Key Points
The SPX – along with many risky assets – finished well off its lows yesterday, turning an initial 2% decline into a 76-bps loss. The index finished near its intra-day highs again, which was its fifth close above the intra-day mid-point in the last six sessions.
This also was the fourth straight Monday that the index logged a key reversal, which we’ll talk more about below.
The Pivot
Coincidence or not, the SPX held right at the -2% level from Friday’s close, which we highlighted pre-market in our Premium members’ Slack channel and again in the monthly Roadmap piece. The brings the total peak-to-trough drawdown from the 1/24/25 high to -3.4%...
The 61.8% retracement of the mid-January rally is near 5,910, which also roughly lined up with where the SPX bounced from on Monday. Thus, the 5,910-5,925 zone now is an important short-term support area to monitor from here.
Short-Term
While a -3.4% drawdown isn’t a big multi-week decline by any means, it’s now the third biggest since the August 10% correction. That said, it roughly lines up with the pullbacks in September, October and November… all of which prompted nothing more than higher lows. That’s the obvious hope once again for the current trading environment.
On a two-hour basis, the decline pulled the SPX back down to 33, not oversold, but very close. So, the market’s pendulum that had gotten too extended when the SPX temporarily eclipsed 6,100 now has swung back in the opposite direction.
Again, we’re speaking about very short-term movement, but with daily ranges continuing to be noticeably bigger the last few weeks, paying attention to the day-to-day and intra-day gyrations is extremely important.
Turnaround Monday… again
There have four Monday trading days in 2025 (the market was closed on 1/20 for MLK Day). The SPX experienced key reversal sessions in all of them so far. Is it just a coincidence? The sample size is admittedly small, but it highlights how reactive traders have been to the news cycle before, during, and immediately after the weekend.
We care most about what has happened after these Monday reversals: the SPX has experienced follow through moves each of the last three times. Should that happen again now, it would mean the index will see an upside follow through, of course, and that would create a key higher low. That will be significant, since last Monday’s potential higher low was undercut with yesterday’s big opening downside gap.
Live Patterns
The SPX’s bullish falling wedge pattern (target 6,290) was tested and held again yesterday – for the second straight Monday. This is good, but we’ll need to see a better follow through effort soon for it to remain in play.
The cup and handle pattern also remains intact, with a target of 6,180…
A Repeating Pattern
Another way to interpret the SPX’s recent action—and its behavior since last April—is that it has been a series of downward-sloping channel breakouts. This pattern illustrates how, despite an overall uptrend, the market has largely followed a “two steps forward, one step back” scenario.
From the October 2023 lows to the late March 2024 high, the uptrend was virtually uninterrupted, with barely any noticeable pullbacks. However, the March-April period marked a character shift, introducing larger pullbacks that have persisted ever since. So far, these pullbacks have not resulted in a lasting downturn.
In fact, these volatile periods have produced the market’s largest bullish patterns since then. Without volatility, significant chart formations simply cannot develop.
Daily Price Action
Despite the comeback yesterday, most stocks declined on the day, and now the SPX has had negative breadth in four of the last five trading sessions.
Sector Performance
Six sectors advanced yesterday, and three had positive breadth. Overall, the market cap and equal weight sectors had similar performances yesterday.
Breadth
The NDX did the best among the major indices from an internals perspective. R2k lagged and logged its second straight day with sub 30% breadth.
Best and Worst 20 ETFs
Only a handful of ETFs we track logged gains of at least 1%, and none of them were domestic equity ETFs.
