The SPX is overbought, but support levels are stacking up
“The S&P 500 Index (SPX – 6,173.07), Nasdaq Composite (IXIC – 20,273.46), and Vanguard Total World Stock Index (VT – 128.00) all pushed to fresh all-time highs. The latter had already pulled back and retested its breakout level successfully, which is a healthy sign of strength moving forward. It’s hard to ignore the resilience of global equities here, rallying in the face of geopolitical risk, political uncertainty at home, and generally cautious positioning — particularly among institutional investors. We’re now in clear blue-sky territory, and when that’s the case, price tends to climb the wall of worry.”
- Monday Morning Outlook, June 30, 2025
Thanks to Senior Market Strategist Matt Timpane for his astute observations while I was out of the office the past two weeks.
After reading the above excerpt from Matt’s most recent commentary, in particular referencing the S&P 500 Index (SPX—6,279.35) and Nasdaq Composite (IXIC—20,601.10) move to fresh all-time highs amid “cautious positioning – particularly among institutions investors,” I couldn’t help but find the following excerpt and table from an article interesting.
“Asset managers and institutional investors surveyed by Bank of America suggested overwhelmingly that international stocks will be the best-performing asset over the next five years. The bank’s monthly Global Fund Survey, conducted from June 6 through 12, polled 190 investors who collectively manage $523 billion…investors in June were most overweight in their positioning to the eurozone, emerging markets and banks, while being most underweight U.S. equities, the dollar and the energy sector”
- Chief Investment Officer, June 18, 2025
The bottom three rows from the table above intrigued me from a contrarian perspective.
First, the historically underweight positioning in the U.S. Dollar (USD) and energy sector means very little given that the price action has been underwhelming, with the USD recently hitting multi-year lows. It is something to keep in the back of your mind if you see notable improvement in the price action of these assets, or an event that acts as a catalyst to reverse the bearish price action in these assets. But as of now, the underweight positioning among fund managers is of little significance with respect to energy and the USD.
But, with U.S. stocks hitting fresh all-time highs amid a historically underweight positioning by fund managers, this combination of price action and sentiment stands out. It should be viewed as bullish, because with cash overweight (fifth row), fund managers have ammunition to allocate fresh cash to U.S. equities, which are attractive from a technical view amid their underweight position.
Per the chart below, the all-time highs during the past couple of weeks occurred after a bullish “outside day” candle on June 23. Unlike the previous two bullish candles I discussed in prior commentaries, the SPX was not at least 1% lower at its low. But its 30-day moving average that I have keyed on as potential support marked that day’s low before closing back above the pre-Inauguration Day close around 5,995.
There is little in the way of obvious technical levels overhead on the SPX, but a couple levels worth watching that could induce profit-taking among those anchoring to key levels include:
- 6,469, which is 10% above the 2024 close
- 6,758, which is 10% above the February closing high
- The 6,958 – 7,000 area - the former representing a 161.8% Fibonacci extension of the February high and April low and the 7,000 level a round millennium number that is roughly double the major low in October 2022
Potential support for the SPX lies at 6,144, the previous all-time closing high. The SPX’s 30-day moving average, which is sloping higher at approximately 11 points per day is currently at 6,014 and projected to be at 6,070 by this week’s end. It represents another support level if the SPX moves below 6,144 in the near term.
On the sentiment side, it appears there was a build-up in pessimism among short-term traders as the SPX struggled to distance itself soundly above the pre-Inauguration Day close of 5,995 in late-May and the first half of June. But since the gap higher following the previously mentioned bullish outside day, there is evidence that this pessimism is being unwound and supporting stocks.
The evidence is based on the direction of the 10-day, buy (to open) put/call volume ratio on SPX components, which is rolling over from its mid-June peak. The direction of this ratio, combined with the fact that it still has a little bit of room to decline to levels that have previously spelled trouble for the market, supports the positive seasonality observation through mid-July that Matt pointed out last week.
The only downside to the rollover is that it started at a relatively low level compared to past pessimistic extremes, suggesting the unwind of the late-May through mid-June pessimism is not likely to manifest into a strong, sustained rally like we have seen since the April low. That said, there is still fuel in the tank that can power the SPX to more highs following the late-June breakout.
Bulls should stay the course. The biggest technical risk is that the SPX is the most overbought since mid-July 2024, according to its 14-day Relative Strength Index (RSI) reading of 75.
Similar to the present situation, the index was making new all-time highs as it reached its overbought condition in mid-July 2024, which was the start of about a 10% correction into the early-August low. For some of you, this might suggest implementing a hedge with the Cboe Market Volatility Index (VIX—16.38) near its 2025 low and uncertainty with respect to the July 9 tariff deadline, and end of month Federal Open Market Committee (FOMC) meeting.
Finally, after the Senate and House’s passage of the “Big Beautiful Bill” after the early market close on Thursday, it will be interesting to see if the latest surge in stocks was a “buy the rumor, sell the news” related to the spending bill. The removal of such uncertainty should be bullish, but we’ll see how this week plays out.
Todd Salamone is Schaeffer's Senior V.P. of Research
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