The 6,000 level could be 'sticky' for the S&P 500
“Bulls might find frustration in the lack of upside movement the past several sessions, especially after the bullish ‘outside day’ on May 19 that has historically produced bullish price action two weeks after a signal…We enter the first week of the month and final month of the quarter with the SPX trading roughly 89 points below resistance at the round 6,000-millenium mark, which is also in the vicinity of the pre-Inauguration close in January… the technical backdrop in the short-term is neutral, given the index enters the week above its 2024 close but has slightly more downside potential to support at 5,783 than upside potential to 6,000”
-Monday Morning Outlook, June 2, 2025
Coming off a week in which the S&P 500 Index (SPX--6,000.36) moved sideways following the post-holiday Tuesday morning gap higher and a predominance of call build-up on short-term SPDR S&P 500 ETF Trust (SPY--599.14) options, SPY option players changed their tune last week.
As seen on the chart immediately below, short-term option players showed a bias toward puts on options expiring this past Friday.
In the wake of the put buildup on the SPY, the SPY notched four winning sessions out of five. The bullish price action amid the put buildup is a scenario contrarians welcome, as it represents skepticism that could be money waiting to be deployed.
Last week’s rally produced another two-week “win” for bulls following the May 19 bullish “outside day” signal. Prior to the latest signal, the historical quantified results were in the bulls’ favor following such a candle as described in the header on the table below. Prior to the May 19 signal, the SPX rallied 86% of the time two weeks later with an average 3% return when positive.
The most recent signal helped the win rate for bulls, but the 0.1% return hurt the average win, with the average win now 2.8%, down from 3% prior to the May 19 bull signal.
Last week’s rally pushed the SPX above its pre-Inauguration close of 5,995 for the first time since closing below this level in late February. Additionally, the index moved above the 6,000-millennium mark, albeit barely, a level that marked a short-term top in mid-November when the SPX touched it for the first time ever. As such, the 5,995-6,000 area could prove to be a short-term challenge, with the SPX trading only about 150 points below its February all-time highs.
As a footnote to the significance of 6,000, both call and put open interest at the June 20th expiration SPX 6,000-strike is huge, about 240,000 and 220,000 contracts, respectively. This strike could have a “sticky” effect into June standard expiration, with the SPX not moving too far above or below this strike.
The 5,995 pre-Inauguration close and 6,000-millennium mark are in play amid a potentially bearish Relative Strength Index (RSI) divergence, as the SPX moved above its May highs last week but its RSI reading failed to register a higher reading than May.
The combination of not being “out of the woods” with respect to resistance in the 5,995-6,000 zone could signal a mild pullback, with the ascending 20-day moving average, currently at 5,900, a first level of potential support.
Other levels of potential SPX support include the 2024 close at 5,882 and the area between 5,783 and 5,800, or the Election Day close in November 2024 and its 200-day moving average.
“The 10-day, buy-to-open put/call volume ratio on SPX components… is currently turning higher from a level indicative of extreme optimism. The recent low in this ratio marked short-term peaks for the SPX on multiple occasions during the past couple of years…, short interest on SPX components continues to build, with the SPX still in a longer-term uptrend. In fact, it rose nearly 3% in the first half of May and is up 33% year to date, with the SPX roughly flat for the year.”
-Monday Morning Outlook, June 2, 2025
The sentiment indicator that is waving the most caution remains the 10-day buy (to open) put/call volume ratio SPX components. As mentioned last week, it continues to turn higher from a low level and such action in this ratio has tended to precede weaker market environments, which is a risk to the bull case.
But with the increased put buying relative to call buying occurring as the SPX moves higher, the implications signal caution (yellow flag) at this time with the SPX trading in an area of potential resistance but also not experiencing major technical deterioration. Should the SPX retreat below key support areas, the red flag will be waving as bears exert more control.
Not to be lost in the sentiment discussion is the put activity on the SPY that was predominant last week, which we like to see as contrarians if SPY traders are fighting the trend. And the shorts remain active, with short interest at multi-year highs with the SPX only about 2.5% below its all-time high, but trading near the high end of a volatile chop since early December. High short interest represents future buying power, with potential squeeze situations increasing during rallies.
Todd Salamone is Schaeffer's Senior V.P. of Research
Continue Reading: