“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.”
- Monday Morning Outlook, June 9, 2025
Last week, I postulated that the 5,995-6,000 zone might be a key area for the S&P 500 Index (SPX – 5,976.97) to overcome, with 5,995 representing the pre-Inauguration close and 6,000 a big round number.
In fact, after 6,000 was first touched in November, the index essentially chopped around this level for about three months, testing it several times before the start of a vicious decline into early April.
In the first four trading days last week, the S&P 500 appeared as if it had cleared potential resistance in that 5,995-6,000 zone, with four consecutive closes above this level, reaching a high of 6,059 on Wednesday.
But geopolitical worries sparked by an Israeli strike on Iranian nuclear facilities and leadership caused the SPX to gap lower on Friday morning. Bulls tried to defend the 5,995-6,000 area midday, but to no avail, with the SPX experiencing a slight loss on the week closing at 5,976.97.
Despite the SPX retreating back below the 5,995-6,000 zone, there was little in the way of technical damage, as the index is still above its rising 20-day and 30-day moving averages, the latter of which comes into the week – coincidentally - at its 2024 close of 5,883, which could be first level of support if Friday’s selling continues.
“… short-term option players showed a bias toward puts on options expiring this past Friday… 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.”
- Monday Morning Outlook, June 9, 2025
Like last week, we tracked short-term options activity on the SPDR S&P 500 ETF Trust (SPY – 597.00) to gauge short-term sentiment on the broader market. Relative to the prior week, there was more call activity. In hindsight, this may have left the SPX vulnerable to a flat to negative week, especially on the heels of the geopolitical news that surfaced before Friday’s open -- and the index trading in an area where sellers have emerged before.
But the option activity did not represent an extreme in optimism or pessimism, as there was a decent amount of put activity that accompanied the increased call activity.
Looking ahead, this week brings the expiration of June standard expiration week options. Given the market had rallied strongly prior to the Israel-Iran news, there is little in the way of big put open interest (OI) strikes that could act as magnets in the immediate vicinity of the SPY’s close on Friday. In other words, there is little delta-hedge selling risk brought on by the conflict overseas.
The SPY 550 strike is put heavy (not shown on the chart below), equivalent to SPX 5,550, and the level at which delta-hedge selling risk begins if the SPY trades down to this level before Friday’s expiration.
In the immediate days ahead, the call-heavy 600 strike stands out on the SPY. Evidence suggests that most of these calls were bought (to open). As such, the implication is unwinding of long positions associated with those calls represents a risk to bulls if the SPY remains below this strike into Friday’s expiration.
However, if the SPY works its way back above the 600-strike, the outlook changes, as delta-hedge buying is in play as a possibility, as dealers hedge short call positions by buying S&P futures.
As a footnote to the above discussion and looking ahead to month-end quarterly expiration in two weeks, there is a well-publicized SPX collar trade that J.P. Morgan puts each quarterly expiration. Currently, the firm is short the 5,905-strike call and long the 5,310/4,480 strike put debit spread.
In other words, the firm has sold away the current SPX upside beyond 5,905 to help pay for a hedge on a move below 5,310. A statistic I ran across last week said that in the past 28 quarters this collar trade has been on, the SPX closed above the short call (5,905 currently) only 12 times, even with the SPX moving above the short call strike at some point in 20 of the 28 instances.
Finally, after short interest was released by the exchanges last week, we compiled total short interest on SPX components and found a near 1% decrease in the two-week period ending in May. On the heels of a 32% increase in total short positions on SPX components in 2025, the covering activity was noticeable. As such, one possibility is that shorts use Friday’s pullback as an opportunity to cover. Short covering was a major driver of stock market rallies from 2017 to 2019 and again after the Covid-driven lows in 2020-2021.
Todd Salamone is Schaeffer's Senior V.P. of Research
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