Line charts use closing prices, which are widely used for technical indicators, moving averages, and many large orders. Closing prices can also reduce intra-day price noise. By last Friday’s close, the index was down 3.5% from its all-time closing high of $6978 on 27 January. The VIX rose to nearly 30, its highest level since the February–April correction of about 20% last year.

Key Levels And Trend Signals

A prior update set 6780 as a key level, with a daily close below it implying a 60% chance the uptrend had ended. It said that if 6780 failed, 6575 would be the next level to watch. The index moved below 6780 on Wednesday 3 March and again on 5, 6, and 9 March, with a low of 6636. The earlier 6575 target missed by 0.9%. The decline from the 28 January all-time high of 7002 developed into a triple zigzag pattern. At the low, the index reached an estimated target of 6644 and then bottomed at 6636. The move is described as part of a three-wave decline within a larger “4th wave” correction. An outlined path depends on holding above 6636, with a potential high around late April and weakness into late September.

Trade Plan And Risk Levels

The S&P 500 appears to have found a solid floor at the 6636 level on March 9th. We have since seen the strongest two-day rally in months, which suggests the complex and frustrating correction that began in late January is likely complete. This bounce from what we identify as the end of a corrective wave (W-a) sets the stage for the next move. This market strength is supported by last week’s economic data, which showed initial jobless claims unexpectedly falling to 209,000. A resilient labor market like this often provides the confidence for the market to look past short-term worries and resume an uptrend. The underlying economy appears strong enough to justify higher stock prices for now. For the next few weeks, derivative traders should consider bullish positions, as we anticipate a rally toward a new all-time high. This could involve buying call options with expiration dates in late April or May, or selling cash-secured puts with strike prices below the critical 6636 support level. Any daily close below 6636 would invalidate this bullish outlook and signal our final warning level has been breached. The extreme bearish sentiment we saw, with the VIX spiking near 30 despite a relatively shallow pullback, has quickly evaporated. The VIX has now settled back down to around 18, indicating that the panic has subsided and a more stable environment for an upward trend is in place. This decline in implied volatility also makes buying options more affordable. However, this expected rally to a new high, likely around the late April turn date window, is probably a B-wave within a larger “irregular flat” correction. We have seen this pattern before in this bull market, such as during the 2019 advance, which saw a new high before a more significant period of weakness. Therefore, the coming strength should be viewed as a temporary phase. Traders should be prepared to pivot from bullish to bearish strategies as we approach that late April target zone of 7120-7190. This means planning to take profits on long positions and potentially initiating new ones, like buying puts dated for the late summer. This will position traders for the expected C-wave decline that we anticipate will last until late September. Create your live VT Markets account and start trading now.

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