The SPX is trapped between major support and resistance
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance…We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.
-Fed Chairman Jerome Powell in remarks to Economic Club of Chicago, April 16, 2025
The holiday-shortened April standard expiration week was a win for bears, who were in control for the seventh time in 10 weeks. Much of this was thanks to Wednesday’s price action, which appeared to be a one-two punch of option-related selling Wednesday morning (following the SPDR S&P 500 ETF Trust (SPY – 526.41) close below the put-heavy 540 strike) and Jerome Powell’s comments in the early afternoon that didn’t exactly spur traders into a buying frenzy.
“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?... The 5,400-5,450 area is an overhead area to watch, as this is where closes were prior to… gaps lower this month. This is in addition to being a key support level in July and September last year.”
-Monday Morning Outlook, April 14, 2025
Despite the down week, there was no additional damage relative to what had already been done in prior weeks from a chart perspective. In fact, about two weeks have passed since the S&P 500 Index (SPX – 5,282.70) touched the 4,915 level on successive days, which is 20% below the February all-time closing high. It was at this time that President Trump eased on tariffs by pivoting to a pause for most countries, sparking a rally from this key level.
But last week’s high was in the vicinity of 5,450, or in the area between 5,400-5,450 that we marked as a potential first level of resistance in the context of multiple resistance levels overhead. There was only one close above the 5,400-century mark before the index retreated to close the week below 5,300, with an inside day on Thursday. Inside days occur when the daily high is below the prior day’s high and the daily low is above the prior day’s low. An inside day occurred last Tuesday ahead of the Wednesday morning gap lower.
In simplistic terms, the SPX enters this week’s trading 118 points below the lower boundary of its first resistance at 5,400, which is the close ahead of last week’s gap lower and a support level in July and September of last year. And it is 162 points above the August 2024 low at 5,120, which is the first level of potential support -- implying short-term risk is slightly geared in favor of the bears.
Whether the 5,400-5,450 area is retested in the upcoming week or the recent lows in the 4,915-5,120 area, traders will have ample short-term trading opportunities in what could be volatile range trading, as earnings season continues to pick up steam and traders take cues from what is likely to be a continuance of tariff headlines that have preoccupied market participants.
With the SPX higher since its early April low, the Cboe Market Volatility Index (VIX – 29.65) has plunged during this short time span. In fact, it is at a potentially pivotal point, closing last week around the 30 level — or roughly one-half this month’s peak and its March highs. Those anchoring to the recent high may view this as a good time to buy portfolio insurance at a 50% discount, especially after the expiration of April VIX futures options last week and the standard expiration of index and equity options. As such, hedging activity amid continued tariff uncertainty could be a short-term headwind. If the VIX breaks below the 30 level decisively, it might signal that there is little need for portfolio protection, since those typically buying portfolio protection have reduced their equity exposure.
As you key to important SPX levels, the VIX action around this 30 level may cue you in on whether a retest of the lows or a retest of last week’s highs is in store in the immediate days ahead.
Todd Salamone is Schaeffer's Senior V.P. of Research
Continue Reading: