US stock indices bounce but face key technical hurdles

The S&P 500, the Nasdaq Composite and the Nasdaq 100 are all rebounding, though buyers still need to recapture important technical levels.

A sharp selloff on the previous day pushed the major US stock indices deep into negative territory. The Nasdaq 100 dropped 6.36%, its largest single-day loss since 2020, and the selloff extended far beyond the technology sector. During the decline, several technical levels that had previously provided support were broken. Those breakdowns are significant now because those same levels, which acted as supports on the way down, have become the initial resistance points on the recovery path.

The major indices are steadying on Wednesday. The recovery is positive, but buyers have more work ahead before they can regain control. The initial challenge occurs when the rebound tests a level that was broken the day before. Whether buyers can push above and hold that level will be key. If successful, the next upside objective will become apparent. If the rally falters and sellers use the former support as a ceiling, then the lows from the previous session could be tested again.

Buyers have often stepped in on dips, but the recovery process typically takes longer than the selloff. Following a day like the previous one, traders must evaluate fundamental developments, positioning shifts, and changes in risk appetite. All these factors contribute to the mix that determines price movements. Meanwhile, the chart provides a tangible guide. A broken swing area or moving average can serve as an indicator of market sentiment. If buyers reclaim that level and defend it on a retest, they have a support to rely on and a target to aim for. If the level breaks again, it signals that the rebound argument is losing strength.

At present, buyers have made the initial move upward from the low. Their handling of the levels that broke during the prior session will indicate how far the recovery can extend.

A chart review.

S&P 500 Index: The S&P 500 index paused its decline above the 200-day moving average at 7325 and a swing area extending down to 7300. If that support remains intact, the next upside target is 7507, followed by the 100-day moving average at 7619.

Nasdaq Composite Index: The low from yesterday stalled in the swing area between 24206 and 24425. The price today is above that zone but remains below the 200-day moving average at 25098 and the broken 38.2% Fibonacci level at 25036. Breaking above both levels is necessary to strengthen the bullish bias.

Nasdaq 100: The rebound in the Nasdaq 100 is underway, but the attempt to move back above the broken 50% Fibonacci level at 27103 is failing. To instill confidence in buyers, the index needs to close and hold above 27103.