Key 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 set a new record high just over three weeks ago before promptly reversing, setting up a Wyckoff Spring, a chart signal that indicates a market top before a markdown phase.
- 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.
Indeed, the index has since trended sharply lower, falling below the closely watched 200-day moving average (MA) on its journey into correction territory.
The relative strength index (RSI) confirms bearish momentum, with the indicator registering its lowest reading since September 2022. However, extreme oversold conditions also raise the possibility of upside price swings.
Let’s identify crucial support and resistance levels on the S&P 500’s chart that investors may be eyeing.
Crucial Support Levels to Watch
The S&P 500 shed 1.4% on Thursday to close the session at just above 5,521.
A move lower from current levels could see the index revisit the 5,400 area. This location may provide support near a trendline that connects a range of comparable price action on the chart between June and September last year.
Further downside opens the door for a decline to around 5,265. Those who invest in the index may look for buying opportunities in this location near several peaks and troughs that developed on the chart from March to August last year.
Key Resistance Levels to Monitor
During upswings, investors should closely monitor the 5,770 level. The index could run into selling pressure in this region near a series of similar price points on the chart stretching back to last year’s September peak, an area that also roughly aligns with the upward sloping 200-day MA.
Finally, a recovery above this level could see the S&P 500 climb to around 6,010. This region may provide overhead resistance near a trendline that links a series of highs and lows on the chart between November and February.
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