S&P 500 Breaks Key Support Levels

S&P 500 In Correction

The historic move in oil prices, a weak Nonfarm Payrolls report, concerns about private credit, and AI all contributed to the sharp correction in the S&P 500 last Friday.

The S&P 500 advance-decline line corrected to the downside, and the weekly close was below both the key support level of 6,800 and the 20-week moving average.

The sharp increase in oil prices reflects global panic buying, especially in Asia.

The U.S. oil benchmark price (WTI) has increased 39% since the start of the Iran conflict and up 58% since the start of the year.

In tandem, petrol futures prices have surged since Thursday, while jet fuel prices in Europe and Asia have tripled.

The 3-month calendar spread for WTI futures rose to $13 a barrel on Friday, highlighting panic-buying levels not seen since the Russian invasion of Ukraine.

Taken together, these indicators suggest the market does not anticipate an early resolution to the conflict in Iran.

Uncertainty In Markets

Contributing to the sense of uncertainty, the Nonfarm Payroll report signalled further weakness in the labour market. The unemployment rate rose to 4.4%, and the negative job numbers intensified a downward trend that began in April last year. Historically, such weakness has only occurred during U.S. recessions.

Adding to this cautious mood, BlackRock announced that it is limiting redemptions in a $26 billion private credit fund, fueling further concerns about illiquidity in private funds.

To add to the mix, OpenAI and Oracle announced that they have ended plans to expand their Texas data centre site. What’s not clear is whether the decision is due to oversupply or capital expenditure concerns; however, the decision likely added to the downward pressure on semiconductor stocks.

In short, a period of significant uncertainty for markets

S&P 500 Key Levels

The options high level sits at 6830, and the options low is 6650, with flows leaning to the negative.

The break below 6,800 exposes significant put levels at 6,600 and 6,500.

Historically, a break below the 20-week moving average is rare. When it breaks below, it tends to reverse quickly and gap up.

However, if it doesn’t reverse and continues to fall, then that opens up exposure to the 50-week moving average at 6,500.

The balance of probability indicates that the market will continue to fall today.

At this point, we don’t have a strong conviction about the market’s direction for the week. The market will decide and will be driven by the oil price.

Whatever the outcome is, it will bring opportunity, and time is a key factor. The real edge in any investment is patience, not precision timing.