“Be prepared for anything to happen and be open to all possibilities beyond Monday. This is more pertinent than ever …we risk an end-of-month close below the SPX’s 12-month moving average. Since 2010, there were six times the SPX closed below its 12-month trendline at the end of the month. In five of those instances, the index went on to decline to at least its 36-month (or three-year) moving average before a new high…the only good news for bulls is that the SPX’s 36-month moving average is sloping higher, if this were to be its eventual target. The bad news is that this trendline is currently sitting at 4,735, or 15% below Friday’s 5,580 close.”
- Monday Morning Outlook, March 31, 2025
“Simply put, last week’s action was a massive unwind of hope, even though the stock market was already displaying cracks, from a technical perspective. While sentiment was not nearly as optimistic relative to what we observed in December and January, it is clear now that there was – or dare I say it ‘is’ - more optimism to be washed out.”
- Monday Morning Outlook, April 7, 2025
I feel like I have said stuff similar to the above multiple times in the past couple of years.
That is, in the context of the excerpts above, I cannot say that I am shocked by the S&P 500 Index (SPX -- 5,363.36) trading down to 4,835, just 100 points above its 36-month moving average. This is because I had observed just two weeks ago that this area would likely be in play at some point after the index’s March month-end close below its 12-month moving average.
But I am shocked by how quickly it moved to the vicinity of this moving average! In other words, the SPX declined 776 points, or nearly 14%, from the March month-end close through the April 7 intraday low, a span of only five trading days. Little did I know how timely and significant my words of advice at the end of March were when I said, “Be prepared for anything to happen and be open to all possibilities.”
“… if selling continues, the first potential short-term support level is the round 5,000-millennium mark, which marked an approximate key low in April 2024. Just 85 points below that is 4,915, which is 20% below the February closing high. Note that the SPX peak in February was almost exactly 20% above the August low. Note that 4,915 equates to roughly 490 on the SPDR S&P 500 ETF Trust (SPY – 505.28), a strike that saw notable ask-side volume in the April standard expiration series on Friday that could act make this strike have “magnet” potential in the near future.”
- Monday Morning Outlook, April 7, 2025
Last week’s low was above the SPX’s 36-month moving average, but of interest to bulls is that:
- The December 2021 and January 2022 highs in the 4,810-4,820 area that occurred prior to a 17% decline over a 10-month period that pushed the SPX below its 36-month moving average briefly. In other words, those that bought the January 2024 breakout above the December 2021 and January 2022 highs did not have to contemplate selling or reducing their position due to the SPX moving below their entry point 16 months ago.
- On Monday, the SPX declined (intraday) below the 4,915 level but closed above it. This level is 20% below the February 2025 all-time closing high, which to some defines “bear market.” Mondays’ close above 4,915 and Tuesday’s low occurring at this level may have been the “tell” (in hindsight) that President Trump was about to pivot a bit on tariffs by deciding to pause tariffs for ninety days (for most countries) that had gone into effect less than a day earlier. In other words, the “Trump put” may be at the level that some suggest is bear market territory.
- The April 2024 low at 4,950 that preceded a strong rally into mid-July held on a closing basis on Monday and Tuesday and marked Wednesday’s low.
Per #2, a fair question to evaluate in the days and weeks ahead is:
“Just as the level that marked the all-time high in February was 20% above the August 2024 low, might the level that is 20% below the all-time closing high mark “The Bottom” or at least a “significant trough” for the time being?”
“…’tradeable’ rallies can be expected when volatility is as high as it has been, but you can’t leave continuation moves out as a strong possibility either. If a tradeable rally occurs, I expect Thursday’s close around 5,400 prior to Friday morning’s gap lower to be the first level of resistance. This level also coincides with where buyers emerged on pullbacks in late July and mid-September 2024.”
- Monday Morning Outlook, April 7, 2025
Per the chart below, we did have a tradeable rally after the SPX touched the level that is 20% below the February high. In fact, the Wednesday closing high was at 5,456 before the SPX retreated below the 5,400 level that I had anticipated could act as resistance if a rally commenced.
With last week’s intraday low at 4,835 and closing low just below the round 5,000 millennium mark, I see this general area as potential support. The 5,400-5,450 area is an overhead area to watch, as this is where closes were, prior to the following morning's gaps lower this month. This is in addition to being a key support level in July and September last year.
And for what it is worth, a trendline connecting multiple lower lows that begins just before last Christmas begins the week at 5,480 and will be at 5,470 on Thursday, the last trading day of the Good Friday shortened trading week. The sharply sloping 20-day moving average is sitting just above this trendline and is in the vicinity of 5,530, which is 10% below the all-time closing high and marked a couple of short-term lows in March.
The first of several resistance zones is the area between 5,400 and 5,530. This 130-point zone as a first point of resistance is extremely wide but consider that the current 21-day average true range (ATR) for the SPX is 175 points, compared to only 45 points in December.
Based on history, last week’s low near the 36-month moving average could support the argument that a bottom could be in, since many troughs have occurred in the vicinity this long-term moving average. But, while the Cboe Volatility Index (VIX -- 37.56) peaked at 60.00, it is noteworthy that this was below the 2024 peak, even when the SPX bottomed without incurring the technical damage this selloff has created. In this respect, a bear would argue there the rally late last week is simply a repeat of rallies we have historically seen during bear markets.
Rather than guess if we hit a bottom, or if more volatility is in store amid uncertainty on the tariff pause, my recommendation is be open to all possibilities unless you can predict the next major market-moving headline, of which there have been many. Use options as a tool to reduce dollars at risk to hedge and/or speculate.
Todd Salamone is Schaeffer's Senior V.P. of Research
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