On Wednesday, I showed you why we've officially entered one of the most dangerous stretches of the year. And today, I want to fill you in on something I've been watching for weeks.
It's what I believe could be the start of a much bigger move.
I'm talking about the action setting up on the S&P 500 right now — and more specifically, how certain levels are revealing something most traders are missing.
That’s why today, I'm walking you through the current market environment, the price action that's shaping it, and what I think it all means for traders over the next several weeks.
30-Minute Trading Advantage, Free For 2 Weeks
Benzinga Pro alerts have led to major gains, like 270% on BLPH and 147% on CRBP. Access this market-shaping news before anyone else with Benzinga Pro's free two-week trial. Click here to start now.
You've probably heard me talk about a major support level on SPY — and we just saw its price drop right down into it. That's not a coincidence. And it's not just "typical summer volatility," either.
This is the kind of price action that doesn't happen just for fun. It’s a calculated test of key Fibonacci levels — the same kind of setup that's signaled major moves in the past. And right now, it's happening as we approach one of the weakest stretches of the year for stocks.
If you're not familiar with Fibonacci tools, don't worry. I'm not here to get overly technical. Here's what it means in a nutshell:
The markets move in waves. Fibonacci levels help identify where those waves are likely to stall, bounce, or reverse. They're not a crystal ball, but they do give traders a clear edge when it comes to timing and structure. And based on what I see, that structure is starting to buckle.
Now, I've been standing firmly with the bulls this year, but they're about to be tested.
Because we’re sitting on a retracement zone that's acted like a floor more than once this year. And if we break through it, there's not much holding us up below. That means the drop could be sharper than most folks are ready for.
This isn't about doom and gloom, though. It's about recognizing what's possible and getting in position early. And to do that, I'm leaning on three key tools:
1. Pattern Recognition
This is where I start. The best trades I've ever made came from spotting reliable patterns that repeat across different markets and timeframes. And as I've said, I'm watching a clear retracement pattern that's developed on SPY. These setups tell me not only where price might move, but how fast it could get there. When you understand the rhythm of a market, you can anticipate the next move, not chase it.
2. Seasonality
The calendar matters more than most people realize, and not just for the days we're off. August through September is historically one of the weakest times for the S&P 500, which we've seen play out year after year. But now that price is pressing into a technical level during a seasonally soft stretch, it's a major red flag for anyone holding long positions. Seasonality won't move the market on its own, but when it lines up with technical pressure like this, it's a powerful statement.
3. Alternative Risk Trades
I'm not just looking to make a prediction, I'm looking to manage risk while putting myself in the best position to profit. That's where alternative trades come in. I'm talking about things like debit spreads, diagonal plays, or even selling premium when the setup makes sense. These are the kinds of moves that let you define your risk and give yourself a wider window to be right, something every trader needs when volatility picks up.
Ultimately, this market is shifting. The moves we're seeing right now are likely just the start of something bigger.
Stay tuned for more on this next week.
Editorial content from our expert contributors is intended to be information for the general public and not individualized investment advice. Editors/contributors are presenting their individual opinions and strategies, which are neither expressly nor impliedly approved or endorsed by Benzinga.
Photo: Shutterstock
