The S&P 500 ETF Trust (NYSE:SPY) traded lower by 0.43% on Thursday, its fourth consecutive day of losses, prompting traders to look to the charts for key potential support levels for the market.
Tom Essaye, founder of Sevens Report Research, highlighted several key levels he’s watching for potential support and even some critical potential resistance levels should the S&P 500 bounce off of its lows at some point.
Related Link: This Model Suggests Negative S&P 500 Returns Over The Next Decade
Current Situation: First, Essaye defined what he calls the “current situation” valuation range for the S&P 500. Assuming consensus 2022 S&P 500 EPS of $220 and an earnings multiple range of between 19.5 and 20, Essaye said a reasonable valuation range of between around 4,290 and 4,400 is appropriate for the S&P at the current time.
The highest major technical support level Essaye said traders should watch is the mid-August high of 4,480. If that level falls, the round-number top of the “current situation” range of 4,400 could be a more formidable support level, Essaye said.
The midpoint of the target valuation range is 4,345, which lines up well with market action in July when the index pulled back after hitting the level.
Essaye also ran a regression line through the S&P 500’s year-to-date 2021 trading action to see what level investors should anticipate by the end of the year if the current year-to-date trend continues. That regression line suggests the S&P 500 could hit 4,950 by Jan. 1, 2022.
“And though that seems like another big leg higher for the S&P 500, it is only an additional 9% beyond the current record highs, something that is definitely within reason,” Essaye said.
Other Potential Support Levels: In the event this week’s sell-off picks up steam and the bearish price action intensifies, Essaye said the S&5 500 could potentially find support in the 4,160 range as well.
“With so much trading activity in this area during the second quarter, we would look for the S&P 500 to at least pause around 4,160 before continuing lower if selling pressure really began to pick up,” Essaye said.
Finally, below 4,160 Essay said the 3,930 to 3,975 range that served as resistance in the first quarter of 2021 could provide support.
Benzinga’s Take: From a technical standpoint, there’s nothing wrong with this week’s 0.8% pullback in the S&P 500. However, Bank of America reported this week that its long-term valuation model for the S&P 500 suggests the index could potentially generate negative overall returns over the next decade.