TL now publishes key levels every morning on the largest US market index, the S&P 500. With nearly 14T in assets associated with the S&P500, it can be an integral part of how Swing Traders approach the market.

This is our attempt at identifying key support and resistance levels on the S&P 500 – to give Swing Traders an edge on when to increase and decrease exposure to the market and achieve a superior equity curve.

Our models start running at 8 pm EST and scour over decades of information related to the S&P 500, which results in simplified, key pivot points on the S&P 500 where the price tends to get directional. The model finishes its run around 5 am EST. We then list the levels in our daily plans every morning.

We summarize the approach that Swing Traders should take when following these levels closely in an infographic below, followed by examples.

1. S&P testing support in the opening hour

If the open is near support on the S&P 500, traders should look to initiate positions at or near prior pivot areas and/or key moving averages with defined risk parameters. Leadership should act well/outperform when S&P 500 is testing a level of support. Traders should be net buyers on the initial test of support and gauge the action to see if it holds into the close. If the S&P 500 breaks below support levels and closes below, one can cash new positions at or near pivots and look to place hedges to protect existing long exposure.

Note: Action in leadership stocks near the S&P 500 support level is the main driver of our actions to hedge or not to hedge.

2. S&P testing support after the opening hour

If the S&P is testing support after the opening hour, watch for Relative Strength in leadership as a gauge. If leadership stocks are outperforming, holding key support areas, and exhibiting relative strength, one can be a buyer of individual names and then watch the close. However, if leadership is not exhibiting relative strength – hedges must be put on to protect existing exposure.

Note: Action in leadership stocks near the S&P 500 support level is the main driver of our actions to hedge or not to hedge.

3. S&P testing resistance in the opening hour

If the S&P 500 is set to open at or near resistance, per TL methodology, traders should already be well-positioned in leadership names from the prior session and look to scale out and take gains at pre-planned profit taking points. Watch leadership for reversals and identify points to add exposure via new positions, if S&P breaks above resistance levels.

Note: Action in leadership stocks near the S&P 500 resistance level is the main driver to add new exposure.

4. S&P testing resistance after the opening hour

If the S&P 500 is testing resistance after the opening hour, then individual positions that were recently initiated should be near pre-planned profit taking points. Traders should look to scale out of these names and watch how the market acts near resistance points. If the S&P 500 breaks above resistance intraday, new positions can be initiated if they show large volume at proper pivot points.

Note: Action in leadership stocks near the S&P 500 resistance level is the main driver to add new exposure. When the S&P 500 is breaking out above a level of resistance intraday – new positions initiated should show large relative volume at proper pivot points.

5. S&P trading above support and below resistance

When the S&P 500 is trading above support and below resistance areas per daily plan – traders should continue to maintain a bullish stance on the general markets and look to increase exposure if and when individual stocks trade at proper pivot points on high relative volume and above-average volume. Action in leadership remains key.


Jun29Plan1Chart 1

Quick note on Position Sizing

As a Swing Trader, a good rule of thumb is to size heavily near support and reduce position size on new positions as the market approaches resistance levels. Traders have to determine what is best for them from a risk perspective and create rules for themselves – there is no blueprint or tailormade approach that fits all. It is an iterative process. Spend some time figuring this out for yourself and adjust according to your personal appetite for risk.

Link to SPX Futures
Please use this link above for following levels. Another source won’t be accurate.

Frequently Asked Questions (FAQ)

First up is the type of exposure. Normally traders with TL are positioned in names that have a high correlation with the Nasdaq so the SQQQ can be used as a mechanism to temporarily hedge against market pressure.

Next you must determine what your core positions are that you maybe holding through potential corrective action in the markets. That is where the calc starts. Based on the $ exposure in those positions one can look to protect 30-40% of the $ exposure initially and increasingly add more hedges if the downward pressure presists. Note that we don’t know where the market is headed and that the point isn’t to know how long this action will last.

Also the idea with hedging is only shorten the troughs on the equity curve and not eliminate them. So it won’t be a perfect science where your equity curve will only ever go up with no troughs.

It depends on your current portfolio. For example: The break of $3480 vs how my portfolio was acting at the time didn’t warrant any reduction in exposure (except for the partial profit taking points on GOGO LAC GRWG) or initiation of hedges which is why my SQQQ average price is not near $20.

At that level (3480), I was content with the stocks I had with ample cushion while knowing my “pain points”. Later on in the session I decided to cash all of DADA LAC as pressure was being built on the test of $3425.

So in short it depends on your exposure/performance. If the portfolio experiencing downward pressure near the $3480 mark – hedges would have been put on right away vs waiting on $3425.

This is where to Art comes in that you become more experienced with through time and practice. The answer to this depends on your own personal progress and your progress for the year. If you are up 5% for the year, you need to act much more swiftly and be more aggressive than if you were up 100% on the year because you have less overall cushion you are working with. Similar with individual positions, if a stock is a new initiation and you are up 1%, you want to be quicker to cut it than if you are up 60% on a position and have a cushion.