S&P 500 Index Faces Key Technical Battle! Intense Tug-of-War Around 7,500 Points as Market Breadth Indicators Flash Caution

According to Zhitong Finance, after two consecutive days of sharp fluctuations, bulls and bears in the US stock market are once again contesting key technical levels of the S&P 500 Index (SPY). Meanwhile, an increasingly watched volatility market breadth indicator suggests that the market still needs to be wary of further correction risks.

Data shows that options traders and market makers were actively buying the dips near the 7,500-point level for the S&P 500 Index last Friday, but quickly opted to sell when the index rebounded above this level. Position data from SpotGamma and Barchart indicates that 7,500 points has become a crucial battleground for the market right now.

According to Barchart’s statistics, the open interest for SPY ETF call and put options at the $750 strike price is the highest, indicating a large concentration of option positions at this level. Meanwhile, near $745, both SpotGamma and Barchart believe that market maker hedging behavior will shift from previously stabilizing the market to a “negative Gamma” status. If the index breaks below this level, market makers may be forced to sell with the trend rather than buy the dip, amplifying volatility and increasing the risk of a further drop in the index.

Brent Kochuba, founder of SpotGamma, said that if the S&P 500 Index falls below 7,450 points, the market could see an even larger decline. He also suggests that selling short-term options near the S&P 500 Index 7,520 strike price is somewhat attractive.

Aside from the options market, internal sector performance differentiation in the US stock market is also an important reason for ongoing index volatility. Artificial Intelligence tech stocks remain strong, while some traditional industries are relatively weak, resulting in the market’s trend relying heavily on a handful of large-cap stocks.

However, the Chicago Board Options Exchange one-month implied correlation index, which reflects market consensus, has shown a significant recent recovery. This index measures the synchronization of movements among the top 50 S&P 500 constituents for the coming month—the higher the value, the more stock trends move in unison.

Data shows this index had dropped to a historic low of 3.3 on July 10, illustrating the market’s strong reliance on a few AI leaders driving gains; following market adjustments after the Federal Reserve's policy meeting and the subsequent rebound, the index has risen to 12 this week, indicating more sectors are now participating and market breadth is improving.

Notably, during Wednesday’s S&P 500 Index decline, only one index constituent hit a 52-week new low, indicating that overall selling pressure has not yet broadly spread throughout the market.

However, analysts note that although the implied correlation index has rebounded, it remains below the levels seen during the previous two market corrections. In June this year, the index once rose to 20, and in April it even reached 45, after which the market gradually bottomed out. Therefore, despite the improvement in market breadth, the technical situation is still at a critical stage. Continued attention is needed to see whether the S&P 500 Index can hold the key support level near 7,450 points.