Market Insights: Wednesday, February 19th, 2025

Market Overview

The S&P 500 climbed to another record high on Wednesday, gaining 0.2% to close at 6,144.15, marking the second consecutive session of record closes. The Nasdaq Composite and Dow Jones Industrial Average each added 0.1%, though broader market sentiment remained cautious following the latest Federal Reserve minutes and ongoing tariff developments from the White House.

Minutes from the Fed’s January meeting revealed that policymakers remained committed to keeping interest rates at restrictive levels until further progress on inflation was evident. While some officials suggested that rate cuts could be warranted if the labor market weakened or inflation returned to 2% faster than expected, others warned of upside risks to inflation, citing potential impacts from new trade policies.

Meanwhile, trade tensions escalated after President Trump announced plans for a 25% tariff on foreign automobiles, semiconductors, and pharmaceuticals, effective April 2. This follows a series of tariffs unveiled earlier this month, including global 25% tariffs on steel and aluminum imports set to take effect on March 12, as well as planned 25% duties on Mexico and Canada next month. With 10% tariffs on Chinese imports already in place, markets remain on edge over potential retaliation from major trading partners.

Despite these headwinds, investors maintained a bullish stance, focusing on corporate earnings and economic resilience. The next major market catalyst comes on Thursday with the release of Unemployment Claims data, followed by Friday’s PMI report, both of which will help shape expectations for the Fed’s next policy move.

SPY Performance

SPY continued its upward trend, closing at $612.76, up 0.21% for the session. The ETF traded within a range of $609.56 to $613.23, with below-average volume at 27.37 million shares, indicating a lack of strong participation. Resistance at $613 remains key, with $614 and $617 as the next upside targets. On the downside, support is at $610, $607, and $605.

Major Indices Performance

The S&P 500 led the day’s gains, closing at an all-time high with a 0.2% increase. The Dow Jones Industrial Average edged up 0.09%, while the Nasdaq Composite barely moved, finishing the day up just 0.01%. The Russell 2000 lagged, slipping 0.37% as small-cap stocks struggled under pressure from higher Treasury yields.

Tech stocks delivered a mixed performance, with Tesla leading the way among the Magnificent Seven, gaining over 1.8%. Meanwhile, Meta, Nvidia, and Amazon saw minor declines. Sector rotation remained evident, with investors favoring defensive plays amid uncertainty over tariffs and Fed policy direction.

Notable Stock Movements

Tesla was the standout performer among the Magnificent Seven, rallying over 1.8% and helping to support the broader market. The other major tech giants showed mixed results, with Meta, Nvidia, and Amazon posting minor losses, while Apple, Microsoft, and Alphabet saw modest gains.

Broader market action remained focused on trade-sensitive names, with automakers and semiconductor stocks under pressure following Trump’s tariff announcement. However, some defensive sectors, including healthcare and utilities, saw inflows as investors positioned for potential volatility.

Commodity and Cryptocurrency Updates

Crude oil rose 0.50% to settle at $72.19 per barrel, but the broader trend remains bearish, with our long term model expecting prices to drift lower toward $60. Gold inched up 0.07% to close at $2,951, holding firm as investors assessed inflation risks. Bitcoin gained 0.49%, closing just above $96,100. The cryptocurrency remains in a long-term uptrend, with buy zones identified between $83,000 and $77,000.

Treasury Yield Information

The 10-year Treasury yield dipped 0.18% to close at 4.538%, staying just above the critical 4.5% level. Yields remain a key focus, with equities at risk if rates push toward 4.8% or higher. A break above 5% would likely trigger more significant market pressure, while a move past 5.2% could signal a deep correction of 20% or more.

Previous Day’s Forecast Analysis

Tuesday’s newsletter projected a trading range of $606 to $614 with a bullish bias. Resistance was expected at $612 and $614, while support was identified at $608, and $605. The model suggested that if SPY held above $612, further upside toward $615 was likely, while failure to break resistance could lead to consolidation or a pullback. Longs on dips were favored over shorts targeting $612 and $614.

Market Performance vs. Forecast

SPY’s actual range of $609.56 to $613.23 closely aligned with expectations, staying within the projected trading range. The ETF briefly tested resistance at $613 but struggled to hold gains, leading to a moderate pullback before closing near session highs. Traders who followed the suggested long entries above $608 found several profitable opportunities, while short setups above $614 failed to materialize. The low trading volume contributed to a relatively tight range, reinforcing the model’s expectation of consolidation.

Premarket Analysis Summary

Wednesday’s premarket analysis, posted at 7:31 AM ET, projected resistance at $613.50, $615, and $617, with downside targets at $610, $608.50, and $606. The initial bias was upward, with expectations of a drift higher as long as SPY remained above $610. However, the analysis also noted that if the rally lost steam, a reversal toward support levels could unfold later in the session.

Validation of the Analysis

The premarket analysis was largely accurate, as SPY hovered around the $610 level for most of the session before making a push toward $613. Resistance at $613.50 was tested but held firm, preventing a move toward the higher targets of $615 and $617. On the downside, the support at $610 held, limiting the potential for deeper declines. Traders who followed the premarket levels found opportunities to capitalize on intraday movements, particularly as SPY oscillated between support and resistance.

Looking Ahead

Thursday’s Unemployment Claims report will be a key focus for traders, as labor market strength could influence expectations for future Fed rate decisions. A stronger-than-expected report may push yields higher, pressuring equities, while a weaker reading could increase hopes for a more dovish Fed stance. Markets will also look ahead to Friday’s PMI report for further signals on economic growth momentum.

Market Sentiment and Key Levels

SPY remains in a tight consolidation range, with bulls maintaining control above key support at $610. Resistance at $613 and $614 remains a hurdle, with a breakout opening the door for further upside toward $617. On the downside, support at $610 and $607 remains firm, with any break below these levels potentially shifting momentum in favor of the bears. The market remains in a wait-and-see mode, looking for an external catalyst to drive the next move.

Expected Price Action

Our AI model forecasts a trading range of $610 to $615 for Thursday, with a slightly bullish bias. If SPY holds above $612, further upside to $615 is likely. However, failure to break resistance could lead to continued consolidation or a pullback toward $608. A break of $608 on volume will lead to a test of $605. Volume remains extremely light, and much of the price action is being driven by retail investors. We advise caution at these levels until institutional volume returns.

Trading Strategy

Traders should look for long opportunities on dips to $610 and $608, targeting a move back toward $612 and $614. Shorts should be considered only on failed breakouts above $614, with downside targets at $612 and $610. The VIX remains stuck at $15, suggesting controlled volatility, but caution is warranted ahead of Thursday and Friday’s economic releases.

Model’s Projected Range

The model projects a maximum trading range of $606 to $615.25 for Thursday in a Call-dominated environment, implying continued bullish momentum. The range remains wide but is beginning to narrow, suggesting further consolidation with potential for 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 Bullish Trending Market State, with price closing at support. There are no extended targets above implying a bull trend without herd participation. The MSI rescaled several times today opening in a ranging state and moving higher to a bullish state where it remained all day. Extended targets printed sporadically during the session but when combined with several rescalings higher and a fairly wide bullish state, price had nowhere to go but up. Just after 2 pm ET the MSI rescaled lower and higher which let users know that while the trend was long and while clearly prices were moving higher, a top was likely forming, most likely at our models major level at $614. Price reached $613.23 where it found resistance keeping price contained from moving higher. MSI resistance is currently $613.23 with support at $612.19.  
Key Levels and Market Movements:
We stated yesterday the “bulls want to defend $608 so as long as SPY remains above this level, the bulls maintain complete control” and today proved this point emphatically with SPY rising to our models resistance level just shy of $614. We also stated “defer to the bull trend with SPY working toward $614 and $615, pausing at $612 along the way” and once again, this played out to perfection, starting with our first trade which came from a bailed failed breakdown at MSI support at 10:08 am. The MSI was in a ranging state which is not our favorite to trade. But with price above $608 and with the next stop at $612, a long from MSI support on a failed pattern at $609.77 was a no brainer. We took first profits at MSI resistance at $610 and held our runner for $612. Price pulled back with the MSI in a ranging state (again a reason we don’t love trading in this state) and we saw price revisit MSI support at $610. This level was identified in the premarket as major support and as such, on a not so perfect failed breakdown, we added to our long and once again, looked to MSI resistance at $611 for a first target. We got this fairly quickly with the MSI rescaling higher. While initially the MSI was a bit narrow, we decided to hold our runner knowing the odds of success on our long was 70%. And sure enough price reached MSI resistance at $611.56 and printed an extended target above so we continued to hold for a second target at our model’s resistance level of $612. We got close at $611.95 and with price at a rescaled MSI resistance level, we took a second target and held a runner to see if price would work its way toward $614. Price fell to MSI support but we didn’t short given the strength of the MSI with extended targets above. Instead on the pullback we contemplated going long but didn’t love that MSI support didn’t hold as tightly as we had hoped. Instead we waited for a better set up which came on another failed breakdown at 1:12 pm ET. A textbook pattern at $611 had us adding to our long to get back to full size, looking for a first target at MSI resistance at $612. We got there once again and took first profits and held runner for our model’s final target of $614. Sure enough price broke higher with the MSI rescaling several times higher with extended targets above. On the last rescale, price set up a failed breakout at $613.23 so we closed our long and called it a day. We thought about going short since our plan was to short from $614. But we didn’t do so given extended targets were printing above. As users of the MSI know, we never fade a trend with extended targets printing. But all in all another very solid day for us, with three great trades and three winners, trading with the MSI, with our model’s bias and from and to the levels indicated in both the post and premarket reports. We had a plan of action and the tools necessary to execute the plan without hesitation and with little to no stress on any of our trades. The MSI 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:
Tomorrow has Unemployment Claims which is not likely to shake the market without a major change in the numbers. The pace of the market rally has slowed and while the drift higher continues, a 24 basis point move is nothing more than consolidation. We suspect this continues until a major catalyst pushes the market one way or the other. While it could be PMI, perhaps the market is waiting on more tariff news or other action from the current administration. The bulls still want to defend $608 so our advice from yesterday hold for tomorrow: as long as SPY remains above this level, the bulls maintain complete control and the bears are sidelined. On Thursday we advise deferring to the bull trend with SPY working toward $614 and $617, pausing at $613 along the way. Below $608 the bears will begin to nibble and attempt to work price lower toward $605. But again, be very careful shorting below $608, entering shorts only on failed breakouts. We still like a short above $614, but again, only on a failed breakout. We continue to advise caution shorting this market given the strength of the bull trend. Volume is nonexistent, which means any large player can quickly change the narrative so stay nimble and trade smaller than usual. Continue to seek long set ups from MSI support at $608 or higher on failed breakdowns and other bottoming 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 $613 to $620 and higher strike Calls implying the Dealers believe there is a limit to the rally on Thursday at $615. To the downside Dealers are buying $611 to $596 and lower strike Puts in a 3:1 ratio to the Calls they are selling, implying a slightly bearish to neutral outlook for Thursday. This positioning has changed from bearish to slightly bearish/neutral. Dealers continue to add to their protection at these elevated levels.    
Looking Ahead to Friday:
Dealers are selling $613 to $625 and higher strike Calls implying Dealers believe any further rally this week is limited to $615. To the downside, Dealers are buying $612 to $579 and lower strike Puts in a 5:1 ratio to the Calls they are selling, reflecting an increasingly bearish view for the week. Dealer positioning has changed from bearish to more bearish. 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”. We have been making this statement for over a week as we continue to believe mimicking Dealers leads to more profits in the long run. 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 Thursday is to continue to seek failed breakout and failed breakdown patterns from our model’s major levels. The bears are not participating in this market as is evidenced by the extremely low volume. They are waiting to see how market participants reacts at these levels. We continue to advise staying long but advise caution given at any moment the market could experience a rug pull with prices dropping to $605 or lower. The longer price stays at these levels, the probability of this occurring increases. Continue monitoring key levels and watch $608 on any pullback given the bulls will not want this level 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!