ES Futures Testing Key Support as Sellers Press LowerE-mini S&P 500 FuturesCME_MINI_DL:ES1!EdgeClearFrom Euphoria to Energy Shock: What Broke Equities Since December Heading into December 2025, the S&P 500 was extending a strong two year bull cycle, finishing the year up approximately 16.5 percent. Sentiment was supported by solid earnings, three Federal Reserve rate cuts into year end, and continued enthusiasm around artificial intelligence infrastructure spending. The index pushed to fresh record highs in early January 2026, reinforcing bullish positioning. The inability to sustain those highs quickly became evident. By late January and into February, sentiment around AI leadership shifted as large capital expenditure plans from Amazon, Alphabet, Microsoft, and Meta Platforms were met with selling pressure. Markets began to question the return profile of aggressive spending, triggering a broad de rating across technology and high beta equities. This unfolded against an already stretched valuation backdrop, with the S&P 500 cyclically adjusted price to earnings ratio moving above 40, while core PCE inflation remained elevated near 2.9 percent. The macro backdrop deteriorated further into March following a sharp escalation in geopolitical tensions. Disruptions around the Strait of Hormuz drove a surge in oil prices, amplifying inflation risks. In response, the Federal Reserve maintained a restrictive stance, holding rates steady and signaling only one cut for 2026. Jerome Powell reinforced that inflation progress has been slower than expected, forcing markets to reprice toward a higher for longer path. What the Market Has Done Since December, buyers defended 6840 (Daily level 2) and attempted to sustain all time highs through January into early February, supported by bullish sentiment and prior rate cut expectations, but were unable to do so as offers consistently held the 7070 area (Daily level 1). From the second week of February to the first week of March, offers progressively stepped down as sellers compressed price toward 6840 (Daily level 2), aligning with the shift in macro tone as rate cut expectations were reduced and technology equities began to de-rate. In the second week of March, buyers failed to hold bids at 6840 (Daily level 2), resulting in long liquidation as the market swept down to 6670 (Daily level 3), where responsive buyers initially emerged amid rising geopolitical and inflation concerns. In the past week, sellers continued to step down offers into 6840 (Daily level 2), while buyers were unable to maintain bids at 6670 (Daily level 3), triggering another long liquidation event that drove price through bid block 1 and into the 6540 area (Daily level 4, July 2025 value area high and August 2025 value area low), as higher for longer policy expectations and energy driven inflation weighed on risk appetite. What to Expect in the Coming Weeks The key level to watch is the 6540 area (Daily level 4, July 2025 value area high and August 2025 value area low). Bearish Scenario: If buyers are not able to hold bids at 6540 (Daily level 4), expect further long liquidation as price continues to flush lower toward 6410 (Daily level 5). Responsive buyers are expected to appear around 6410, but failure to generate meaningful rotation would signal continuation of the downside auction. Neutral Scenario: If buyers are able to hold bids at 6540 (Daily level 4), expect rotation back toward 6670 (Daily level 3), where sellers are likely to step down offers. Expect a two way auction between 6540 and 6670 as the market works to establish value following recent liquidation. Bullish Scenario: The first indication of a bullish shift would be buyers stepping up bids within the 6540 to 6670 range, compressing price upward against 6670 (Daily level 3). If the market is able to break and accept above 6670 (Daily level 3), expect continuation higher toward the 6800 area (Daily level 2), where prior supply was active. Conclusion ES futures are now testing a major higher time frame reference at 6540 after a sequence of long liquidation events that has shifted the market from balance at highs into a developing downside auction. Sellers remain in control in the near term, as reflected by the consistent pattern of lower offers and failed support. This technical weakness aligns with a more restrictive macro backdrop. The repricing toward just one rate cut, persistent inflation pressures, and elevated energy prices have reduced risk appetite and pressured equities off their highs. The reaction at 6540 will be decisive. Acceptance below this level opens the path toward 6410, while a successful defense could lead to rotational trade back toward 6670 and potentially higher. Traders should stay focused on both price behavior at these levels and incoming macro data, as the next directional move will emerge from this interaction. Disclaimer: This is not financial advice. Analysis is for educational purposes only; trade your own plan and manage risk. Acronyms: C - Composite w - Weekly m - Monthly VA - Value Area VAH - Value Area High VAL - Value Area Low VPOC - Volume Point of Control LVN - Low Value Node HVN - High Value Node LVA - Low Value Area SP - Single print ATH - All time high