The S&P 500 is testing a critical technical level near 6,735, with an upward trend still in place. However, short-term price structure and derivatives positioning warrant caution, especially with a major options expiry on November 21.

The SPX has recently dropped from a peak of 6,920 and is now challenging a strong support zone. This support includes the 50% Fibonacci retracement from June 2025, a high-volume node, and a rising trendline. The daily RSI has dipped below 50, indicating a potential shift in buyer control.

Options Market Dynamics

A failure to maintain this support may lead to further declines, linked not only to price action but also to dynamics in the options market. The November 21 options expiration marks significant open interest, with a skew towards puts at $6,000, $5,500, and $5,000 strikes.

The Max Pain level is calculated at $6,450, significantly lower than the current price, which could spark dealer hedging and influence market movements. If SPX drops below 6,735 without support from macroeconomic factors, hedging flows could intensify, leading to increased volatility and a possible decline towards the 6,500–6,450 zone.

Given the S&P 500 is testing a critical support level around 6,735, we should be cautious in the weeks leading up to the November 21 options expiration. The upward trend is losing steam, as suggested by the daily RSI dipping below 50, a signal that buying pressure is fading. With today being November 5th, we have a little over two weeks for this scenario to play out.

This technical weakness is occurring alongside a difficult macro environment. The latest Consumer Price Index report from October showed core inflation remaining stubborn at 3.1%, making it harder for the Federal Reserve to signal any upcoming easing. Recent commentary from Fed officials has reinforced a commitment to keeping rates elevated, which may limit any significant market upside for now.

Volatility and Defensive Strategies

We are seeing this caution reflected in the derivatives market. The VIX, a measure of expected volatility, has ticked up to over 19 this past week, a clear sign of rising investor anxiety. This aligns with the heavy positioning in put options for the November 21 expiry, which has the highest open interest of any upcoming date.

The concentration of puts and the calculated Max Pain level of 6,450 create a potential magnetic effect if support at 6,735 breaks. A decisive move below this level could force dealers to sell S&P 500 futures to hedge their exposure, which would add to the selling pressure. This kind of dynamic can accelerate a downward move, pulling the index toward that lower 6,450 zone.

For traders, this suggests it may be prudent to hedge long exposure or initiate tactical short positions. Buying puts or put spreads with strikes around 6,500 could provide effective downside protection through the November expiry. We are treating any rallies with skepticism until the index can firmly reclaim the 6,920 level.

We’ve seen similar patterns in past cycles, like the volatility we experienced in late 2021, where lopsided options positioning ahead of a major expiry amplified underlying market moves. The current setup warrants a defensive posture. It would be wise to reduce leverage and wait for either a confirmed breakdown or a strong bounce before committing to new aggressive positions.

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