“… 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, ”
-Monday Morning Outlook, April 21, 2025
In only one trading session after last week’s commentary was posted, the short-term risk-reward quickly switched to favoring the bulls, as last Monday’s gap lower pushed the S&P 500 Index (SPX – 5,525.21) to its intraday lows around 5,120. This is the site of the August trough that I cited as a potential first level of support.
By Wednesday morning, with the SPX trading in the 5,450 area, the risk-reward was again favoring the bears, as this is the level that up to that point was sold in prior weeks.
The SPX’s average true range (ATR) was 182 points going into last week’s trading, so it isn’t necessarily a shock that these support and resistance levels were touched in one or two sessions.
The bigger shock, from purely a chart perspective, might have been the index taking out 5,450 resistance and the 5,500-century mark Friday afternoon, closing the week at 5,525. Despite the short-term technical breakout, there is still work to be done, which is usually the case after so much technical damage was done in a short period this month.
For example, the SPX enters this week’s trading just below 5,530, which is exactly 10% below the February closing high, a level that served as support in March. With the break of 5,530 occurring on the April 3 gap, those that bought 5,530 thinking “breakeven,” now represent potential sellers. If 5,530 is taken out, there is a clear path up to the next potential source of resistance, the declining 50-day moving average at 5,630.
The good news for bulls is that with the 5,400 - 5,460 area cleared, a new potential floor has been established with former resistance now acting as support.
“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... 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.”
-Monday Morning Outlook, April 21, 2025
One “hint” that the SPX’s resistance in April could be taken out was the Cboe Volatility Index’s (VIX – 24.84) decisive move below 30, or its half high from earlier this month, on Wednesday. I had theorized last week that with the VIX in the vicinity of its half high and April standard expiration behind us, those that normally hedge equity exposure would likely do so and present a coincidental headwind, as dealers hedge portfolio-protection trades by selling SPX futures.
But with active investment managers reducing equity exposure in prior weeks, there was also the possibility that a huge amount of portfolio-protection would be needed, thereby reducing such a headwind.
“Retail investors have been aggressive buyers of US equities this year, keeping the faith even as professional money managers ran for cover. Since April 2 alone, the group has pumped over $30 billion into American stocks and ETFs, according to data from JPMorgan Chase & Co.’s global quantitative and derivatives strategist Emma Wu.”
- Bloomberg, April 23, 2025
“Equity strategists at Citigroup Inc. lowered their view on US equities, saying the case to diversify away from the asset class is strengthening as the trade war undermines economic growth and earnings.”
- Bloomberg, April 14, 2025
“Jefferies’ Wood Says Best Over for US Stocks, Sees More Losses”
- Bloomberg headline April 23, 2025
“BofA’s Harnett Warns Sell the Rebound in US Stocks and Dollar”
- Bloomberg headline, April 25, 2025
Per the multiple excerpts above, the good news for bulls is that retail investors have supported stocks in the past month. The bad news is that such investors are typically unhedged, and thus more apt to panic sell at the first hint of trouble.
And with total SPX put open interest only in the 28th percentile reading of the past year and total SPDR S&P 500 ETF Trust (SPY – 550.64) put open interest (OI) in the 12th percentile, it is evident that fund managers and professional traders are indeed reducing equity allocations, as one might easily glean from the excerpts above.
As such, where stocks head from here will be dictated by who is right. If retail investors are proved correct, professional investors represent a source of buying power. But if professionals continue to sell into the rally, the retail crowd becomes a source of selling pressure that could push equities to this month’s lows.
For now, and as I mentioned a few weeks ago, the SPX remains above its 36-month moving average, a trendline that was never violated during the pullback. As such, the longer-term uptrend is intact and this suggests that pullbacks should be bought, as the retail investor did.
Buyer beware, as not only does the SPX face short-term technical hurdles, but the retail investor may face an important test in the coming days, weeks or months ahead, with the SPX’s 12-month moving average sitting at 5,700, just 3% above its Friday close.
Note that in August 2022, after the SPX found support at its 36-month moving average like it similarly did earlier this month, its 12-month moving average marked at peak before a move below the prior low in October 2022. It was the March 2023 crossover that finally signaled the “all clear.”
Per the SPX monthly chart immediately below, note that the retail crowd was net sellers of domestic equity mutual funds and exchange-traded funds when the all-clear was signaled.
Todd Salamone is Schaeffer's Senior V.P. of Research
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