S&P 500 Risks to Know Ahead of Expiration Week

The S&P 500 (SPX) faced resistance in the 5,995-6,000 zone, retreating after geopolitical worries triggered a sell-off despite initially closing above this level for four consecutive days; the index closed the week at 5,976.97. Short-term option activity showed increased call activity, but also decent put activity, and the unwinding of long positions associated with the call-heavy 600 strike on the SPY ETF represents a risk to bulls if the SPY remains below this strike into Friday’s expiration. Short interest on SPX components decreased nearly 1% in the two-week period ending in May, suggesting potential for short covering to drive future rallies.

Analysis

The S&P 500 Index (SPX) recently faced renewed headwinds at the critical 5,995-6,000 resistance zone, a level historically significant as it marked the pre-Inauguration close and was a consolidation area for approximately three months from November before a sharp Q1 decline. Despite briefly breaching this zone to reach 6,059 last week, the index closed lower at 5,976.97, pressured by geopolitical developments involving an Israeli strike on Iranian targets. A key technical concern is a potential bearish Relative Strength Index (RSI) divergence, where the SPX surpassed its May highs but the RSI failed to confirm with a new peak. Nonetheless, immediate support is identified at the ascending 20-day moving average (currently 5,900) and the 30-day moving average (coinciding with the 2024 close at 5,883). Options market data for the SPDR S&P 500 ETF Trust (SPY) reveals increased call activity, though not indicative of extreme optimism due to concurrent put demand. The SPY 600 strike is pivotal for the upcoming June options expiration: failure to hold above this level could trigger selling from the unwinding of long call positions, whereas a sustained break above might induce delta-hedge buying. Adding to potential upside constraints, J.P. Morgan's quarterly collar trade features a short call at the SPX 5,905 strike; historically, the SPX has closed above this quarterly short call in only 12 of the past 28 instances. On a more supportive note, a near 1% reduction in total short interest on SPX components during the last two weeks of May, following a 32% surge earlier in 2025, suggests that short covering could provide a buffer against further declines.

Key Decisions for Investors

• Closely monitor the SPX's interaction with the 5,995-6,000 resistance and the SPY 600 strike, as these levels are critical for near-term directional bias, with support anticipated around the 5,900 and 5,883 moving averages.
• Maintain a cautious stance due to the bearish RSI divergence and ongoing geopolitical risks, which could trigger further volatility despite underlying technical support.
• Factor in the potential upside limitation near SPX 5,905 due to institutional options structures, while also recognizing that recent short covering activity may offer downside protection and buying opportunities on weakness.