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The S&P 500 index has gapped down by 71.95 in response to Trump’s tariff announcements.
Although the administration painted the tariffs as comparatively modest—alleging they’re half of what the U.S. faces abroad—markets interpreted the move as a provocative escalation. Traders priced in the risk of retaliatory measures and broader disruption, leading to a sharp selloff on the S&P 500 along with the broader market.
This forms a technical gap that traders must watch closely — either for a clear sign of rejection, or the potential formation of an exhaustion gap that could flip into support, much like the price action seen in August 2024.
Market Gaps Tell the Tale on S&P 500
A new market gap just formed between $5,499.53—$5,571.48, which will act as a key level of resistance if revisited. The resistance is also strengthened by a freshly broken, significant trendline support, formed since April of last year.
Looking back, we’ll notice that gaps in the chart, in conjunction with the trendline, and divergences on the RSI (in blue) and Stochastics (in orange) have always told an interesting tale on the S&P 500.
What we’ve found is that when a gap occurs, it tends to act as a key zone. The trendline has proven its key role as a bias filter (when price is above, shoot for longs, and when below, shoot for shorts), and the divergence helps anticipate a continuation or reversal:
August 2024 Gap Down Analysis
- Notice how the gap downs occurred above the trendline, reducing the probability of larger bearish declines.
- Following a hidden bullish RSI divergence and uptrending Stochastics, the S&P flipped the gap zones into exhaustion gaps.
- After flipping into support, the S&P bounced on the second gap, continuing the broader uptrend.
November 2024 Gap Up Analysis
- Notice how the gap up occurred above the trendline, increasing the likelihood of the gap playing as support.
- Following regular bullish RSI divergences on both the RSI and Stochastics, the gap managed to provide support thrice.
- Finally, when the price broke down from the gap, the region served as a resistance zone, highlighting its role as a key zone.
The Rundown: Most Recent Gap Down on S&P 500
With the recent gap down, here’s the story unfolding:
- Price has broken a key trendline support, pointing to a potential bearish shift.
- With Friday’s close coming up, a weekly close below that trendline is in play.
- Bullish divergences on RSI and Stochastics offer a mixed signal, hinting at a possible reversal.
How to approach this from a technical angle:
- A bearish weekly close should shift our short- to mid-term bias to bearish.
- If price rejects the gap zone, expect a deeper move down—potentially retesting or even breaking the weekly close.
- If bullish divergence pushes price back above the gap and turns it into an exhaustion gap, that would lean bullish and support a broader uptrend continuation.
All in all, patience is key. Right now, the break below the trendline flips our bias bearish. Bullish traders should stay alert and maybe think in terms of: “Good news is just a retrace, bad news means bearish continuation.”
S&P 500 Weekly Chart: Bearish Close on the Horizon
Key Levels to watch:
- Wick Zone at $5,119—$5,151
- Wick Zone at $4,953—$4,990
We're sitting at the bullish 61.8% Fibonacci retracement, but if the weekly candle closes below it, that’s a red flag. Even with a close above, the nearby market gap and trendline could act as strong resistance—so bullish traders should stay cautious.
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