Potential resistance at its 2024 close will be a key level for the SPX this week
“a risk to bulls…is the Trump administration sounding ‘less friendly’ in the days and weeks ahead as they attempt to iron out trade deals and in the context of the SPX’s recovery as trade war de-escalation took root.”
-Monday Morning Outlook, May 19, 2025
“President Trump launched new broadsides in his tariff campaign, threatening to impose a 50% rate on the European Union within days, and warning Apple that foreign-made iPhones could face significant levies.”
-The Wall Street Journal, May 23, 2025
The S&P 500 Index (SPX – 5,802.82) tumbled last week, with the brunt of losses attributed to rising interest rates after Moody’s U.S. credit downgrade. Concerns over fiscal policy mounted, particularly in response to the Trump administration’s proposed spending bill and tax cuts.
As if investors weren’t unnerved enough, President Donald Trump also threatened to impose a 50% tariff on the European Union (EU). Stock futures dropped nearly 2% on Friday, which prompted me to identify some key pre-market SPX levels to watch.
Specifically, I mentioned the SPX’s 200-day moving average and the November Election Day close at 5,782, as futures were hinting at an opening in that area. These levels were important, marking the Friday morning low.
With support from its 200-day moving average and the Election Day close Friday morning, this area should be considered the SPX’s first level of potential support in the week ahead.
Not visible on the chart above is the negative headlines that generated two morning selloffs: The May 16 downgrade of U.S. credit, as well as Trump’s tariff threats early on Friday. In both cases, buyers immediately stepped in to buy the morning dips.
In fact, the May 19 candle was the second bullish “outside day” candle since April 30, when the low was 1% or more below the prior trading day’s close. Unlike the days following the April 30 bullish outside day, the SPX declined in the immediate days following the candle.
We updated our research from the study we published after the April 30 candle, as enough days have passed to add them to the historical data for the one-and two-week timeframes.
The two-week and beyond returns show a much higher probability of the SPX turning higher than the one-week time frame, using the criteria as outlined above. Using the May 19 candle as an indicator, the SPX has an 86% chance of hitting that day’s close of 5,964 by this upcoming Friday.
To accomplish this, the SPX must first take out potential resistance at its 2024 close of 5,882. Moreover, if it achieves the average positive return of 3% two weeks after the bullish outside day candle, the SPX must overcome its pre-inauguration close at 5,996, which could team with the round 6,000-millenium level to act as resistance.
For what it is worth, the 5,978 level marks a 20% rally above the April closing low. Note that the February through early April correction troughed around 20% below the February closing high.
The graphs below give a decent visual of the short-term sentiment backdrop. Per the first graph, short-term SPY option traders saw predominant call volume last week. Additionally, the second graph shows option buyers on SPX components bought considerably more calls than puts relative to just a few weeks ago. The volume ratio is also now approaching a territory that has often marked peaks.
Short-term traders have clearly become more optimistic, which is a risk to the bullish case, particularly if support levels are breached. Note that equity option buyers and SPDR S&P 500 Trust (SPY – 579.11) short-term option traders heavily emphasized puts at the early April bottom.
Todd Salamone is Schaeffer's Senior V.P. of Research
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