Market Insights: Monday, May 5th, 2025

Market Overview

Stocks stumbled Monday as a new round of tariff threats from President Trump reignited trade tensions, snapping the market’s historic rally just as traders turned their attention to the upcoming Fed decision. The S&P 500 dropped 0.6%, ending its nine-day winning streak, its longest in over two decades while the Dow slipped 0.3%, marking its first loss in ten sessions. The Nasdaq led declines with a 0.8% dip, pressured by weakness in Big Tech. Confidence that the U.S. and China were inching toward renewed negotiations took a hit after Trump declared he would not speak with Chinese President Xi this week, despite calling for a “fair deal.” He also unveiled a new 100% tariff on foreign films, opening a fresh front in the trade war. The U.S. dollar weakened as traders reassessed whether the recent optimism around a potential deal was premature. Meanwhile, market participants are bracing for the Fed’s two-day policy meeting starting Tuesday, with expectations that interest rates will remain unchanged, though Trump has increased public pressure on the Fed to cut. On the corporate front, Berkshire Hathaway slid 5% following the announcement that Greg Abel will take over from Warren Buffett in 2026. Ford beat Q1 earnings but withdrew its full-year guidance, citing tariff uncertainty. Palantir offered a rare bright spot, raising its revenue guidance after reporting solid demand. Overall, the day marked a clear shift in tone as renewed geopolitical stress collided with looming macro uncertainty.

SPY Performance

SPY ended its nine-day rally on Monday, slipping 0.56% to close at $563.57. The ETF opened at $564.73, briefly hit a high of $566.65, and dipped to a low of $561.70 before settling just below the $565 resistance level. Volume was notably light at 36.80 million shares, well below the recent average, hinting at a market in wait-and-see mode ahead of Wednesday’s FOMC meeting. While SPY held within the broader bull trend, the close below Friday’s level signals hesitation among bulls to push higher without fresh catalysts. Momentum has slowed, and the market now appears to be consolidating after a powerful multi-day breakout.

Major Indices Performance

The Dow held up best among the major indices, sliding only 0.24%, while the Russell 2000 fell 0.70% as small caps retreated from Friday’s strong performance. The Nasdaq led the decline with a 0.74% loss, reflecting pressure on Big Tech names. The S&P 500 dropped 0.56%, breaking its nine-day win streak. Monday’s weakness came as tariff fears resurfaced, and investor focus shifted to this week’s Fed meeting. Sector-wise, defensives held up better, while cyclical and growth sectors gave back gains amid caution ahead of key macro data. Uncertainty around trade policy and inflationary trends kept investors hesitant.

Notable Stock Movements

The Magnificent Seven turned mostly red to start the week, led by losses in Apple, Tesla, Netflix, and Amazon, each falling over 1.9%. Alphabet, Microsoft, and Meta bucked the trend, closing slightly higher despite broader market weakness. The tech pullback highlights investor concern over the tariff escalation and how it could weigh on global growth and corporate profits. Apple’s continued slide follows its recent warning of a $900 million tariff hit, while Tesla and Amazon remain under pressure from weaker guidance and concerns over consumer demand. This mixed performance among tech leaders reflects the market’s cautious stance amid macro headwinds.

Commodity and Cryptocurrency Updates

Crude oil fell sharply by 2.21% to $57.00, marking a notable reversal after weeks of steady gains. While our model had forecast a push toward $60 well before this transpired, current price action supports our broader thesis for a drop to $50, where we would be buyers. Gold surged 2.99% to $3,340, responding to renewed trade concerns and rising inflation pressures as traders sought safety ahead of the Fed decision. Bitcoin retreated 1.48%, closing just above $94,300. We continue to view Bitcoin as a long-only trade, preferring entries between $83,000 and $77,000 with profit targets above $85,000. We caution against initiating positions below $77,000 due to the risk of deeper declines.

Treasury Yield Information

The 10-year Treasury yield edged up 0.46% to close at 4.340%, inching closer to the danger zone near 4.5%. Yields continue to rise as inflation expectations firm and the market anticipates the Fed’s next move. A sustained move above 4.8% would be a clear headwind for equities, and a spike to 5.2% could trigger a steep correction. While Monday’s rise was modest, it reflects tightening financial conditions that could weigh on growth stocks in particular. As long as yields stay below 4.5%, equity markets can remain resilient, but the risk is clearly rising.

Previous Day’s Forecast Analysis

Friday’s newsletter projected a bullish bias heading into Monday, anticipating a consolidation above $565 with upside targets at $570 and $574. It cautioned that if SPY fell below $565, a pullback to $560 or even $554 could unfold, and that anything below $554 risked a test of $545. The model called for long trades above $560 and recommended short setups below $560 or above $565 with tight stops. It noted the market was stretched after nine days of gains and warned that consolidation or retracement could be imminent. The strategy emphasized flexible trading and smaller size ahead of macro catalysts.

Market Performance vs. Forecast

Monday’s action largely confirmed the prior forecast. SPY failed to hold above the $565 support-turned-resistance level and traded in a consolidation zone, closing at $563.57. The day’s high of $566.65 came early, but upside momentum failed to build. The low of $561.70 remained well within the model’s expected range of $559 to $574.75. The primary bias level of $565 was breached and never convincingly reclaimed, offering short trade setups as suggested. The pullback reinforced the model’s view that a consolidation phase was likely after such a strong rally, and the forecast once again proved useful in preparing traders for a shift in tone.

Premarket Analysis Summary

In Monday’s premarket analysis posted at 8:34 AM, SPY was trading at $562.83 with a noted bias level of $565. The outlook was cautious, emphasizing the need for SPY to reclaim and hold $565 before committing to the long side. Upside targets were set at $567 and $573, while downside risk extended to $560 and possibly $555. The analysis anticipated a fragile market with consolidating tendencies, favoring short-term gains and quick profit-taking rather than trend trading. The guidance leaned away from aggressive shorting, citing underlying buying activity, and recommended traders stay nimble.

Validation of the Analysis

Monday’s trading session validated the premarket guidance. SPY failed to reclaim $565 with conviction and drifted downward after a brief early high. It ultimately closed at $563.57, confirming the analysis that warned of fragile conditions and a preference for consolidation rather than a breakout. The market tested $560 but found support just above it, avoiding the deeper downside target of $555. Traders following the guidance were able to stay defensive and capitalize on short setups near $565 or avoid chasing false breakouts. The premarket insights once again provided a reliable framework for managing risk and executing with discipline.

Looking Ahead

With Tuesday free of major economic data, attention will fully shift to the Fed’s FOMC announcement on Wednesday. Markets are likely to tread water as traders brace for any surprises in tone or policy from the central bank. While no rate change is expected, the statement and press conference could reveal more about the Fed’s inflation outlook and willingness to cut later this year. Until then, expect lower volume and narrow trading ranges as the market digests Monday’s pullback and awaits the next catalyst. Traders should remain cautious and flexible during this lull.

Market Sentiment and Key Levels

SPY is now trading around $563.57, just below the critical $565 resistance level that has capped gains since Friday. Market sentiment remains cautiously bullish but clearly losing momentum. The failed push above $565 suggests buyers are getting tired, and the upcoming FOMC announcement looms large. Resistance stands at $565, $568, and $570, while support lies at $560, $558, and $555. A move above $565 could open the door to $570, but failure to hold $560 would raise the risk of a retest of $555 or lower. The balance of power remains tilted toward the bulls, but cracks are emerging.

Expected Price Action

Our AI model projects a trading range of $557 to $570 for Tuesday, offering actionable intelligence for traders. The current bias remains bullish, but Monday’s weakness increases the likelihood of more sideways action or even a deeper pullback. If SPY can reclaim $565, upside targets at $568 and $570 come back into focus, with $575 as a stretch target. However, if $560 breaks, watch for a move toward $555 and potentially $545. With the Fed looming, traders should anticipate choppy price action and use tight stops near key levels. Momentum and volume will likely remain subdued until after Wednesday’s announcement.

Trading Strategy

Traders should continue favoring long trades above $560, targeting moves to $565, $568, and $570. A breakout above $570 could lead to a run toward $575, but traders should tighten stops near resistance. Short trades may be considered below $560 with targets at $558 and $555 or above $567 with targets at $565 and lower. Caution is warranted given recent bullish momentum. The VIX closed higher at 23.64, signaling rising volatility. This is a market that demands discipline and flexibility. Trade with smaller size, set defined stops, and avoid overexposure ahead of Wednesday’s Fed decision. Keep an eye on failed breakouts and breakdowns around key levels for actionable setups.

Model’s Projected Range

The model’s maximum projected range for Tuesday is $556.50 to $570.50, with the Call side dominating suggesting consolidation with perhaps a further retracement of recent gains. As we noted Friday, “after such a strong run, we still believe a day or two of consolidation is warranted.” For Tuesday, the projected range is narrowing and drifting lower, suggesting more sideways action rather than a continuation of the recent bull trend. We've highlighted for several days that as SPY approaches the $565 to $585 zone, institutional traders are likely to reduce exposure and implement protective strategies to lock in gains. This has contributed to the market stalling around the $567 level. While it's possible the market pushes a bit higher toward the 200-day moving average, that level also represents a significant hurdle for the bulls. With the FOMC decision looming on Wednesday, Tuesday is shaping up to be more of a sideways session as market participants await clarity from this key economic event. The bulls still hold the advantage unless SPY starts probing lower support levels. A close above $585 would signal a decisive reclaiming of the broader uptrend by the bulls. Conversely, a break below $545 could prompt a retest of $535, and if that level fails, a gap-fill move toward $530 becomes likely and the bears are back in business. Key technical levels for Tuesday include resistance at $565, $568, $570, and $575, with support at $560, $558, and $555. The resistance wall above $567 remains formidable, while support below $560 has weakened considerably. Today’s ISM Services PMI edged up slightly, but beneath the headline number, prices paid jumped 4.2 points, the largest increase since January 2023 and the fifth straight month above 60. Tariffs and government grant freezes are weighing on services like health care, while utility firms are adjusting capital expenditures. New orders are declining, and if tariffs aren't rolled back soon, we could see further slowdown in business activity, potentially leading to layoffs and renewed inflationary pressure. This is why we continue to emphasize that Q3 could pose significant challenges for the markets. With SPY back to pre-Liberation Day levels, protecting gains remains critical. Tariffs, bond yields, and inflation will remain key macro forces over the next 80 days or until clearer policy direction emerges from the White House. The VIX closed higher at 23.64, hovering around the 23 level, a key pivot point, as moves above this tend to pressure equities, while dips below support rallies. With SPY settling at $563, bulls will likely attempt a “Turnaround Tuesday” push back above $565, though we suspect any gains will be limited ahead of the FOMC. SPY is now trading above the upper boundary of the bear trend channel that has been intact since December, yet our model has not redrawn a new bullish channel, remaining unconvinced that this rally is sustainable. However, should upward momentum persist this week, a new bullish trend channel may emerge. Momentum currently favors the bulls, but in a volatile environment like this, staying nimble and ready for rapid sentiment shifts remains essential. 

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI remains in a Bullish Trending Market State, unchanged since Friday’s close. SPY closed well above MSI resistance now turned support. Extended targets printed for much of today’s session. The wide MSI range reflects a strong bullish trend, though one that appears increasingly susceptible to stalling. Toward the close, extended targets stopped printing, leading SPY to pull back from its intraday highs and finish below $565. Notably, the MSI did not rescale again today, signaling that bullish momentum may be waning. Still, the persistent appearance of extended targets throughout the day underscores the herd’s continued willingness to buy dips. In the final 40 minutes, extended targets ceased printing, but SPY held up reasonably well, closing comfortably above the MSI. Current MSI support levels are at $556.09 and $552.48.
Key Levels and Market Movements:
On Friday, we noted: “markets consolidate ahead of the Fed, moving sideways to build energy for a breakout or breakdown. After nine consecutive days of gains, we could see a ‘Manic Monday’ featuring a retracement of some of those sharp advances.” We also stated, “As long as $560 holds, the bulls remain poised to drive SPY another $10 higher,” and added, “Expect two-way trading opportunities. Shorts become attractive above $565, while long setups may emerge below $560.” Armed with this outlook, we entered the market following an overnight sell-off to $561.75, just above our key $560 level. At the open, with the MSI in a bullish state and extended targets printing, we took a long position off a triple bottom at this level. SPY responded as expected, moving higher. We turned to our premarket analysis for our first target and identified $565. By 11 a.m., SPY reached that level, and we locked gains on 70% of our position. Next, we looked to the premarket report again, setting our second target at $567. We recognized this would be a challenge given we had flagged shorts above $565, but we stayed disciplined, following our plan. With overnight SPY having gapped lower from $566.50, we treated the gap-fill as a proxy for $567 and banked another 20% of the position there. With a stop moved to breakeven and 10% of the position remaining, we held to see if SPY might tag the next level at $573. That didn’t materialize. At 3:22 p.m., extended targets stopped printing, so we exited the final portion of our long at $564.75 and wrapped up the session. We considered going short but, with a strong trade already booked and limited time left in the day, we opted for a “one and done” approach, especially with more opportunities likely post-FOMC. Today’s success was driven by disciplined execution, a well-structured plan, and guidance from the MSI and our model’s levels. The MSI reveals who’s in control, when control shifts, and where key actionable levels lie, enabling precise entries and exits. When paired with our levels, it helps traders stay aligned with dominant market forces. It continues to deliver with high precision, helping traders avoid traps, stay in sync with momentum, and capture profits with confidence. We strongly recommend integrating the MSI into your trading toolkit. When combined with a structured plan, it becomes a powerful engine for long-term performance.
Trading Strategy Based on MSI:
Tuesday brings no significant economic data, although renewed tariff talk from the White House continues to unsettle investor confidence. However, the main event this week is Wednesday’s FOMC statement, which typically leads to market consolidation in the days leading up to it. While Monday saw a modest retracement of recent gains, there is still the potential for a Turnaround Tuesday that could push SPY back above $565 and into the $565 to $585 "danger zone" we’ve referenced several times. The bulls remain in firm control of the broader trend, and as long as SPY holds above the key $560 level, a move back toward $575 remains likely. If $560 fails to hold, however, the bears may attempt to drive SPY lower, targeting $545. Still, after the recent rally, where short sellers have repeatedly been punished, it remains unclear whether the bears have the resolve to counter the dominant bullish trend. Both $560 and $545 will be key levels to watch if they come into play. The MSI has not rescaled and remains in a wide bullish state. Extended targets printed for most of Monday without a rescale, which suggests that price action on Tuesday may lean more toward sideways consolidation than a strong directional trend. The next major challenge for the bulls is the 200-day moving average at $573, which could act as a natural point for a deeper pullback if tested. If no external catalyst appears, the outlook for Tuesday is straightforward: if SPY holds above $560, a push toward $575 remains likely. A failure to hold that level opens the door to a move toward $545. If $545 breaks, further downside to $535 is possible, and below that, a gap fill toward $525 could be on the table. The $565 to $585 zone continues to represent a high-risk area for stalling or reversal. Bulls will not fully regain control until SPY reclaims and holds above $585. Traders should expect two-way opportunities on Tuesday. Short setups become attractive above $565, while long setups may develop around the $560 level. Focus on failed breakouts and failed breakdowns near these critical zones and avoid chasing trades into extended targets or fighting the prevailing MSI trend. As always, it's important to trade what’s in front of you. The MSI remains a vital tool in this environment, offering real-time insight into market structure and momentum shifts. When combined with the levels in the Premarket Report, it gives traders an edge by identifying high-probability targets and clean entry points. This pairing helps avoid costly mistakes and keeps traders aligned with the dominant forces in the market. If you’re not yet using the MSI and model levels, now is the time to start. Reach out to your rep—they’re powerful tools that can make a real difference in volatile conditions like these.

Dealer Positioning Analysis

Summary of Current Dealer Positioning:
Dealers are selling $568 to $580 and higher strike Calls while also buying $564 to $567 Calls indicating Dealer’s desire to participate in any dip buying that transpires on Tuesday. Dealers are no longer selling close to the money Puts. The upside appears limited to $570 for Tuesday. To the downside Dealers are buying $563 to $500 and lower strike Puts in a 2:1 ratio to the Calls they are buying/selling, implying a neutral posture for Tuesday. Dealer positioning has not changed from neutral to neutral.
Looking Ahead to Friday:
Dealers are selling $568 to $605 and higher strike Calls while also buying $564 to $567 Calls indicating the Dealers desire to participate in any continuation of the current rally into Friday. Dealers appear to believe the peak for SPY for the week is $575. To the downside, Dealers are buying $563 to $490 and lower strike Puts in a 4:1 ratio to the Calls they’re buying/selling, reflecting a bearish outlook for the week. Dealers are heavily protected should $555 fail but are also open to prices reaching $575 this week. Dealer positioning is unchanged from bearish to bearish. We advise reviewing Dealer positioning daily for directional clues. These positions evolve quickly and tracking them is essential for staying ahead of shifting market sentiment.

Recommendation for Traders

SPY closed at $563.57 and remains trapped between key support and resistance, making it a prime setup for two-way trading. Long trades are favored above $560 with targets at $565, $567, and $570. Short trades may be considered below $560 with downside targets at $558 and $555 or above $565. Traders should approach resistance at $565 with caution, as a failed breakout could provide a quick reversal. With the VIX closing at 23.64, market volatility remains elevated, increasing the need for precise entries and tight stops. Avoid overleveraging ahead of Wednesday’s FOMC decision and focus on how price reacts to $560 and $565 for clues on market direction. Remember to review Tuesday’s premarket analysis before 9 AM ET to account for any overnight developments or shifts in dealer positioning.

Good luck and good trading!