Is the S&P 500 Due for a Cooldown? Key Technical Levels Could Signal a Pullback

• S&P 500’s post-election rally faces resistance as overbought conditions mount.
• PPI data and Powell’s speech could be pivotal in shaping market direction today.
• Watch key support zones around 5990 and 595.00 for potential pullbacks in SPY.
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Following last week’s Trump victory in the US presidential election, the has rallied and stayed up, while the rest of the global indices have been quite volatile due to worries about tariffs and the potential for US monetary policy to remain quite restrictive in 2025 than would have otherwise been the case.

Index futures were flattish ahead of the release of PPI inflation data, even if APAC stocks had another bearish session overnight, following the indecisive lead from Wall Street and the drop in European markets the day before. Right now, there is a lack of fresh major catalysts, with investors having factored potentially most of the Trump-related impact on stocks.

So far, US stock investors have ignored the weakness in global markets outside of the US as well as the drop in major commodity and bond prices. With the US yield approaching 4.5% amid the hawkish repricing of US rates in 2025, this is something that may ultimately hold the markets back, especially as the major US indices are now at technically overbought levels.

What to watch out for today

Today’s numbers could be a key driver for bond yields, as they closely relate to the , the Fed’s preferred inflation gauge. Analysts are expecting a slight uptick in headline from 0.0% to 0.2% month-over-month, while the core measure is forecast to stay steady at 0.2%.

Adding to the day’s significance, Fed Chair Jerome Powell is set to speak in Dallas, with a focus on the economic outlook. During the Q&A, Powell will likely face questions about the latest inflation trends and the potential effects of protectionist policies under Trump, on monetary policy.

For the stock market, downside risks remain given high positioning levels. However, if Powell avoids directly linking potential policy shifts to the Fed’s decisions, this could dampen stock sell-offs and potentially lower US rate expectations. Currently, the market is cautiously pricing in just 50 basis points of easing by mid-2025.

S&P 5000 futures: Technical analysis and trade ideas

The S&P 500 has managed to maintain most of its post-election gains, reflecting US investors’ trust in Trump delivering his promised tax cuts and spending plans, which should be good news for Corporate America. The 2024 bullish trend thus still remains quite strong. Every dip, little or big, has been bought so far. Until the time we see the markets make lower lows and lower highs, there is little point in fighting the trend.

That said, at current levels, even the most bullish traders would be looking for a dip to buy, as the market is looking quite overbought. I haven’t included the Relative Strength Index (RSI) indicator on this chart, but you don’t need that to tell you how overbought the SPX is right now – just look at price action from the left to the right.

The RSI is at or near 70.00 on all major long-term charts, such as the daily, weekly and monthly. These overbought conditions will need to be worked off at some point, either through a sell-off or consolidation, before the bulls look for fresh buy-the-dip trades. Therefore, we could see a pullback in the days ahead, although we are still awaiting a clear reversal sign on the S&P for the trigger.

For me, a potential break below 5990 on the S&P futures would be the trigger to look for short-term bearish trades until those RSI overbought conditions are worked off. A decisive break below this level would put into focus the area between 5893 to 5927 as the next potential support area to look for a bounce. This zone was resistance for much of October, before the index surged through it last week. Within this zone, we also have the 21-day exponential moving average coming into play, making it a key support area.

Below this area, the next potential support zone to watch would be around 5805, where the bullish trend line going back to August comes into play. This trend would need to hold, else it could pave the way for a long-overdue correction.

So, there are lots of support levels that would need to break down before the bears regain any sort of control. I am merely expecting to see some short-term weakness from these overbought levels, but for a full-on sell-off to take place, the bears will need to break several support levels. Until that happens, I am only expecting a modest pullback as things.

Key levels to watch on SPY

One of the ways to gain access to the S&P 500 is through the SPDR S&P 500 ETF Trust or more commonly known as SPY. This is an exchange-traded fund that trades on the NYSE Arca, and it is designed to track the S&P 500 index by holding a portfolio comprising all 500 companies on the index.

Transferring the abovementioned levels onto SPY, the trigger for a short-term pullback to watch is the potential breakdown of near-term support at 595.00. If this happens, then the SPY may drop to the next support levels such as 586.12 (October higher) and 576.74 (the pre-election breakout area). I would look for a bounce around these two latter levels, if we get there.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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