S&P 500: Resistance Block Ahead
A rally into resistance
Stirring The Bounce Pot
Early last week, I stumbled across a chart that made me pause—it had the feel of an ingredient for a bounce. But as I prepared the charts for this week’s letter, I found myself returning to a more cautious stance. The market remains in a risk-off environment, and the modest bounce off the March 13 low is now pushing into what I’d describe as a resistance block—a confluence of overhead technical levels that will be tough to break through without conviction.
This is the final letter for March, and as always, it includes updates to all active trade ideas. Before that, we’ll walk through the current market risk environment and share some thoughts on navigating the S&P 500 in the short term.
The Ingredient For A Bounce
Commodity Trading Advisors (CTAs) have significantly derisked during this decline, currently sitting short by $34 billion in U.S. equities.
Goldman Sachs published a chart showing that in the event of a rally, CTAs would need to aggressively rebuy, suggesting a potential tailwind if momentum builds. On its own, this setup is a compelling ingredient for a continued bounce.
The previous two letters outlined the conditions for a potential bounce following the acceleration of the decline triggered by the February 21 risk-off alarm. Now, with two weeks behind us, we can see that the market has formed a moderate base and staged a very mild bounce.
That said, I wouldn’t fault anyone for sitting back this week and simply monitoring the market for clarity. From where we stand, new trade setups are limited, and the risk-reward profile on the S&P 500 is far from compelling.
Risk Off Criteria - 3/3
Three risk criteria determine the broader market environment in my analysis. This section is shared and updated weekly.