Indices at the Important Support Levels: What's Next?

Both ES and NQ reached their important support levels today and bounced after hitting session lows. In the past, these technical levels attracted buyers — but can we expect the same this time around? There are both bullish and bearish considerations worth examining.

Technical Support Levels Hold — For Now

Let's review the charts. As evident from the images, both ES and NQ hit critical support levels. NQ bounced off the psychologically significant 20,000 level, while ES found support at 5,725, which has acted as support twice before. Notably, 5,725 previously served as resistance, potentially creating a classic "former resistance becomes support" pattern.

The ES is currently trading at 5,763, down from recent highs above 6,000. This significant pullback has brought the index to a level that has historically provided support.

ES, 4h

NQ, 4h

Two Primary Scenarios to Consider

Bullish Scenario

Several indicators suggest we may see a move higher after this bounce:

Bullish Divergence between SPX and VIX: As shown in the chart below, while SPX made a new lower low, VIX failed to confirm this with its own higher high. This divergence often precedes a market reversal to the upside.
Extreme Fear Dominates Sentiment: The Fear & Greed Index currently sits at 17, firmly in the "Extreme Fear" zone. Historically, such extreme readings often mark contrarian buying opportunities.

SPX and VIX

Bearish Scenario

Despite the bounce, there are reasons to remain cautious.

The market breadth indicators such as SPXA50r and S&P500 Advancing-Declining Issues haven't entered into their respective oversold territories. They are currently showing neutral readings.
The NDX closed below its 200-day average for the first time in over a year. It will be important to watch the next 2 weeks. Based on the historical data, every time it lost its 200-day after an extended run and suffered at least a -3.5% drawdown within the next 2 weeks, it led to a bear market.

SPXA50r

S&P500 Advancing-Declining Issues

NDX and 200d MA

What This Means For Traders

For active traders, these support levels represent critical decision points. The 5,725 level for ES and 20,000 for NQ should be closely monitored. A decisive break below these levels could trigger another leg down, while holding above them may confirm the bullish scenario.

The extreme fear reading presents a potential contrarian buying opportunity, but only if other technical signals align.