“…the SPX closed below the popular 200-day trendline for the first time since October 2023… the less popular 250-day moving average – which approximates a one-year moving average.. – was broken to the downside, too…The week’s low was at 5,530, or exactly 10% below the all-time closing high of 6,144... With multiple moving averages and other key levels of support broken during the correction, such as the 5,666 level, potential resistance lies overhead. For example, if the SPX manages to retake 5,666, there is resistance between 5,740 (200-day trendline) and 5,783, the latter of which is the Election Day close.”’
- Monday Morning Outlook, March 17, 2025
Last week, I discussed the technical damage incurred since the S&P 500 Index (SPX – 5,667.56) hit its all-time high in mid-February, after an impressive rally that ended 20% above the August 2024 low.
The August 2024 low marked an 8.5% decline from the mid-July peak at 5,666, which coincidentally was the area of SPX closing highs last week. Those who bought the inverse “head and shoulders” breakout above the 5,666 neckline in mid-September may have contributed to the index’s inability to sustain multiple closes above this zone.
“If you are looking for a repeat of the October 2023 through March 2024 ‘V’ rally, which could be driven by an unwinding of built-up pessimism … a potential course of action is to wait for a close above the SPX’s 200-day trendline… If you are aggressive and seeking an entry point to play a potential unwind of bearish sentiment…a full candle above the 250-day moving average or a close back above 5,666 could be used as permission to emphasize a bullish posture again. But all bets are off on a decline back below the 250-day trendline or the 5,530 level, depending on how much risk you are willing to take...”
- Monday Morning Outlook, March 17, 2025
The SPX made three attempts to gain upside momentum last week after intraday moves above 5,666, but each rally quickly fizzled out near 5,700, with daily closes just above or below 5,666.
As such, the SPX didn’t come close to retaking its 200-day moving average, as it did in early November 2023 following a 10% decline to its 250-day trendline. Nor did it register any convincing or sustained closes above 5,666 before gapping back below the 250-day trendline on Friday morning -- only to rally back and close near the familiar 5,666 level.
“…it is March standard expiration week. In doing a deep dive on how the open interest was generated, the (SPY) 560 put strike is made up of a balanced mix of put buyers and put sellers. As such, it might not come as a huge surprise that the 560 strike was touched in four of the five days since it was first touched on March 10…this upcoming week’s action could mirror last week’s, with the SPY 560 strike remaining the center of attention from the lens of open interest analysis.”
- Monday Morning Outlook, March 17, 2025
Last week’s volatile, directionless price action was partly driven by options market mechanics. With a notable build in open interest (OI) on equities and broad-based equity index and exchange-traded fund (ETF) options, market makers acted to remain delta neutral by buying and selling SPX futures throughout the week.
As I noted last week, the SPDR S&P 500 ETF Trust (SPY – 563.98) 560-strike -- equivalent to SPX 5,600 -- continued to act as a magnet, just like the week prior. Heavy put OI at this strike reflected a balanced mix of sell-to-open and buy-to-open volume. On both Tuesday and Friday, the 560-strike was quickly back in play after SPY rallies to 570 stalled, reinforcing that level as last week’s ceiling amid option-related resistance.
Looking ahead, we have a weekly SPY expiration on Thursday, and a quarterly expiration on Sunday. These two expirations hold a combined two million contracts in OI. While that’s down from the 5.7 million contracts tied to the recently expired March options, the positioning may still impact SPY price action in the coming week.
The SPY OI configuration below shows typical put-heavy volume at out-of-the-money strikes. But notably, the 555-strike put OI -- equivalent to SPX 5,550 -- is largely sell-to-open generated. That suggests market makers will be buyers as SPY approaches this level to remain hedged. However, the 550- and 545-strikes are made up of buy-to-open volume. If the 555-strike doesn’t hold amid floor buying, those lower strikes could easily be touched, as market makers sell SPX futures to remain delta neutral.
“Hedge funds added more bearish positions than bullish ones in March than at any time since 2020, doubling down on bets that U.S. stocks have further to fall, according to a Goldman Sachs note sent to clients on Thursday….Hedge funds' exposure to tech and media stocks has, in the meantime, hit a five-year low, with some now shorting the sector…The U.S. Federal Reserve on Wednesday lowered its economic growth outlook for this year and raised inflation projections amid uncertainty from President Donald Trump's trade tariffs”
- Reuters, March 21, 2025
The SPX closed higher last week, snapping a four-week losing streak. It’s encouraging to see buyers step in 10% below the February closing high. Still, there’s work to be done. Even if the SPX clears 5,666, potential resistance looms near last week’s highs around 5,700.
As noted in the excerpt above on hedge fund positioning -- and in the chart below reflecting continued pessimism among equity option buyers -- bearish sentiment remains elevated. But for a sustained rally to unfold, the market will need to inflict pain on bears by rallying through the resistance levels outlined above.
Todd Salamone is Schaeffer's Senior V.P. of Research
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