Market Insights: Tuesday, May 6th, 2025

Market Overview

Stocks declined on Tuesday as investors remained on edge ahead of the Federal Reserve's policy decision, with renewed concerns over tariffs adding to the cautious mood. The S&P 500 shed 0.8%, while the Dow fell nearly 1%, or just under 400 points, and the Nasdaq slid 0.9%. President Trump’s recent comments dashed hopes of tariff relief, weighing on sentiment after Monday’s retreat ended a historic nine-day rally. Although the Fed is expected to hold rates steady, traders are closely watching for any hints in Wednesday’s statement or press conference about future rate cuts, particularly as tariffs begin to influence inflation and corporate guidance.

Trade rhetoric continued to dominate headlines. Trump floated the idea of new tariffs on pharmaceutical imports, which dragged down healthcare names like Eli Lilly and Merck. Meanwhile, Ford rebounded after a strong earnings report despite ongoing tariff uncertainty, and Mattel added pressure after withdrawing guidance and announcing price hikes. In a peculiar White House exchange, Trump reportedly pitched the idea of Canada becoming the 51st U.S. state during a tense meeting with Prime Minister Carney. Treasury Secretary Scott Bessent attempted to inject some optimism, suggesting a U.S.-UK trade deal might be close, but the market shrugged off the headline. All eyes now turn to the Fed for clarity on the path forward.

SPY Performance

SPY fell 0.84% on Tuesday, closing at $558.80 as the ETF gave up early gains and broke below the key $560 support level. It opened at $557.93, reached a high of $563.35, and dipped as low as $556.96. Volume came in light at 43.23 million shares, again under the recent average, reinforcing a theme of caution heading into Wednesday's FOMC decision. The move confirms a shift in momentum from last week’s rally and adds weight to the idea that the market is now consolidating after its recent surge.

Major Indices Performance

The Russell 2000 led the losses with a 1.10% drop as small caps came under pressure, followed by the Dow, which fell 0.95%, and the Nasdaq, which declined 0.87%. The S&P 500 dropped 0.84%, as all major indices retreated ahead of Wednesday’s Fed meeting. While defensive sectors attempted to hold ground, cyclicals and tech were hit hardest amid uncertainty over monetary policy and rising trade tensions. Investors dialed back risk exposure across the board, awaiting clarity from the central bank.

Notable Stock Movements

Among the Magnificent Seven, Netflix stood out as the sole gainer, closing slightly higher. The rest of the group was firmly in the red, with Meta and Tesla leading the declines. Tesla’s weakness continued as investors grew more concerned about demand softness, while Meta slid after a series of cautious analyst notes. Apple, Amazon, Microsoft, and Alphabet also posted losses, albeit more modest. The group’s mixed performance reflects broader investor skepticism around Big Tech in the face of macro headwinds and regulatory scrutiny.

Commodity and Cryptocurrency Updates

Crude oil jumped 3.33% to $59.03, fueled by a weaker dollar and lingering geopolitical risk, approaching the model’s long-standing $60 target. However, our outlook remains bearish over the medium term, and we expect oil to retreat toward $50, where we plan to be buyers. Gold extended its rally, climbing 2.85% to $3,441 as investors sought safety ahead of the Fed’s announcement. Bitcoin was nearly flat, slipping just 0.02% to close slightly above $94,700. We maintain a long-only strategy for Bitcoin between $83,000 and $77,000, with profit-taking recommended above $85,000. Avoid entries below $77,000 due to the risk of deeper downside.

Treasury Yield Information

The 10-year Treasury yield eased 0.28% to 4.299%, drifting slightly lower but remaining close to the danger zone near 4.5%. The small dip in yields helped cushion equity losses but failed to spark a meaningful rebound as focus stayed on Wednesday’s Fed update. With yields still elevated, growth stocks remain vulnerable, and any move toward 4.8% or higher would signal more aggressive tightening expectations—posing serious risk to equities in the weeks ahead.

Previous Day’s Forecast Analysis

Monday’s forecast called for a trading range between $557 and $570, with a bullish bias contingent on SPY reclaiming the $565 level. The strategy highlighted long trades above $560 targeting $565 and $568, while warning that failure to hold $560 could invite a move toward $555. It also suggested caution near resistance, emphasizing the growing likelihood of consolidation ahead of Wednesday’s Fed decision. The guidance encouraged small position sizes and tight stops amid heightened volatility and geopolitical uncertainty.

Market Performance vs. Forecast

Tuesday’s market action closely followed Monday’s forecast. SPY opened at $557.93, tested resistance near $563.35, and reversed lower to close at $558.80, staying well within the projected $557 to $570 range. The inability to retake $565 confirmed the bearish tilt, and the breakdown below $560 offered viable short setups. The day’s low of $556.96 respected the expected downside targets, and the pattern of consolidation with downside pressure played out just as anticipated. The forecast’s emphasis on defensive trading and two-way action helped position traders for a choppy, news-sensitive session.

Premarket Analysis Summary

In Tuesday’s premarket analysis posted at 8:08 AM, SPY was trading at $558.83 with a bias level of $561. The outlook leaned bearish unless SPY could hold above that level. Downside targets were set at $558.50 and $555, while potential rebounds were eyed at those same levels if buying pressure emerged. On the upside, if $561 was cleared with volume, targets extended to $564.50 and $567. The analysis warned of two-way trade ahead of Wednesday’s catalyst, favoring quick profits and nimble positioning.

Validation of the Analysis

The premarket roadmap proved highly accurate. SPY tested and failed to hold $561, quickly reversing lower and hitting $558.80 by the close. The move respected the $558.50 and $555 downside zones, though SPY found support just above the latter. The lack of conviction above $561 kept the upside capped, and the session played out as a textbook consolidation with a bearish lean. Traders using the premarket guide were able to short rallies near resistance and manage risk effectively as SPY trended downward in line with expectations.

Looking Ahead

Wednesday brings the long-awaited FOMC decision, with markets bracing for potential surprises from Fed Chair Powell during the 2 p.m. ET statement and press conference. No change in interest rates is expected, but the tone and forward guidance could spark significant volatility. Traders should prepare for swift market reactions and keep risk exposure limited. Thursday’s Unemployment Claims data will follow, but Wednesday is clearly the main event this week.

Market Sentiment and Key Levels

SPY ended Tuesday near $558.80, below the critical $560 support level, indicating mounting pressure on the bulls. Market sentiment has shifted from cautiously bullish to increasingly neutral as traders eye Wednesday’s Fed risk. Resistance is now at $560, $563, and $567, while support sits at $557, $555, and $550. A reclaim of $560 could spark a rebound toward $567, but continued weakness may push SPY to test $555 or lower. The broader trend still favors the bulls unless $545 breaks, but warning signs are growing.

Expected Price Action

Our AI model projects a trading range of $552 to $570 for Wednesday. This wide range suggests choppy action early in the session, followed by potential trending behavior post-FOMC. The market remains Call-dominated, pointing to a bias toward consolidation rather than breakdown. If SPY breaks above $560 and holds, expect upside targets at $563 and $567. However, a failure to hold $557 increases the odds of a deeper slide to $555 or even $550. If the Fed’s messaging is hawkish or perceived as dismissive of inflation risk, selling could accelerate. Traders should watch for failed breakouts and failed breakdowns around key levels and avoid overtrading during periods of high volatility. Wednesday could bring explosive moves depending on how the Fed frames its outlook.

Trading Strategy

SPY’s current setup favors long trades above $558 with targets at $560 and $565. If SPY clears $565, momentum could build toward $570. On the downside, short trades may be considered below $557 with targets at $555 and $550 or above $567. Traders should keep position sizes small and stops tight heading into the Fed. Volatility is climbing, with the VIX closing higher at 24.76. VIX is elevated enough to signal turbulence but not panic. Intraday reversals are likely, so traders should look to fade extended moves at key support and resistance levels. Avoid initiating new positions right ahead of the FOMC decision and be prepared to reverse trades if conditions shift rapidly.

Model’s Projected Range

The model’s maximum projected range for Wednesday is $549.75 to $568, with the Call side dominating in an expanding range suggesting consolidation with periods of trending behavior, likely due to FOMC incoming. The projected range is drifting lower, indicating more sideways-to-downward pressure rather than a continuation of the recent bull trend. For several days, we’ve noted that as SPY approaches the $565–$585 zone, institutional traders are likely to reduce exposure and implement protective strategies to lock in gains. While the market could still push higher toward the 200-day moving average, that level remains a significant hurdle for the bulls. The FOMC decision on Wednesday carries the potential to move the market sharply—potentially +-$15. Ahead of the announcement, Wednesday morning is likely to see subdued, sideways trading as participants await clarity from the Fed. Bulls still maintain the advantage unless SPY begins probing key lower support levels. A close above $585 would mark a decisive reclaiming of the broader uptrend by the bulls. Conversely, a break below $545 could trigger a retest of $535, and if that fails, a gap-fill move toward $530 becomes increasingly likely—putting the bears back in control. Key technical levels for Wednesday include resistance at $560, $563, $567, and $570, with support at $557, $555, and $550. The resistance wall above $563 remains formidable, while support below $555 has weakened notably. Tariffs, bond yields, and inflation will remain dominant macro forces over the next 80 days or until more defined policy direction emerges from the White House. The VIX closed higher at 24.76, hovering near the 23 pivot point. Moves above this level typically pressure equities, while dips below tend to support rallies. With SPY settling at $558, bulls may attempt to push price back toward $565, though we expect gains to remain limited ahead of the FOMC decision. SPY continues to trade above the upper boundary of the bear trend channel established since December. However, our model has yet to redraw a new bullish channel, remaining unconvinced that the rally is sustainable. Still, if upward momentum persists this week, a new bullish channel could take shape. Momentum currently favors the bulls, but in an environment as volatile as this, staying nimble and ready for rapid sentiment shifts is essential. 

Market State Indicator (MSI) Forecast

Current Market State Overview:
The MSI remains in a Bullish Trending Market State, unchanged since last Friday’s close which is highly unusual. This means volume is not supporting a rescaling of the MSI and therefore prices are more likely to move sideways than trend one way or the other. SPY closed well above MSI resistance now turned support. Extended targets printed off and on today but certainly not as often as the last two days. The wide MSI range reflects a strong bullish trend, though one that appears increasingly susceptible to stalling. SPY spent much of the day trading sideways in a $4 range filled with chop and reversals. A second day close below $560 does not bode well heading into FOMC, especially with the MSI failing to rescale again today. Bullish momentum may be waning. Current MSI support levels are at $556.09 and $552.48.
Key Levels and Market Movements:
On Monday, we noted: “price action on Tuesday may lean more toward sideways consolidation than a strong directional trend.” We also stated, “if SPY holds above $560, a push toward $575 remains likely.” Finally, we said, “Short setups become attractive above $565, while long setups may develop around the $560 level.” Armed with this plan, and with SPY opening below $560, we considered a short toward MSI support. However, we prefer to take trades that go counter to the MSI only on the back of a failed pattern, like a failed breakout so we held off, waiting for one to emerge. Instead, SPY dipped to $557 and formed a textbook failed breakdown, prompting us to go long at $557.50 just before 10 a.m., with a first target at the premarket level of $558.50. We never take less than $1 profit for an initial target. Given the overnight weakness, we were willing to take a quick first target and aim for a second at the next key level: $561. SPY cooperated, hitting our second target as the MSI began printing extended targets. Confident we could reach $563 as our final target, we stayed in the trade. With a breakeven stop and 90% of profits locked in, we held for $563. At that level, SPY set up a textbook failed breakout, so we exited the long and waited for the MSI to stop printing extended targets before looking to short. By the time that happened, SPY had dropped to $560. Given SPY was still in a bull trend and $560 remained a key pivot level, we weren’t enthusiastic about initiating a short from there. Instead we waited. At 2 p.m., SPY returned to our premarket level of $558.50 and formed a less-than-perfect failed breakdown. We decided to try a second long from that level, targeting $561 initially. We got there before 3 p.m. and then eyed $563 for a second target. However, knowing the market tends to drift sideways on the afternoon before FOMC, we took profits when price failed to reach $563 and the time hit 3:43 p.m. That proved to be the right call, as SPY dropped sharply in the final 15 minutes, finishing the day roughly where it began. Two for two in a sloppy, choppy pre-FOMC session, driven by disciplined execution, a solid plan, and guidance from the MSI and our model’s levels. The MSI reveals who’s in control, when that control shifts, and where key actionable levels lie enabling precise entries and exits. When paired with our levels, it keeps traders 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:
Wednesday is FOMC day, so the morning will likely be choppy and rangebound as market participants await the Fed’s interest rate decision. Today marked the second consecutive session of consolidation ahead of the event, and tomorrow is likely to bring significant volatility post-release. In the absence of an external catalyst, we prefer to defer to the prevailing trend which remains bullish. On any post-FOMC sell-off, bulls will aim to defend $550, potentially setting up a failed breakdown below today’s lows. If they’re particularly motivated, they may not allow SPY to drop below $558, instead driving a move back into the $565–$585 zone. If $550 fails to hold, bears are likely to press the advantage, targeting $545 and potentially lower. A break of $545 opens the door to $535, and below that, a gap fill toward $525 could come into play. On the other hand, if the FOMC delivers a dovish surprise, SPY could quickly reclaim $565 and push higher toward the 200-day moving average at $572. That would be the next major level for bulls to contend with. A clean break above $572 sets the stage for a move to $585, where bulls could fully regain control of the market and aim for new highs. Given the event-driven nature of the day, the expected range is wide. $550 to $570 is the key zone to monitor. Watch how the market reacts at these edges. Remember: the first move post-FOMC is often a trap. Patience is key. Wait for a trend to emerge with the MSI, then ride it with conviction. The MSI has not yet rescaled and remains in a wide bullish state, but a rescaling is highly likely in response to the FOMC, either just before or immediately after the release. Ahead of the announcement, traders should expect two-way movement, though most of it may be low-quality chop not worth engaging. Short setups become interesting above $565, while long setups may form around $555. Focus on failed breakouts and failed breakdowns near these key zones. Avoid chasing extended moves or trading against the prevailing MSI trend. As always, trade what’s in front of you. The MSI continues to be an essential tool in this environment, offering real-time insight into structure and momentum shifts. When paired with the levels from the Premarket Report, it gives traders an edge highlighting high-probability targets and clean entry points. This combination helps traders stay aligned with dominant flows and avoid costly missteps. If you’re not yet using the MSI and model levels, now is the time. Reach out to your rep as these are powerful tools that can make a real difference, especially in high-volatility environments like FOMC day.

Dealer Positioning Analysis

Summary of Current Dealer Positioning:
Dealers are selling $567 to $580 and higher strike Calls while also buying $559 to $566 Calls indicating Dealer’s desire to participate in any buying that transpires on Wednesday. The upside appears limited to $570 for Wednesday. To the downside Dealers are buying $558 to $500 and lower strike Puts in a 3:1 ratio to the Calls they are buying/selling, implying a slightly bearish posture for Wednesday. Dealer positioning has changed from neutral to slightly bearish but with the amount of Calls they are buying, Dealers seem ready for the market to both move higher toward $570 or drop to $550.
Looking Ahead to Friday:
Dealers are selling $568 to $605 and higher strike Calls while also buying $559 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 $558 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

With SPY settling at $558.80, traders should stay focused on how price reacts to the $560 resistance level and the $555 support zone. Long trades are favored on breaks above $560, targeting $563 and $565. Short trades may be considered if SPY loses $557 with targets at $555 and $550 or from levels above $565. Elevated volatility, reflected by a VIX close of 24.76, means traders must use defined stops and trade smaller ahead of the Fed. Expect wide price swings and potential fake outs during Wednesday’s session. Remember to review the premarket analysis before 9 AM ET for updated model levels and any shifts in Dealer Positioning.

Good luck and good trading!