The S&P 500 Approaches a Critical Support Level
The S&P 500 is nearing a key technical support near 6,735, maintaining an upward trend but showing signs of caution due to short-term price action and derivatives positioning.
Current Market Situation
The index has recently fallen from a high of 6,920 and is now testing a strong support zone. This zone includes:
- 50% Fibonacci retracement level from June 2025
- A high-volume trading node
- A rising trendline
Despite the ongoing upward trend, the daily Relative Strength Index (RSI) has dropped below 50, signaling a possible loss of buyer dominance.
Risks Ahead of Options Expiry
With a significant options expiration coming on November 21, volatility risks are increasing. The expiration involves large open interest, primarily skewed towards put options with strike prices at $6,000, $5,500, and $5,000.
"The Max Pain level is calculated at $6,450, significantly lower than the current price, which could spark dealer hedging and influence market movements."
Potential Market Impact
If the S&P 500 fails to hold the 6,735 support level without support from favorable macroeconomic factors, increased hedging flows may result in heightened volatility. This could drive the index down towards the 6,500–6,450 range.
Summary
Investors should remain cautious as the S&P 500 tests critical support near 6,735 in the weeks leading up to the November 21 options expiration, with potential for increased volatility and downside pressure.
"Given the S&P 500 is testing a critical support level around 6,735, we should be cautious in the weeks leading up to the November 21 options expiration."
Author's summary: The S&P 500's test of key support at 6,735 ahead of a major November options expiry highlights rising volatility risks and potential downside if the level fails to hold.