For nearly two months I have been highlighting a specific level on the SPDRs S&P 500 ETF (SPY) for my paid subscribers. The level - $654 - was viewed as important short-term support for the most widely followed stock index. Yesterday, the SPY closed below the support line by a couple of points, triggering a possible red flag.
However, when it comes to technical analysis (the studying of stock charts), it is not black and white. There are a lot of “gray” zones in reading the chart, and one day of breaking support will never be enough for a seasoned technical analyst.
As you can see in the chart below, the SPY is set to open back above the support level as investors are buying the dip this morning. A lot can happen between now and the closing bell, and even though the stock market has thrown up the caution flag, there is no reason to panic - not yet.
Why Bottom-Picking Is So Hard
One of the biggest challenges for any investor - whether you’ve been doing this for 30 years or 30 days - is knowing when a pullback is really over. Markets never ring a bell at the bottom. They don’t send you a text message saying, “Hey, the selling is done. Time to buy.” Instead, bottoms almost always form with uncertainty, fear, and mixed signals.
And that’s exactly what we’re seeing right now.
Take the last several corrections. Whether it was 2016, 2018, the COVID crash, late 2022, or even the brief pullbacks earlier this year - sentiment looked ugly right before stocks ripped higher. Market breadth was weak, technical levels broke temporarily, and headlines were overwhelmingly negative. But beneath the surface, there will be signals if you are willing to listen and tune out the noise.
That’s why I always tell subscribers: Bottoms are a process, not a moment.
We are likely inside that process right now.
Why a Year-End Rally Is Still on the Table
Even with the recent volatility, odds favor a rebound before year-end. Seasonality alone plays a big role: November and December are historically two of the strongest months for the market. Fund managers don’t want to end the year underweight stocks, especially in a year when AI, tech, and several growth themes have driven powerful gains.
On top of that, positioning remains relatively cautious. When you combine light positioning with strong seasonality and a Federal Reserve that is clearly in a rate-cutting cycle, you get the perfect recipe for an upside surprise.
And remember - despite the headlines, the macro backdrop today is far more supportive than it was during past drawdowns. Inflation is stable in the low 2% range. Earnings have been impressive. Balance sheets remain healthy. And the mega-trends driving this bull market - AI, robotics, electrification, data centers, energy transition - are not only just beginning.
Bottom Line
We may see more chop in the short term, and picking the exact bottom is nearly impossible. But the weight of the evidence continues to suggest that this pullback is normal, healthy, and likely to resolve higher as we move into the final weeks of 2025.
Stay patient. Stay disciplined. And stay bullish - the opportunity on the other side of this volatility could be significant.
Heres to your future,
Matt McCall
Founder, NXT Wave Research
