S&P 500 Risks to Know Ahead of Expiration Week

The S&P 500 (SPX) experienced a volatile week, initially breaking above the 5,995-6,000 resistance zone before geopolitical concerns triggered a pullback, closing at 5,976.97; despite the slight weekly loss, the index remains above key moving averages, suggesting limited technical damage. Short-term option activity indicated increased call buying, potentially leaving the SPX vulnerable, while the unwinding of long call positions at the 600-strike SPY level poses a risk if the SPY remains below this level into Friday's expiration; furthermore, short interest on SPX components decreased, suggesting potential for short covering to support future rallies.

Analysis

The S&P 500 Index (SPX) encountered significant resistance at the 5,995-6,000 zone, a level marked by its pre-Inauguration close of 5,995 and historical trading around the 6,000 milestone. After briefly surpassing this zone to a high of 6,059, geopolitical developments, specifically an Israeli strike on Iranian facilities, led to a pullback, with the SPX closing at 5,976.97 for a marginal weekly loss. This price action is accompanied by a potentially bearish Relative Strength Index (RSI) divergence, where the index reached new highs last week while its RSI did not surpass its May peak. Despite the retreat, the SPX remains above its ascending 20-day moving average (currently 5,900) and its 30-day moving average (at 5,883, also the 2024 closing level), which serve as initial support. Options market analysis for the SPDR S&P 500 ETF Trust (SPY) indicated increased call activity relative to the prior week, potentially heightening vulnerability to the week's negative news, though overall sentiment was not extreme due to concurrent put buying. Looking to the June options expiration, the SPY 600-strike is a key pivot; failure to hold above could trigger selling from unwound long call positions, whereas a move above could spur delta-hedge buying. Significant put open interest, which could induce delta-hedge selling, is further out at the SPY 550-strike (SPX 5,550). J.P. Morgan's quarterly SPX collar, with a short 5,905-strike call, historically suggests a cap, as the SPX has closed above this strike in only 12 of the past 28 instances. However, a recent near 1% decrease in total short interest on SPX components, after a 32% increase in 2025, points to potential short-covering activity that could cushion declines.

Key Decisions for Investors

• Investors should closely monitor the S&P 500 Index's ability to reclaim and hold the critical 5,995-6,000 resistance zone, as failure could confirm the recent pullback, while the SPY 600-strike will be pivotal for options-driven flows heading into June expiration.
• Key support levels to watch are the SPX 20-day moving average around 5,900 and the 30-day moving average near 5,883, with ongoing geopolitical tensions remaining a significant source of potential market volatility.
• Factor in the J.P. Morgan collar as a potential near-term cap around SPX 5,905, but also recognize that the recent decline in short interest on SPX components may provide underlying support through short-covering on any further market weakness.