In the technical analysis system of the financial market, support and resistance levels are the core coordinates investors use to judge price

movements. A support level is a defense line where buying pressure gathers as prices fall, preventing further decline. Conversely, a

resistance level is a ceiling where selling pressure builds as prices rise, suppressing continued upward momentum.

Ahead of the Federal Reserve's interest rate decision, the S&P 500 Index recorded nearly 1% declines over two consecutive days, reflecting

a confluence of concerns about trade policy and key technical levels. At such times, support and resistance become essential references for

investors to gauge short-term market direction. They are also key technical tools for constructing trading strategies, managing position risk,

and navigating market timing.

S&P 500 Index Data Source: [Futu NiuNiu], data as of 05/07/2025

Support and Resistance: Psychological Mapping of Price Behavior

Support refers to a price level where buying power gathers during a decline, causing the price to stabilize or rebound. At specific levels,

investors may perceive an asset as undervalued and step in to buy, halting further downward pressure.

Resistance, on the other hand, is a zone where prices struggle to advance due to increasing selling pressure. It reflects the market's

perception that the price is too high, prompting profit-taking or avoidance of new entries. As prices rise to a resistance level, investors who

bought at lower levels may opt to realize gains, while new investors hesitate to enter due to perceived risk. This imbalance causes upward

momentum to stall.

An extended strategy derived from this concept involves buying when prices approach support levels and selling near resistance levels. By

setting stop-loss points below support and profit-taking points near resistance, investors can manage risk within a predetermined range

even when markets move against expectations.

Notably, these critical levels function more as price zones rather than single values, as investor behaviors are dispersed across a range.

Additionally, support and resistance levels exhibit dynamic characteristics: when a resistance level is convincingly breached, it may become

future support; similarly, a broken support level may transform into a new resistance area.

How to Identify Effective Support and Resistance Levels

To identify valid support and resistance levels, investors must study historical price data in combination with trading volume and market

structure.

Historical highs and lows offer the most intuitive reference. In technical charts, repeated rebounds or pullbacks at specific levels suggest

psychological significance. Trend lines connecting a series of lows (in uptrends) or highs (in downtrends) also serve as dynamic zones of

support or resistance.

S&P 500 Index Data Source: [Futu NiuNiu], data as of 05/07/2025

Moving averages, particularly the 50-day and 200-day lines, represent the average cost basis of most investors and often act as responsive

zones. Traders frequently enter or exit positions near these levels, creating oscillations.

Volume concentration zones provide additional insight. Heavy trading at a given level indicates prior market contention, making these zones

likely support or resistance areas in the future. When prices revisit such levels, investor memory may trigger similar behaviors again. Tools

like Fibonacci retracements can also help confirm reasonable correction ranges within trends.

S&P 500 Index Data Source: [Futu NiuNiu], data as of 05/07/2025

Furthermore, investors often exhibit psychological sensitivity to round numbers such as $50 or $100. As prices approach these levels,

perceived significance may cause increased activity, serving as psychological support or resistance. Company-specific catalysts,

macroeconomic policy shifts, or major market news can also shape support or resistance zones.

Importantly, due to market complexity, support and resistance are not fixed figures. They evolve with capital flows, policy changes, and

sentiment cycles. A decisive break can lead to role reversal: broken support becomes new resistance, while breached resistance turns into

support.

Practical Applications

The primary value of support and resistance levels lies in guiding precise entry and exit decisions while enhancing risk control and trading

success. Turning support and resistance into actionable trading decisions is the essence of technical analysis. The following examples

illustrate their real-world relevance:

In the stock market, take Tesla as an example. Since April 2025, its share price has shown a pattern of range-bound upward movement.

Analysis reveals that the $287.21 level has served as a key resistance. Recent prices include $284.95 on April 25 and $293.32 on April 29,

indicating proximity to the $287.21 resistance.

On May 2, Tesla’s price touched $287.21. Near this level, prior trapped investors might sell to break even, applying downward pressure. For

instance, on April 30, Tesla’s price fell from near resistance to $282.16.

If Tesla fails to effectively break and hold above $287.21, the medium-term downtrend may persist. A successful breakout above this

resistance may signal a new target at the psychologically important $300 mark, likely to attract more attention and possibly more selling.

Tesla Data Source: [Futu NiuNiu], data as of 05/07/2025

From April 30 to May 6, Tesla’s stock declined from $282.16 to $275.35. Recent lows, such as $271.35 on May 6, may offer short-term

support. If prices continue to fall, buying interest near these lows could prevent further declines.

The $270 mark, being a round number, could also influence investor psychology. Approaching or slightly breaking below $270 might attract

value-seeking buyers, providing a support buffer.

In the longer term, if Tesla’s Q2 delivery volumes improve or lower-cost models enter production, more investors may step in, supporting the

stock at higher levels and reversing the medium-term downtrend. However, without confirmation from fundamentals, such support remains

based on expectations rather than actual price action.

In the futures market, take international crude oil (WTI) as an example. The current support level is around $57.23, which coincides with

early April and recent sharp rebounds. This level is closely monitored by bears. If breached, further declines to $54, $49.33, or even $43.88

could follow.

Conversely, for a rebound, $60 serves as a key resistance. Significant selling pressure may emerge here, capping further gains. A breakout

above $60 could open room for a new upward channel.

WTI Crude Oil Data Source: [Futu NiuNiu], data as of 05/07/2025