Market Insights: Tuesday, February 25th, 2025

Market Overview

US stocks closed mixed on Tuesday as President Donald Trump’s renewed tariff threats and potential restrictions on China heightened economic concerns, leading to a volatile session. The Nasdaq Composite bore the brunt of the selloff, finishing the day down 1.34%, dragged lower by Tesla’s sharp decline of over 8% and continued weakness in Nvidia ahead of its earnings report. The S&P 500 also struggled, falling 0.48%, while the Dow Jones Industrial Average outperformed, climbing 0.37% as investors sought safety in blue-chip stocks.

Market sentiment took a hit after consumer confidence for February showed its sharpest monthly drop in nearly four years. Inflation expectations surged, and recession fears resurfaced, further weighing on investors' risk appetite. Adding to the pressure, Bitcoin plummeted below $90,000 for the first time since November, briefly touching $86,000 before recovering to close around $88,100. The drop in crypto markets echoed broader risk aversion, with major crypto-related stocks such as Coinbase and MicroStrategy under significant selling pressure.

Trump’s tariff stance remains a major overhang, with the administration confirming that trade restrictions on Mexico and Canada will take effect next week. Investors are also eyeing tougher chip export curbs to China, an issue that could directly impact Nvidia ahead of its highly anticipated earnings release. Meanwhile, Tesla shares sank after reporting a sharp 45% drop in European sales for January, adding to concerns about the electric vehicle maker’s demand outlook.

The bond market also reflected growing uncertainty, with the benchmark 10-year Treasury yield dropping to 4.292%, its lowest level of the year. Investors are increasingly betting that economic pressures, driven by trade policy and slowing global demand, will prompt the Federal Reserve to cut interest rates sooner rather than later.

As markets digest the latest economic data and trade developments, volatility remains elevated, with traders bracing for Nvidia’s earnings on Wednesday and key inflation data later in the week.

SPY Performance

SPY declined 0.48% on Tuesday, closing at $594.33 after an intraday range between $589.56 and $597.89. The ETF struggled to regain the key $600 level and remains under pressure as selling momentum continues to build. Trading volume was slightly above average at 53.44 million shares, reflecting persistent investor uncertainty. With SPY closing near its session lows, downside risks remain elevated as the market searches for stability.

Major Indices Performance

The Dow Jones Industrial Average led the market, gaining 0.37% as investors rotated into defensive names amid trade and growth concerns. The S&P 500 slipped 0.48%, extending its recent pullback, while the Nasdaq Composite took the biggest hit, falling 1.34% as Tesla’s steep decline weighed heavily on the tech sector.

The Russell 2000 dipped 0.37%, continuing to struggle as small-cap stocks faced renewed selling pressure. Tech and growth sectors remained weak, while defensive names in healthcare and utilities held up relatively well. With economic uncertainty rising, traders are closely watching upcoming earnings and inflation data for further market direction.

Notable Stock Movements

Tesla was the biggest laggard among the Magnificent Seven, plummeting over 8% after reporting a steep decline in European sales. The stock’s sharp selloff weighed on the Nasdaq and raised concerns about broader EV demand. Nvidia also struggled ahead of its earnings, adding to the tech sector’s woes.

Most of the other Magnificent Seven stocks finished lower, with Amazon being the sole exception, managing to close slightly in the green. Weakness in Microsoft and Meta contributed to the overall negative sentiment, while Apple’s earlier strength faded as trade tensions resurfaced.

Commodity and Cryptocurrency Updates

Crude oil slumped 2.29%, closing at $69.08 per barrel as concerns about weakening global demand weighed on prices. Our model continues to forecast further downside toward the $60 level in the coming months.

Gold declined 1.21% to $2,927 per ounce, retreating from recent highs as bond yields fell. The metal remains supported by long-term inflation concerns but saw some profit-taking amid market uncertainty.

Bitcoin tumbled 6.15%, closing just above $88,100 after briefly touching a session low near $86,000. While Bitcoin remains in an overall uptrend, conviction in the buy zone between $83,000 and $77,000 is weakening, signaling caution for crypto traders. We plan to nibble at these levels until our model tells us otherwise.

Treasury Yield Information

The 10-year Treasury yield fell 2.30% to close at 4.292%, hitting its lowest level of the year. Yields remain in a precarious position, with any move back above 4.5% likely to exert downward pressure on equities. If yields climb past 5%, a sharp 20% market correction could follow, making fixed-income markets a key focus in the weeks ahead.

Previous Day’s Forecast Analysis

Monday’s forecast expected SPY to trade in a wide range between $593.75 and $603, with a bearish bias as long as it remained below $600. Downside targets of $595 and $590 were highlighted, while resistance at $605 was expected to hold unless strong buying emerged.

Market Performance vs. Forecast

SPY’s actual trading range of $589.56 to $597.89 was slightly lower than the forecasted range, confirming the bearish bias. The ETF failed to reclaim $600, and the move below $595 reinforced selling pressure as forecast. Traders who followed the plan to short failed rallies near resistance saw profitable setups as downside targets played out.

Premarket Analysis Summary

Tuesday’s premarket analysis, posted at 7:19 AM ET, outlined a mixed market outlook, with key resistance at $598 and $600, and downside support at $595 and $590. The forecast suggested that failing to hold $596.80 could lead to further downside.

Validation of the Analysis

The premarket analysis proved accurate, as SPY rejected $598 and drifted lower, testing key support at $595. The session played out as expected, with shorts yielding strong returns and buyers stepping in near $590. Traders who followed the levels identified in the premarket analysis had clear opportunities to capitalize on price movements.

Looking Ahead

Markets are now focusing on Nvidia’s earnings after the close on Wednesday, which could have significant implications for the tech sector. Thursday brings the latest Unemployment Claims data, while Friday’s PCE inflation report will be a major catalyst for interest rate expectations. March is setting up to be a very challenging month with tariffs kicking in, a debt ceiling debate which could lead to a potential government shutdown, and an end to earning season. When coupled with the seasonally bearish last two weeks of March, we advise caution as we close out February. While today’s test of our models lower levels was bought, probabilities continue to increase that the market will test much lower levels by the end of March.

Market Sentiment and Key Levels

The market remains under bearish pressure, with SPY struggling below key levels. Resistance now sits at $595, $597, $598, and $600, while support is at $590. A move below $590 could trigger further selling given there is little support below $590. The bulls need to reclaim $600 to have any chance at shifting the current momentum.

Expected Price Action

The AI model projects a wide trading range of $588 to $600 for Wednesday, indicating continued volatility. The market remains in a Put-dominated structure, with bearish momentum intact. Bulls will need a strong catalyst to regain control, but downside risks remain the dominant theme. With the market rallying in the afternoon session this upward momentum is likely to continue overnight. But there is a strong wall of resistance from $595 to $600 which will contain price as it attempts to expand on today’s relief rally from the day’s lows.

Trading Strategy

Short setups remain favored on failed rallies above $595 to $600, targeting moves toward $595. A break of today’s lows and the market is likely to sell of violently with prices falling to $585 at a minimum. We favor selling all rallies from our major levels. Long trades should only be considered on a confirmed reclaim of $600 and from failed breakdowns. While our model is not projecting ranging price action, it’s possible the market pauses during the regular session tomorrow, saving the fireworks for after Nvidia earnings. Traders should stay nimble, as increased volatility could lead to sharp intraday swings.

Model’s Projected Range

The model projects a maximum range of $584.50 to $602.25 for Wednesday, emphasizing a Put-dominated environment with trending price action. The bears are in complete control of the market with prices closing below $595. $600 continues to be the dividing line between the bulls and the bears, but the bull trend is no longer intact. Below $595 the bears will press to push price lower and retest the lower trend channel in place form the September lows. This channel held today to the penny. There is little support below $590. Above $600 the bulls will attempt to reestablish momentum which will likely fail. Price continues to trade in the bull trend channel from the September lows, testing the lower channel and bouncing. Should this channel fail, price will move into the bear channel from the December highs and move materially lower. The average annual pullback of the S&P is 13% so keep this in mind given should history repeat, SPY could reach $533 or lower. While we aren’t currently forecasting this as a high probability, as price tests lower and lower levels, the probability of this occurring increases.

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI is currently in a Bullish Trending Market State, with price closing mid-range. The MSI range is extremely narrow and there are no extended targets above implying a weak bull trend which will likely stall in the overnight session. The MSI rescaled lower today at the open and printed extended targets below indicating the herd was participating in today’s rout. Once SPY reached our model’s major $590 level, extended targets ceased printing and SPY put in a bottom and reversed, testing $595 resistance. The MSI rescaled to a bullish state, flip flopping from a ranging to a bullish state all afternoon. MSI support is currently $594.53 and resistance is at $596.15.  
Key Levels and Market Movements:
We stated Monday the “market is looking for any excuse to push lower so poor economic news or further news by this administration of tariffs and the market will move lower. As such, we continue to favor selling relief rallies to $605”. And sure enough with the brief relief rally overnight to $598, a major level for our model, we were short out of the gate on a failed breakout that formed 90 minutes prior to the open. With the MSI in a wide bearish state we took first profits at MSI support at $595 and held our runners for a test of lower levels. Sure enough the MSI began rescaling lower and printing extended targets so we knew we were on the right side of the market and had a trade with the potential for big bucks. Our next major level was $590 and the MSI rescaled to this level by 10 am so we took a second target, but kept a 10% runner in case the market collapsed. The MSI rescaled lower once again but only briefly printed extended targets. After a failed breakdown, with no more extended targets and with price testing the lower trend channel of our model, we reversed long on a failed breakdown looking for test of $595. We decided to take first profits at $593, mid MSI range in case this was nothing more than a trap. But while price pulled back a bit, it continued higher and we felt confident our runner would reach $595. By 1 pm we got there and decided to close our trade given the narrow MSI bullish range. We thought about taking another long during the afternoon session but given we had two monster trades, we decided it was not worth the risk and called it a day. While we know relief rallies have the potential to be extremely strong and violent, we simply weren’t willing risk the profit we made earlier in the day. This is something all traders should consider as well. If you make one or two good trades a day and have a solid profit, go into profit protection mode, and protect what you earned. Do not risk profits when you are solidly green. We ended our day early, two for two with the help of the MSI that once again showed 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:
Wednesday has no economic news until Nvidia reports after the close. Therefore it’s possible we see a bit of calm return to the market. Absent this occurring we continue to favor selling relief rallies to $600. The bulls need to reclaim $600 for any hope of moving above $608 to wrestle control from the bears. There are major hurdles for the bulls from $597 to $600. The MSI is showing us that with its very narrow range. While we could see a relief rally to as high as $605, again we continue to favor shorts as long as the MSI is not printing extended targets above. A break of today’s low will lead to a substantial drop to $585 or lower. $590 held today which is the lower channel of our model’s trend line. Should that fail to hold on any retest, look out below as the 150 DMS becomes the likely target. For Wednesday, with the MSI in a very narrow bullish state, look for a short set ups from MSI resistance or on failed breakouts to as high as $600. Above $600 take caution shorting. We do not favor longs until price retests today’s lows AND it holds. And even if this condition presents, we will only enter long on failed breakdowns. Trending price action and volatility are back so we advise continuing 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 $595 to $598 and higher strike Calls while buying $599 to $611 Calls and also selling $590 Puts. This implies Dealers believe there is a hard floor in the market for Wednesday at $590 and that a relief rally is likely to develop once price reaches $598. This positioning is quite unusual as Dealers are playing every combination available to participate in either a market rally or sell off. But clearly they seem to think a relief rally is overdue and likely on Wednesday. To the downside Dealers are buying $594 to $580 and lower strike Puts in a 1:10 ratio to the Calls/Puts they are selling/buying, implying a strongly bullish posture for Wednesday. This positioning has changed from neutral to strongly bullish. Dealers are putting their money where their mouth is betting on a rally on Wednesday. Overall positioning is light meaning most options have been cleared given they ended ITM. So while this positioning is positive for the markets, be careful given how few options the Dealers are holding heading into tomorrow.  
Looking Ahead to Friday:
Dealers are selling $605 to $620 and higher strike Calls while buying $595 to $604 Calls indicating the Dealers desire to participate in any rally this week to as high as $610. To the downside, Dealers are buying $594 to $560 and lower strike Puts in a 1:1 ratio to the Calls they are selling/buying, reflecting a slightly bullish view for the week. Dealer positioning has changed from neutral to slightly bullish. It seems Dealers believe the bottom is in, at least for this week and at least for today. We 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 Wednesday is to be aware of any news coming out of this White House and continue to seek failed breakout and failed breakdown patterns from our model’s major levels. We advise favoring shorts over longs while at the same time, keeping an open mind because relief rallies can be quite strong and violent. Dealers are convinced the relief rally is here yet our model still advises selling rallies at major levels until $600 is reclaimed. Stay nimble and continue to monitor key levels seeking trades from our major levels. Be sure to review the premarket analysis before 9 AM ET for the day’s updates.

Good luck and good trading!