A Rally in the S&P 500 Breaks a Short Term Downtrend, but Heavy Resistance Lies Ahead

Recent chart patterns are offering a glimmer of optimism for the S&P 500 following a turbulent month in the markets. As of midday Friday, the index appeared to be on track for nine consecutive sessions of gains — a streak not seen since November 2004. This consistent upward movement has sparked cautious optimism among market analysts, suggesting a shift in sentiment after weeks of uncertainty.

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According to research from Bespoke Investment Group, Thursday's trading activity marked the first time in over two months that the S&P 500 closed above its 50-day moving average. That’s a potentially significant technical development, as the 50-day moving average is commonly used by traders to gauge short-term momentum. For nearly 50 trading sessions — specifically 47, to be exact — the index had closed below that average.

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Bespoke noted that while this streak wasn’t particularly extreme when viewed in a historical context, it was the longest such run since July 2022, underscoring how difficult it has been for the market to gain traction in recent weeks.

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Still, Bespoke warned that more technical hurdles lie ahead. In particular, the S&P 500 faces potential resistance at its 200-day moving average as well as at the levels reached in mid-March — both of which could prove difficult to overcome in the near term. The firm also analyzed historical data and found that since the year 2000, the S&P 500 has tended to deliver relatively weak performance in the months immediately following similar breaks back above the 50-day moving average, particularly after spending at least two months below it.

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In a longer-term context, Bespoke went back further, examining data from 1953 onward — the first full year in which the market operated on a five-day trading week. They found that while returns following such periods have generally been positive, they still weren’t particularly strong, especially when looking at shorter timeframes of less than one year.

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This suggests that although current gains may feel encouraging, investors shouldn’t necessarily expect explosive upside in the months ahead based solely on recent technical movement.

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Meanwhile, Katie Stockton, founder and managing partner of Fairlead Strategies, also weighed in on the current state of the S&P 500. She sees the next major resistance level for the index at 5,783 — the level it traded at on November 5, 2024, which was the day of the U.S. presidential election. That target offers a key reference point for analysts trying to determine whether the market can sustain its recent rally.

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Despite the recent momentum, Stockton emphasized that the bigger picture still reflects weakness. The bounce that has helped reverse losses since early April may be promising in the short term, but it hasn’t fully repaired the damage caused by the earlier breakdown. Specifically, the decline that began on April 2 — the day former President Donald Trump implemented steep tariffs on imported goods — caused a sharp drop in the index that many analysts viewed as a significant technical setback.

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“Even though the index has climbed back to prior levels, that earlier drop did meaningful damage to the charts,” Stockton explained. “I refer to this kind of pattern as a ‘round trip’ — we’ve returned to where we were, but that doesn’t erase the breakdown that occurred.”

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Stockton’s perspective highlights the importance of not getting overly enthusiastic about short-term rebounds, especially when longer-term trends remain unfavorable. The recent rally may have temporarily reversed course from the April downturn, but it hasn’t established a strong enough foundation to confirm a sustained uptrend.

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In summary, while the S&P 500 is showing some promising signs of life after a difficult stretch, analysts remain cautious. The index’s move above its 50-day moving average is encouraging, but technical resistance levels remain in play, and historical data suggests limited upside in similar past scenarios.

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Short-term gains might offer relief, but experts like Stockton stress that broader challenges — from political developments to macroeconomic uncertainty — still cloud the outlook. As always, investors are advised to stay measured in their expectations, recognizing that market recoveries are rarely smooth or predictable.

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