Market Insights: Tuesday, February 18th, 2025

Market Overview

The S&P 500 closed at a record high on Tuesday, with most of the gains coming in the final moments of trading, marking a strong start to the holiday-shortened week. The benchmark index edged up nearly 0.2% to settle at 6,126.54, while the Dow Jones Industrial Average closed slightly in the red, and the Nasdaq Composite eked out a small gain.

Investors returned from the Presidents' Day holiday with a cautious tone, closely monitoring potential Federal Reserve policy changes and new developments from the White House. Recent comments from Fed officials over the long weekend reinforced their stance on keeping interest rates steady to combat inflation, which left markets searching for clearer signals on rate cuts.

Treasury yields ticked higher as traders reassessed the likelihood of monetary easing, with the 10-year yield climbing to 4.55%. This increase in yields added pressure to rate-sensitive sectors, limiting market upside. Meanwhile, geopolitical concerns also played a role, with U.S.-Russia discussions regarding Ukraine continuing in Saudi Arabia, leaving investors wary of any potential shifts in global stability.

Earnings season remains in focus, with reports from 46 S&P 500 companies scheduled this week. Chinese tech giants Baidu and Alibaba are set to report their results, offering insight into the state of the global technology sector. Additionally, merger speculation drove major moves in single stocks, with Intel and Walgreens surging on buyout rumors, while AI-focused Super Micro Computer jumped 16%, adding to its recent rally.

Despite the mixed tone in markets, the underlying sentiment remains bullish, with traders eyeing further upside if economic data later this week provides more clarity on the Fed’s next move.

SPY Performance

SPY ended the session slightly higher, closing at $611.45, up 0.29%. It reached an intraday high of $611.45 and a low of $608.38. Trading volume remained well below average at 24.48 million shares, signaling reduced participation following the holiday weekend. Resistance at $612 continues to hold, with $614 and $615 as the next upside targets. Key support levels are at $608, $605, and $603.

Major Indices Performance

The Russell 2000 led the day’s gains, climbing 0.56% as small-cap stocks rebounded. The S&P 500 managed to notch a 0.2% gain, closing at an all-time high after a last-minute surge. Meanwhile, the Nasdaq Composite dipped slightly by 0.09%, and the Dow Jones Industrial Average lost 0.10%, weighed down by cautious trading in blue-chip stocks.

Tech stocks were mixed, with Nvidia and Microsoft bucking the downtrend among the "Magnificent Seven." Sectors tied to interest rate expectations showed varying performances, as rising Treasury yields pressured growth stocks while defensive plays remained relatively stable. The market remains resilient despite the uncertainty surrounding interest rates and geopolitical risks, with traders continuing to seek opportunities in select high-growth names.

Notable Stock Movements

Within the "Magnificent Seven," Nvidia and Microsoft posted modest gains, while Meta and Netflix led the declines. The broader market saw some large individual stock moves, particularly in the M&A space. Intel and Walgreens both jumped over 10% amid renewed acquisition rumors, adding to speculation of increased corporate deal-making in 2025. Super Micro Computer, a major AI play, surged over 16% as investors bet on a continued rally in AI-driven stocks.

Commodity and Cryptocurrency Updates

Crude oil advanced 1.50%, closing at $71.77 per barrel, but remains in a broader downtrend toward $60 due to lingering demand concerns. Gold surged 1.80% to $2,953 per ounce, marking a strong recovery as traders reassessed inflation risks. Bitcoin slipped 1.78%, closing just above $94,700. The cryptocurrency remains within a longer-term uptrend, with buy zones identified between $83,000 and $77,000.

Treasury Yield Information

The 10-year Treasury yield rose 1.72%, closing at 4.555%, breaking back above the critical 4.5% level. If yields continue to climb toward 4.8%, equities could face renewed selling pressure, while a move above 5% would likely trigger broader market turmoil. A rise past 5.2% could spark a 20% or greater market correction, making yield movements a key factor to watch in the coming sessions.

Previous Day’s Forecast Analysis

Friday’s newsletter projected a trading range of $605 to $614 with a bullish bias. Resistance was expected at $610 and $614, while support was seen at $608, $606, and $604. The model suggested that SPY could push toward $615 if it cleared $610 but warned of potential consolidation if buyers failed to sustain momentum.

Market Performance vs. Forecast

SPY’s actual range of $608.38 to $611.45 closely aligned with expectations, staying within the forecasted trading range. The ETF briefly tested resistance at $612 but failed to break through, leading to consolidation as anticipated. Traders who followed the suggested long trades from $608 found profitable opportunities, while shorts at resistance saw limited downside movement. Extremely low volume and a relatively tight range has prices constrained.

Premarket Analysis Summary

Tuesday’s premarket analysis, posted at 7:37 AM ET, projected resistance at $614.75 and $616, with downside targets at $611, $609.75, $607.40, and $603.50. The analysis suggested that as long as SPY remained above $611, it was likely to drift higher, with a strong support zone at $609.75.

Validation of the Analysis

The premarket analysis was largely accurate, as SPY hovered around the $611 level for most of the session and never made a meaningful push toward $614.75. The anticipated downside support at $609.75 held firm, preventing a sharper decline. Traders who followed the suggested buy levels found opportunities to capitalize on the minor dips throughout the session.

Looking Ahead

The market’s next catalyst comes on Wednesday with the release of the FOMC minutes, which could provide further insight into the Fed’s policy direction. Thursday’s Unemployment Claims report will also be closely watched, while Friday’s PMI data could add further clarity on economic growth prospects.

Market Sentiment and Key Levels

SPY remains at a crucial resistance level of $612. If broken, the next key upside targets are $614 and $615, with more all-time highs in reach. Support remains firm at $608, $605, and $603. Bulls maintain control, but further consolidation could occur as the market digests recent gains. At these levels the market is waiting on an external catalyst to push price. Be cognizant of external triggers.

Expected Price Action

Our AI model forecasts a trading range of $606 to $614 for Wednesday, with a bullish bias. If SPY holds above $612, further upside to $615 is likely. A failure to break $612 could lead to a pullback toward $608 or lower. There is little to no volume in the market at these levels and as such, much of the price action is driven by retail investors who have FOMO. We advise caution trading these levels until volume reemerges.

Trading Strategy

Traders should look for long opportunities on dips to $608 and $605, targeting a move back toward $612 and $614. Shorts should be considered only on failed breakouts above $612, with downside targets at $609 and $605. The VIX remains low, suggesting a controlled volatility environment, but caution is warranted ahead of Wednesday’s economic releases and any news out of the White House.

Model’s Projected Range

The model projects a maximum trading range of $605.75 to $614.25 for Wednesday in a Call-dominated environment implying continued bullish momentum. The range remains wide but narrowing implying further consolidation with periods of trending price action. SPY remains within its bull trend channel from the September lows, with potential upside to $628 and downside support at $587.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a narrow Bullish Trending Market State, with price closing at resistance. There are no extended targets above implying a weak bull trend. The MSI rescaled several times today both higher and lower. Overnight the MSI rescaled higher and printed extended targets above which saw price move to new all-time highs in the premarket. But by the open extended targets had stopped printing and with price at MSI resistance at $612, price reverted and the MSI rescaled to a ranging state and very briefly to a bearish state. There were no extended targets below so the MSI moved back to a ranging state where it remained for much of the session. At 1 pm the MSI once again rescaled to a bearish state which saw price move from resistance to support with a few extended targets below. But a failed breakdown and once again the MSI rescaled to a ranging state which led to price rallying in the last few minutes of the session with the MSI rescaling to its current bullish state. MSI resistance is currently $611.40 with support at $610.80.  
Key Levels and Market Movements:
We stated Friday “we continue to favor longs above $606 to $610 and on a break of $610 believe price will attempt to reach $615” and today that advice proved highly accurate. We also stated that shorts “should only come from failed breakouts” and just prior to the open, we had such a failed breakout. We mention this because its important to pay attention to price before the open and recognize patterns which may still be in play by the time the market enters its regular session. At 8:24 am price put in a failed breakout which was a valid short signal, but not one that we could take until extended targets stopped printing. And right at the open, extended targets had stopped printing and with price falling hard we jumped on the short looking for the MSI to rescale to a bearish state. We took first profits at MSI support at $609.80 and while the MSI did rescale to a bearish state, a triple bottom mid MSI range with the lack of extended targets below and a very narrow MSI bearish state with price below our major level of $610, we decided to reverse long to see if price would reverse and higher. Price did in fact move higher but found material resistance at $610.50, above our $610 level so we decided to exit our long with a single target given we do not favor trading with an MSI ranging state. The MSI remained in a ranging state and while there were opportunities to short $610 when the MSI rescaled to a bearish state, our plan was to only short on a failed breakout and that pattern did not set up for the rest of the session. So instead we waited for a failed breakdown and got a textbook set up just after 2 pm ET. But with extended targets below, we held off on a long until after a double bottom formed and extended targets stopped printing. We went long at MSI support at $609, once again thinking $610 would be within reach. We took first profits at $610 and held our runners for higher prices. And just before the close, the market decided to cooperate and pushed price straight up to MSI resistance at $611 and new, closing highs where we exited our runners for a solid, three for three day. Once again we had little to no stress on any of our trades as the MSI told us who controlled the market and when and where they took control which allowed us to execute our plan perfectly. 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:
Tomorrow has FOMC minutes which could move the markets but otherwise, it’s likely the market remains stuck in a narrow range on Wednesday. The bulls want to defend $608 so as long as SPY remains above this level, the bulls maintain complete control and the bears are sidelined. Therefore on Wednesday as long as this remains true, defer to the bull trend with SPY working toward $614 and $615, pausing at $612 along the way. Below $608 the bears will begin to nibble and attempt to work price lower toward $605. Be careful shorting below $608 because 80% of the time this will be a trap. So once again, be cautious entering shorts only on failed breakouts. While there are more complex patterns to use as triggers to entries, we focus here on the most basic and repeatable patterns with the goal of getting our clients profitable and consistent. The next spot to look for a short is above $614, again on a failed breakout. But as we said Friday “be extremely careful shorting this market” given the strength of the bulls. While there is little to no volume pushing price higher, this could change in an instant. As such we continue to favor longs and continue to advise deferring to the trend. Seek long set ups from MSI support at $608 or higher on failed breakdowns and other patterns, using 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 $612 to $620 and higher strike Calls implying the Dealers believe there is a limit to the rally on Wednesday at $615. To the downside Dealers are buying $611 to $590 and lower strike Puts in a 4:1 ratio to the Calls they are selling, implying a bearish outlook for Wednesday. This positioning is unchanged from Friday and again, not overly bearish. Dealers have added to their protection at these elevated levels, continuing to maintain inexpensive protection.    
Looking Ahead to Next Friday:
Dealers are selling $612 to $625 and higher strike Calls implying Dealers believe any further rally this week is limited to $615. As we stated Friday “Dealers have repositioned for a break of the all-time highs” which of course worked out precisely today. But they still maintain a strong ceiling at $615, at least as of today. This can change at any time. To the downside, Dealers are buying $611 to $570 and lower strike Puts in a 4:1 ratio to the Calls they are selling, reflecting a bearish view for the week. Dealer positioning has changed from slightly bearish to bearish, although like the daily positioning, this is not overly bearish and more simply protection for a long book. Dealers continue to show little fear of lower prices and therefore there is a high probability SPY continues to make new highs this week. We continue to “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”. We also advise reviewing Dealer positioning daily for clues to the market’s direction and given Dealer positioning changes and it’s essential to monitor these updates for shifts in sentiment.

Recommendation for Traders

Our advice for Tuesday is seek failed breakout and failed breakdown patterns from major levels. The bears are sitting out this market, waiting to see how the market reacts at the all-time high. Therefore we advise staying long until there is more price discovery at these levels. Continue monitoring key levels and watch $608/605 on any pullback given the bulls will not want these levels to fail as they work toward more new highs. Be sure to review the premarket analysis before 9 AM ET for any updates.

Good luck and good trading!