Evaluating the S&P 500 and Russell 2000's price action last week
“The next potential pause or short-term inflection point to watch for is 6,760, which is roughly 10% above the previous all-time closing high in February. Regardless, whether we get to 6,760 in the coming days, continue to key to the SPX’s 30-day moving average for clues that the momentum could be slowing and/or reversing…”
- Monday Morning Outlook, September 22, 2025
You can take a “glass is half empty, or glass is half full” approach to evaluating last week’s S&P 500 Index's (SPX--6,643.70) price action. “The glass is half empty” approach is that the SPX experienced its first decline in three weeks and couldn’t rally on a combination of strong economic data combined with inflation data that was not above expectations.
The “glass is half full” evaluation is that the decline was muted, as investors weighed comments from Federal Reserve Chairman Jerome Powell and many other Fed governors, in addition to multiple economic data reports ranging from hot buttons like inflation, employment and the health of the consumer. And if that wasn’t enough, President Donald Trump revealed new tariffs on branded pharmaceuticals manufactured outside the U.S., in addition to furniture and heavy trucks.
For the most part, market participants took everything in stride, with the SPX selling off from the 6,700-century mark but finding buyers at the mid-September intraday day low in the 6,570 area. Most importantly, the SPX is still trading above the important 30-day moving average, which has been my quantified approach to measuring the market’s momentum given its importance in 2025.
The SPX’s 30-day moving average is ascending slowly, rising about five points per day. It's coming into Monday’s trading at 6,527 and is projected to be around 6,550 by week’s end.
“It should be noted that the Russell 2000 Index (RUT--2,448.77) closed above its previous all-time closing highs from 2021 and 2024 on Thursday, only to close back below these closing highs on Friday. Violent selloffs occurred from this area in November 2021 and November 2024 and so it remains to been seen what happens this time around. But short squeeze probability in the small-cap space is higher now than those years with total short interest on components of the RUT nearly 20% higher at present, relative to November 2024, and more than double that of November 2021.”
- Monday Morning Outlook, September 22, 2025
Similarly, “the glass is half empty” assessment of last week’s price action is that the Russell 2000 Index (RUT--2,434.32) has yet to stage a meaningful breakout above its 2021 and 2024 highs, as it too pulled back from those previous highs last week.
But the decline was muted, with the RUT’s upward-sloping 20-day moving average acting as support at Thursday’s close and ahead of an advance on Friday. Moreover, new short interest data as of mid-September was released last week, and total short interest on components of the iShares Russell 2000 ETF (IWM--241.34) hit another new all-time high. As I said last week, short interest is much higher now relative to the 2021 and 2024 highs, which means short covering could propel a sustainable rally if the RUT eventually pushes through resistance.
- Todd Salamone, X, September 25, 2025
Short interest on SPX component stocks increased 3% in the first half of September. The SPX advanced in spite of this coincidental headwind. Now, SPX short interest stands at another multi-year high.
Whenever I hear euphoria in the market, I cannot help but think about the short interest chart with SPX overlay I posted on X last week. As long as the SPX’s intermediate and longer-term technical backdrop remain healthy (it would take a significant drop to put it in “unhealthy” territory), I think this is good reason to remain optimistic over the intermediate- and longer-term.
That does not mean the broader market isn’t immune from corrections or, in this instance, a loss of momentum at some point. That brings me to the chart below, which shows the action of equity option buyers. Note that the 10-day, buy (to open) put/call volume ratio on SPX components is approaching extreme lows, implying option buyers are nearing optimistic extremes that usually precede weaker market environment (trading ranges or significant pullbacks).
The optimism on display among equity option buyers is a risk that I am flagging because the market environment usually gets more challenging when this group of market participants is at an optimistic extreme. Challenging can mean many things from trading range to mild pullback over many weeks to a full fledge correction.
The caveat with the risk related to option buyer enthusiasm is that optimism is justified since the market has not lost momentum. If the SPX loses momentum (a meaningful close below its 30-day moving average), the probability increases of more challenging days ahead and that would be the time to consider hedging or lightening up on bullish positions if you are a short-term trader.
Beware that equity option buyer optimism tends to precede weakness in the market. But be sure that you see hard evidence that the market is transitioning to a weakening environment before acting on this sentiment indicator as a stand-alone indicator. In other words, be reactive, not predictive as this ratio could hit new extremes or bounce around at current levels as the market drifts higher.
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