Takeaways
- The S&P 500 tumbled into correction Thursday amid concerns that Trump administration policies, notably tariffs, could slow economic growth and reignite inflation.
- The index reached a new high in just over three weeks before immediately reversing. This created a Wyckoff spring, a chart pattern that signals a market peak before a phase of markdown.
- Investors should watch crucial support levels on the S&P 500's chart around 5,400 and 5,265, while also monitoring key resistance levels near 5,770 and 6,010.
The S&P 500 (SPX) entered a correction Thursday amid concerns that Trump administration policies, notably tariffs, could slow economic growth and reignite inflation.
Thursday’s decline places the index 10.1% below its record closing high set last month, putting the benchmark into a technical correction — defined as a decline of more than 10% from the recent closing high — for the first time since October 2023.
To gauge where the index may be headed next, investors can turn to the past, Since 2008, the S&P 500 has averaged a gain of 15.3% one year after entering a correction, while returning 2.1% after three months and 4.9% after six months, according to Dow Jones Market Data cited by Barron’s.
Below, we take a closer look at the S&P 500 chart and use technical analysis to identify crucial levels worth watching after the index’s fall into correction territory.
Wyckoff Markdown Phase
After the S&P 500 set a new record high three weeks ago, it promptly reversed, setting up a Wyckoff Spring, a chart signal that indicates a market top before a markdown phase.
In fact, the index has trended sharply downwards since, falling below 200-day MA on its journey towards correction territory.
The relative strength (RSI) confirms the bearish momentum. It has registered its lowest reading since September 20, 22. Extreme oversold conditions can also lead to price swings on the upside.
Let’s identify crucial support and resistance levels on the S&P 500’s chart that investors may be eyeing.
Keep an eye on the Support Levels Crucial
The S&P 500 shed 1.4% on Thursday to close the session at just above 5,521.
If the index continues to fall from its current levels, it could return to the 5,400 level. This location could provide support near a line that connects a range similar price action on the graph between June and September of last year.
Further declines could lead to a drop of around 5,265. Those who are interested in investing in the index should look for potential buying opportunities near several peaks that developed from March to August of last year.
Key Resistance Levels Monitor
Investors should pay close attention to the 5,770 mark during upswings. This area could see selling pressure as the index approaches a series similar price points that stretch back to the September peak of last year. The area is also roughly aligned with the 200-day MA.
Finally, a recovery above this level could see the S&P 500 climb to around 6,010. This area may act as overhead resistance near the trendline that connects a series highs and lows between November and Febraury.
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