Technical Analysis Weekly

The S&P 500 may have completed a nearly three-month potential double-top pattern, with former neckline support near 7,600, which may now act as potential resistance. Using classical charting techniques, the pattern carries a measured objective near the summer lows at the 200-day Simple Moving Average (SMA) around 7,300. Pattern price objectives are not guaranteed to be reached, and technical patterns can fail, which is why technicians may wait for additional confirmation of the breakdown this week.

Above 7,600, another near-term resistance may sit near Friday’s gap around 7,690. How quickly that gap is filled, if at all, may provide technicians with additional insight into the strength of the recent downtrend.

Despite this bearish reversal pattern potentially completing, market breadth has continued to improve underneath the surface. Looking first at longer-term trend breadth, the percentage of S&P 500 stocks trading above their 200-day SMAs reached 63% last week. The previous two instances near this level had different outcomes: one occurred in February before the broader market corrected, while the other developed during the summer consolidation that preceded the next advance.

Breadth momentum is also strengthening. The McClellan Oscillator, which measures changes in daily market breadth using 19-day and 39-day Exponential Moving Averages (EMAs) of net NYSE advancers, recently moved above +100, a level commonly viewed as overbought. While an elevated reading can indicate that breadth has become extended in the near term, the oscillator reaching new highs while the S&P 500 remains below its highs creates a bullish divergence.

Taken together, the signals are mixed. The S&P 500 continues to confront a potentially completed topping pattern even as participation beneath the surface improves and the market rotates. This is almost the inverse of the environment seen roughly two months ago, when the major indexes were holding up better than many stocks underneath the surface.

Today, the “market of stocks” appears healthier than the stock market itself. However, Technology, Consumer Discretionary, and Communication Services continue to struggle relative to the broader market. With these sectors representing roughly 60% of the S&P 500, continued weakness in these growth-oriented groups could weigh on the index even as participation elsewhere improves, reinforcing the market’s more defensive and rotational underpinnings.

The Russell 1000 Growth index relative to Russell 1000 Value index has shown follow-through after breaking an important support zone that has been monitored over the past several years and aligns with prior cycle highs.

Since 2024, this polarity zone has coincided with periods where relative performance stabilized before improving in favor of growth. In technical analysis, the more times a level is tested, the more significant some technicians consider an eventual break.

Growth continues to weaken relative to value, providing further evidence that the shift in market leadership may persist. This rotation could continue to have implications for sector and broader index performance, particularly given the significant influence growth-oriented stocks have had on market returns in recent years. Energy, Consumer Staples, Utilities, Financials, and Industrials are among the sectors displaying or beginning to show relative leadership.

You may have heard the old Wall Street adage, "Sector rotation is the lifeblood of a bull market." While rotation can help broaden participation, not all rotation is necessarily bullish.

Late-cycle groups such as Energy and Healthcare have reached new relative highs versus the S&P 500, while early-cycle and more cyclical groups such as Technology, Consumer Discretionary, and Communication Services continue to weaken. At the same time, leadership has broadened into more value-oriented and defensive groups, including Consumer Staples, Utilities, Real Estate, Financials, and Materials.

The increasingly defensive nature of this rotation raises the possibility of a developing "stealth bear market," where former leadership weakens before that deterioration becomes fully reflected in the major indexes. While this does not necessarily signal an imminent bear market or recession, the change in leadership may be an important development to watch.

The Russell 2000 Index’s 42-week simple moving average (SMA), roughly equivalent to the 200-day SMA, has often been monitored as potential support during stronger market environments. Another development technicians may be monitoring is a “death cross,” which occurs when the 4-week SMA crosses below the 42-week SMA and may signal deteriorating trend conditions. Past performance is no guarantee of future results.

Following a death cross and two weekly closes below these moving averages, small caps briefly reclaimed both levels before reversing near resistance and forming a potential weekly shooting star, a candlestick pattern that can signal a potential reversal.

Technicians may look for potential downside follow-through while monitoring the 4-week and 42-week SMAs near 2,800 as potential resistance. Yearly lows and former 2024 highs near 2,400 may represent longer-term support.

Last week, 10-Year Treasury yields completed a head-and-shoulders bearish reversal formation after breaking through neckline support and the 50-day SMA near 4.95%. This former support zone may now act as potential near-term resistance. Using classical charting techniques, the formation carries a measured objective near 4.54%, close to the 200-day SMA, which may represent longer-term support. Price objectives are not guaranteed to be reached.

On the surface, this pattern carries bearish technical implications. However, technicians may look for additional confirmation of the breakdown, such as multiple closes beyond former support or a percentage filter, including a move 2-3% below the formation’s neckline.

Confirmation can be important because technical patterns can fail. A failed breakdown followed by a reclaim of the former neckline near 4.95% could instead be viewed as a bullish technical development for yields. Several technical factors suggest that possibility may be worth watching.

First, the intermediate- and longer-term uptrend remains intact. Despite the break below the 50-day SMA, that average remains upward-sloping. Historically, breaks below a rising moving average have sometimes been followed by relatively quick reclaims, although past performance does not guarantee future results.  Second, the Moving Average Convergence Divergence (MACD) suggests downside momentum may be waning.

If yields reverse higher and reclaim the former neckline, technicians may be watching for a potential increase in rate volatility and the implications that could have for equity markets.

Semiconductors appear to have broken below longer-term support at the 42-week SMA (equivalent to the 200-day SMA) near 10,800, which may now act as potential near-term resistance.

From a longer-term perspective, potential support may exist near 10,350, which represents the 38.2% Fibonacci retracement of the 2025-2026 advance. During the April 2025 correction, support developed near the deeper 61.8% retracement of the prior advance from the 2022 bear market lows through the 2024 highs.

The Elliot Wave Principle provides another way of putting these Fibonacci levels into context. One possible interpretation is that the 2022 bear market low marked the beginning of a broader five-wave advance, with Semiconductors currently undergoing a corrective wave 4. Elliott Wave guidelines suggest wave 2 corrections are often deeper, while wave 4 corrections tend to be shallower, again making the 38.2% retracement near 10,350 a potential key level to watch.

If this wave count proves correct and this corrective wave 4 eventually completes, technicians may then watch for evidence of a potential wave 5 advance in the direction of the longer-term trend. Elliott Wave interpretations are subjective, and alternative wave counts are possible.

The traditional view of gold acting as a "safe haven" or "inflation hedge" does not always hold true. Gold futures reached a new yearly low this week after appearing to break longer-term support near 3,960, which may now act as potential near-term resistance.

Despite the weakness in price, technicians may look for additional confirmation of downside follow-through or signs of a potential reversal. The relative strength index (RSI) fell below 30 into oversold territory (an RSI reading below 30 is considered by technicians that an asset/security may be oversold), a condition that coincided with mean reversions near the March and June lows earlier this year. A move back above 30 may provide additional evidence of improving momentum.

Another notable development is gold's one-month rolling correlation with 10-year Treasury yields, which climbed above +0.80, reaching a two-year extreme. Gold does not generate income, so rising Treasury yields generally increase the opportunity cost of holding the metal relative to interest-bearing assets. The unusually strong positive correlation therefore represents a notable departure from the traditional relationship between the two assets.

Whether that correlation begins to unwind may provide additional clues about the next move in gold.

Last week, the Nasdaq-100 gapped through near-term support around 29,000 and nearly found its 200-day SMA. Last Friday's gap near 29,000 may now act as new resistance, while the 200-day SMA near 27,920 may serve as long-term support. Technicians may be closely watching how market participants respond to this area, particularly with neckline support of the nearly six-month potential double-top pattern sitting just below, near the July lows around 27,200. If the pattern completes, using classical charting techniques, its measured objective would be near the yearly lows around 22,840, though technical patterns can fail and measured objectives are not guaranteed to be reached.

As discussed last week, positioning data in E-mini Nasdaq-100 futures may also warrant attention. According to COT data, large speculators remain near some of their most net long positioning of the last five years, currently near the 97th percentile. Perhaps more notable is the speed of the shift, with positioning moving from the 0th percentile in August to the 100th percentile just three weeks ago. The magnitude and pace of that change have been unusual relative to the past five years.

Conversely, commercial hedgers are near some of their most net-short positioning over the same period. Some technicians may view the combination of elevated speculative longs and extreme commercial shorts as supportive of a more cautious or bearish outlook. Positioning data is not predictive and should not be used in isolation, but these extremes may suggest that downside risks warrant closer attention.

From a longer-term trend perspective, October also produced several developments that technicians using multiple time frames may be monitoring. The Nasdaq-100 formed an outside month, with October's range exceeding September's high and low, reflecting increased volatility. October also formed a potential bearish engulfing pattern, with the candle's real body engulfing September's. Technicians may now be watching November's price action for potential follow-through or confirmation.