorgan dragged the index lower. The Russell 2000 also struggled, shedding 0.93% as small-cap stocks remained under pressure from rising Treasury yields.

Tech stocks had a mixed session, with Apple, Microsoft, and Nvidia posting minor gains, while Tesla, Netflix, and Amazon all slid over 1.6%. Defensive sectors, such as healthcare and utilities, saw some inflows as investors sought shelter from heightened volatility.

Notable Stock Movements

The Magnificent Seven stocks had a tough day, with Tesla, Netflix, and Amazon leading the declines, each falling over 1.6%. Apple, Microsoft, and Nvidia managed to eke out small gains, but overall, the sector struggled to find momentum. Walmart was the standout loser, suffering its worst single-day drop since November 2023 after warning about weaker-than-expected growth in the coming year. Goldman Sachs and JPMorgan also took a hit, shedding about 4% each as the broader financial sector struggled under the weight of rising interest rate fears.

Commodity and Cryptocurrency Updates

Crude oil inched up 0.51% to settle at $72.47 per barrel but remains in a broader downtrend, with our model expecting further declines toward $60. Gold climbed 0.57% to close at $2,953, hitting a new record as investors sought refuge from market uncertainty. Bitcoin surged 1.77%, closing just above $98,300. 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 dipped 0.64%, closing at 4.506%, maintaining its precarious position just above the critical 4.5% level. Any move above 4.8% could begin to exert significant downward pressure on equities, and if yields push past 5%, a larger market correction of 20% or more remains on the table.

Previous Day’s Forecast Analysis

Wednesday’s forecast called for a trading range of $610 to $615 with a slightly bullish bias. Resistance was identified at $613 and $614, while support was noted at $610 and $608. The expectation was that as long as SPY held above $610, further upside was likely, with a potential push toward $615. However, failure to break resistance could lead to consolidation or a pullback.

Market Performance vs. Forecast

SPY’s actual range of $607.02 to $611.68 fell slightly below expectations, dipping beneath key support at $608 before closing near $610. While the ETF attempted to hold above $610 early in the session, sellers overwhelmed buyers, leading to a moderate pullback. Traders who followed the suggested long entries near $608 had opportunities to capitalize, while shorts from a failed breakout at the open at $611 led to material gains. The once again lighter-than-usual volume contributed to choppy price action, reinforcing the model’s expectation of a cautious trading environment of consolidation with periods of trending behavior.

Premarket Analysis Summary

Thursday’s premarket analysis, posted at 8:46 AM ET, projected resistance at $613, $614, and $617, with downside targets at $611, $610, $608.50, and $606. The bias was neutral to slightly bullish, with an initial expectation for SPY to drift higher as long as it remained above $611. However, a break below $611 was expected to bring immediate consolidation, with potential downside toward $608.

Validation of the Analysis

The premarket analysis was largely accurate, as SPY struggled to hold above $611 and ultimately declined toward the $607 level. The anticipated support at $610 briefly held but was ultimately broken, leading to further downside. While resistance at $613 and $614 never came into play, the forecast correctly identified the lower range of the session. Traders who followed the outlined levels had opportunities to navigate the choppy price action, particularly by capitalizing on failed support tests around $610.

Looking Ahead

Friday’s PMI report will be a key focus for traders, as it could provide insights into the economy’s overall growth trajectory. A stronger-than-expected reading may push yields higher, potentially pressuring equities, while a weaker report could reinforce expectations for a more accommodative Federal Reserve. Additionally Friday is OPEX which can add a degree of volatility. Finally the President is speaking this evening so news of tariffs or the war in Ukraine certainly has the potential to move the market.

Market Sentiment and Key Levels

SPY remains in a consolidation phase, with bulls maintaining control as long as price stays above $608. Resistance at $613 and $615 remains critical, with a breakout opening the door for further upside toward $617. On the downside, key support sits at $608, with a break below potentially shifting momentum in favor of the bears. With Friday’s PMI release on deck, traders should be prepared for increased volatility.

Expected Price Action

Our AI model forecasts a trading range of $606 to $613 for Friday, with a slightly bullish bias. If SPY holds above $610, further upside toward $613 and $615 is likely. However, failure to break resistance could lead to continued consolidation or a deeper pullback toward $605. The widening range suggests potential for trending price action, particularly in response to economic data while a break below $608 will lead to a drop to $606. A failure of $606 to hold will see prices fall quickly.

Trading Strategy

Traders should look for long opportunities on dips to $608 targeting a move back toward $610 and $613. Shorts should only be considered on failed breakouts above $613, with downside targets at $610 and $608. The VIX rose 2.5% today but remains muted, suggesting controlled volatility. But caution is warranted ahead of Friday’s PMI report.

Model’s Projected Range

The model projects a maximum trading range of $604 to $615.75 for Friday, with Call dominance implying continued bullish momentum. $613 and $615 are major resistance with $610, $608, and $604 as major support. The bulls remain in complete control of this market with prices closing above $610. While $600 continues to be the dividing line between the bulls and the bears, below $606 and the bears will press to try and push price lower. Above $613 the door is open to more all-time highs to $615. Below $606 the wall of support has reemerged at $604, $602, and $600 so a break below $608 will likely be another buy the dip scenario but a break of $606 could lead to materially lower prices. SPY remains within its bull trend channel, with potential upside toward $628 and downside support at $587.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Ranging Market State, with price closing mid-range implying consolidation and confusion about the near term direction of the market. The MSI rescaled lower today as Walmart earnings and future guidance was released. The MSI entered a very narrow bearish state in the early morning hours but by the open, extended targets began printing below indicating the herd was ready to push price lower. And sure enough the MSI rescaled to a wide Bearish Trending Market State which held until the afternoon session when the MSI rescaled to a ranging state. After the open and with the MSI rescaling lower, there were no extended targets below indicating a weak bear trend, even as the MSI range was wide. This led to a triple bottom with buyers jumping in and the MSI rescaled to its current, Ranging Market State. With price currently mid MSI in a very wide range, price can move either higher or lower. We suspect the market will wait on PMI tomorrow or another external catalyst before deciding which way to move. MSI resistance is currently $611.68 with support at $608.57.  
Key Levels and Market Movements:
We stated yesterday consolidation will continue “until a major catalyst pushes the market one way or the other” and today Walmart earning proved to be the catalyst that moved the market. We also stated the “bulls still want to defend $608” and to “be very careful shorting below $608” and once again, both pieces of advice were true to form today. In the premarket with Walmart moving the MSI to a bearish state, we shorted MSI resistance at the open at $611.60 on a failed breakout knowing the odds of price reaching $611 were just shy of 70%. We took first profits as planned but price quickly fell and with the MSI rescaling lower with extended targets below, we held onto runners to see how price would react at our models major level of $608. And sure enough, while price pushed below $608, an almost perfect failed breakdown developed at MSI support at $607, another major level identified yesterday in the post market report. We exited our short and reversed long given our bias was long and there were no extended targets below. Price quickly reached MSI resistance at $608.57 where we took first profits and held to see how far buy the dip bulls would push the market. The MSI moved into a wide ranging state briefly and we saw price retest the lows of the day. We still had our runners so we added to our long back to full size on the retest of MSI support at $607.10 and looked to MSI resistance for a first target. Once again price broke above $608 so we took first profits and held to see if price would reach the next major level at $610. We were tempted to short once again at MSI resistance but given our plan was to only short on failed breakouts, and given the only failed breakout came at the open, we didn’t short but held onto our longs into the close, reaching our models $610 major level. This type of trading is what we call level to level. When we trade we use our levels, the MSI, and failed breakout/breakdown patterns to trigger entries. Then we exit at either our model’s next closest level or at MSI support or resistance. And we continue to do this, moving from one level to the next with our runners. If you follow this type of behavior, you will achieve very high win rates and trading success. We do not always swing for the fences. We take what the market gives us and by moving from one level to the next, we are able to control risk while still keeping runners for larger gains. Once again the MSI and our model gave us two large winners today with little to no heat on either trade. Controlling stress is extremely important given fear, be it of loss or FOMO, causes all of us to make dumb mistakes. The way we trade eliminates virtually all emotions with 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:
The President speaks tonight and tomorrow PMI is released. Tomorrow is also OPEX which often introduces volatility. OPEX can also lead to nothing but chop with price pinned around a level. 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. With the MSI in a ranging state price has a relatively equal chance of moving either way. But given price closed above $610, and the bulls defended $608 today, our general lean is to defer to the trend with a slightly bullish bias. That said, $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. We don’t usually use words like “collapse” but it is warranted in this case given the tremendous run the market has had from the September lows. The bears are itchy to make a move and if the opportunity presents, our bias will quickly change to bearish and institutional algos will kick in and drive price lower. Absent this occurring, tomorrow price can attempt to work its way back toward $613 and perhaps even $615. Therefore our advice is to first trade what you see, then seek longs on failed breakdowns from $608 and higher to $610. Above $610 we would hold for a potential mean reversion short from $613, as long as there are no extended targets printing above. While $608/607 held today, this level was tested three times today and as such it is weakened and another test has a higher probability of failing. But we continue to advise caution shorting below $608. We would almost prefer to see $606 fail before hoping on a short set up. Volume picked up some today but is still quite low which means any large player can move the market so stay nimble and trade smaller than usual. It’s very easy to get chopped up on OPEX days so it’s a good day to look for one or two set ups from the edges and call it a day. 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 $615 to $620 and higher strike Calls while buying $611 to $614 Calls implying the Dealers desire to participate in any rally on Friday to as high as $615. To the downside Dealers are buying $610 to $592 and lower strike Puts in a 2:1 ratio to the Calls they are selling/buying, implying a neutral to slightly bullish posture for Friday. This positioning has changed from slightly bearish/neutral to slightly bullish. Dealers cashed into on many of their Puts today and will need to reload tomorrow after OPEX. But certainly Dealers are signaling for tomorrow, they feel the market decline today is overdone and the market will continue to rally on Friday.     
Looking Ahead to Next Friday:
Dealers are selling $611 to $625 and higher strike Calls implying Dealers believe any rally next week is limited to $615. To the downside, Dealers are buying $610 to $580 and lower strike Puts in a 3:1 ratio to the Calls they are selling, reflecting a less bearish view for next week and more of a neutral to slightly bearish view. Dealer positioning has changed from very bearish to slightly bearish. We stated yesterday when “the ratio is 5:1 and higher, the Dealers are unsure if price will continue to rally and believe the risk of a pullback has increased. While these are relatively short term views, 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””. Again this advice once again proved to be quite timeless given today’s broad based market decline. Vix jumped 2.5% as well. Dealers are rarely wrong so we continue to advise mimicking Dealers positioning to gain an edge long term. We also 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 Friday is to continue to seek failed breakout and failed breakdown patterns from our model’s major levels and in particular on Friday, look for trades from the extremes if available. $608 and $613 represent the extremes for Friday. The bears dipped their toes today but the market was quickly bought. That will keep the bears at bay for a time but not forever. We stated yesterday “at any moment the market could experience a rug pull with prices dropping to $605 or lower” and while we didn’t get to $605 today, we did get the rug pull and damage has been done to the bull case. The bears will look to build on their gains today. While we continue to advise keeping a long bias, we also continue to advise caution shorting, especially on a break of $608 and $606. Continue to monitor key levels and be sure to review the premarket analysis before 9 AM ET for the day’s updates.

Good luck and good trading!