Happy Sunday.
The most frequent question I received last week was, “Where is support?”
Ironically, while support levels are usually visible, they tend to be far less effective in the most volatile trading environments.
We know why—emotions take over, forcing people to make irrational decisions, like hitting the bid on a stock that’s already plummeting, which only accelerates the decline.
On top of that, momentum trading strategies—used by the biggest firms—are literally programmed to get more aggressive as prices drop. The faster and more consistently prices fall, the more active these programs become. (That was most evident during the COVID crash five years ago.)
All that said, the $SPX has been flirting with its 200-DMA for four straight days—and has held for four straight days, too. That’s a positive, but how important is the 200-DMA to the market? SPY
The line matters if and when the SPX breaks below it and then fails to reclaim it—just like any support or trendline. In other words, simply closing below the 200-day won’t tell us much; it’s all about the response.
Not too far below the 200-DMA (currently near 5,730) lies another key support zone—the area around 5,650. This level holds significance as it includes the former July high, the September breakout zone, and the October and November lows—a confluence of support.
Some might argue that 80 SPX points is too wide to be considered a true “zone.” Maybe—but in percentage terms, it’s only about 1% away from current levels.
Lastly, I asked the good people of X yesterday what they thought about SPX’s battle near the 200-DMA to gauge sentiment. A slight majority are bullish, though fewer than I expected.
Enjoy the rest of your weekend.
Best, Frank
