Key Support Zone
The weakness is not just a US story, as participation is deteriorating globally. Supporting this view, the percentage of NYSE stocks trading above their 200-day moving average has plunged from 65% in late February to just 38% today. When fewer stocks are holding up the market, major indices become much more vulnerable to sharp declines. While the VIX has spiked to 31.5, which in the past has signalled a good time for a relief rally, this time feels different. We saw similar VIX spikes mark temporary bottoms during the banking jitters of late 2024, but the current relationship between the index and volatility is messy. This suggests any bounce is fragile and should be treated with suspicion rather than as a clear buy signal. The broader economic picture justifies this caution, as an oil-shock style squeeze is pressuring the economy. With recent geopolitical events pushing WTI crude oil above $110 a barrel, last week’s Core PCE inflation data came in hotter than expected at 3.2%, reducing the odds of any supportive rate cuts from the Fed. This pressure on growth and profit margins explains why the selling has been so persistent. Given this setup, traders could consider buying puts or using bear call spreads to target a move toward 5,400 if the 6,000 level is decisively breached. For those anticipating a short-term bounce off this support, selling out-of-the-money put spreads below 6,000 could be a way to collect premium while defining risk. In this environment, using options to clearly define potential losses is a prudent approach.Risk Management Approach
Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
