The Stock Market's Meteoric Rise Should Crush Any Fomo You Might Have

There are several compelling reasons for investors to feel optimistic about U.S. stocks right now. Various studies centered on price momentum suggest that stock prices could continue to climb higher.

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Additionally, sentiment indicators like CNN’s Fear & Greed Index have shifted significantly—from reflecting widespread fear to now indicating a more optimistic, even greedy, market environment. While this growing confidence supports the case for further gains, it also signals the possibility of a short-term pause in the rally.

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Signs of Strong Bullish Momentum

Across the market, there are clear signs of positive momentum and breadth. One of the most noteworthy developments is the appearance of a “Breadth Thrust,” a technical signal that occurs when a large number of stocks simultaneously hit short-term highs. Specifically, on Monday, over 55% of S&P 500 companies reached 20-day highs, triggering what’s known as a deGraaf Breadth Thrust.

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Historically, this type of signal often precedes a period of sustained market gains. When such a large share of stocks participate in an advance, it tends to reflect a strong and healthy rally.

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Adding further support to the bullish argument, analysts at Bespoke Investment Group noted that the Cboe Volatility Index (VIX) has plunged from 40 to 20 in record time. The VIX, often referred to as the market’s “fear gauge,” measures expected volatility in the S&P 500. A rapid decline like this suggests investor confidence is rising sharply, and it also aligns with broader patterns of upward price momentum in the market.

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Is a Pullback on the Horizon?

However, there are also reasons to proceed with caution in the short term. Some analysts argue that the market has advanced too quickly and is now due for a breather. Bloomberg columnist John Authers pointed out that the current rally bears a strong resemblance to the surge in stock prices that occurred after the market bottomed in August 1982.

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In that case, although the initial move upward was strong, it was followed by a period of consolidation—a pause that allowed the market to digest its gains before moving higher again.

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There are technical signs suggesting that the market may be overbought. For example, the VIX recently reached the lower end of its Bollinger Bands—a technical indicator used to gauge how far a value has moved from its average range. When the VIX hits such extremes, it often signals that the current trend may be unsustainable in the very near term. As a result, some sideways trading or even a modest pullback could occur.

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In terms of technical support, analysts point to the 61.8% Fibonacci retracement level—around 5,640 on the S&P 500—as a key area where buyers might step back in if prices retreat. Fibonacci retracement levels are commonly used to identify potential support during market corrections, and this level may serve as a cushion in the event of a short-term dip.

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A Narrow Leadership Base

Another concern is that the market’s recent strength has been heavily concentrated in a small group of high-performing stocks—often referred to as the “Magnificent Seven.” These mega-cap tech names have driven much of the index gains, while participation from the broader market has been somewhat limited. This narrow leadership raises questions about the durability of the rally, especially if these key stocks lose momentum.

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Market strategist Seth Golden added to the cautious tone, noting that the Nasdaq-100 is approaching a technical threshold that typically signals an overheated market. When this index hits such levels, it often precedes a period of consolidation or a minor pullback.

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The Takeaway: Stay Bullish, But Be Tactical

Ultimately, the message for investors is one of cautious optimism. The underlying strength of the market, supported by technical momentum and improved sentiment, points to continued bullish potential. However, the rapid pace of gains and signs of overbought conditions suggest that a short-term pause or minor correction wouldn’t be surprising.

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Investors are encouraged not to fear any near-term weakness. Instead, such dips should be viewed as opportunities to enter or add to positions. As long as the broader trend remains intact and economic fundamentals remain supportive, the path of least resistance for U.S. stocks appears to be higher—even if there are brief interruptions along the way.

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