Can S&P 500 make new highs? Chart analysts have their doubts

Technical analysts are expressing increasing caution regarding the S&P 500's ability to break new highs, despite being within 2% of its February peak, citing a significant loss of momentum and deteriorating market breadth. Experts like BTIG's Jonathan Krinsky and Roth's JC O'Hara highlight bearish signals from technical indicators such as MACD and RSI, which are rolling over, and note that less than 45% of NYSE stocks are trading above their 200-day moving average. This suggests a potential 'choppy summer' and a test of key support levels, with the continued performance of leading technology stocks being critical to avoid a broader market correction.

Analysis

Technical analysis indicates growing concerns about the S&P 500's ability to surpass its February peak, as the index stalls near the 6,000 level despite a strong rally off its April lows. Analysts point to a confluence of bearish signals, including a notable loss of momentum and deteriorating market breadth. Key momentum indicators such as the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) are reportedly "rolling over" from overbought conditions, a sign of weakening internals. Compounding this, market breadth remains poor, with only 44% of New York Stock Exchange stocks trading above their 200-day moving average, a level considered unhealthy by technicians who look for a reading above 50% to confirm a robust bull market. This narrow leadership, heavily reliant on the technology sector, presents a significant risk; a failure by tech stocks to post new highs could precipitate a correction similar to the 13% sector drop in July 2023. Consequently, analysts forecast a potentially "choppy summer," with the S&P 500 facing resistance in the 6,050-6,150 range and an increasing likelihood of testing support, first at 5,970 and more significantly at 5,800.

Key Decisions for Investors

• Given the flagging momentum and identified resistance, consider trimming tactical long positions or tightening stop-losses, as the risk of a pullback towards the 5,800 support level on the S&P 500 is rising.
• Closely monitor the performance of leading technology stocks, as their inability to forge new highs would serve as a primary bearish signal for the broader market's direction.
• Watch for an improvement in market breadth, specifically the percentage of NYSE stocks above their 200-day moving average, as a move above the 50% threshold is needed to confirm a healthier and more sustainable market advance.