The SPX holds firm near record highs despite growing uncertainty
The Standard & Poor’s 500 Index (SPX-7,718.60) May through July range has turned into an August-September consolidation, with roughly 200 SPX points separating the low and high ends of the ranges in both cases.
The area around the intraday (and then) June all-time high has been supportive during the last two pullbacks since the early August breakout. Last week’s low of 7,631 was just above the June high of 7,621.
There continues to be a “bull-bear” battle around the 7,700 level, which was first touched on Aug. 4. On one hand, you have breakout buyers who likely sought a resolution to the May-July range.
But on the other hand, you may have some traders reducing exposure around the 7,700 level after they increased stock exposure on the heels of the mid-April breakout above the January high. With profits of around 10%, reducing exposure might make sense, especially in a month that is 50/50 with respect to being a winner, plus midterm elections coming into view amid major Fed uncertainty.
“The best way for me to explain the range action is as a potential battle in which overweight fund managers are not providing follow-through buying power, while short covering keeps pullbacks in check as the SPX lingers in all-time-high territory…”
-Monday Morning Outlook, August 31, 2026
After compiling data through mid-August on short positions, we found short interest on SPX component stocks decreased by 6% in the first half of August. Perhaps the breakout spooked some shorts, even as those who bought the mid-January breakout were looking to take profits.
Note in the chart below that short interest is declining from an all-time high. This is the biggest risk to bears, as short-covering activity might not only keep pullbacks at bay but also help spark long, sustained moves higher after a breakout.
“Wells Fargo & Co. joins a growing chorus of voices that are cautioning on US stocks this week as the market heads into what is historically the worst month on the calendar for equities and upcoming midterm elections add to uncertainty surrounding the artificial-intelligence trade... At a handful of financial firms, the mood has been shifting to a more circumspect outlook on US stocks this week. On Monday, JPMorgan Chase & Co.’s trading desk, led by Global Head of Market Intelligence Andrew Tyler, changed their outlook to ‘tactically cautious’… Over at Citadel Securities, Scott Rubner, the firm’s head of equity and derivatives strategy, also voiced concern about the path for equities over the next several weeks.”
-Bloomberg, September 1, 2026
Per the excerpt above, and along with other quantified sentiment indicators that we follow, the mood is far from reflective of a stock market, as measured by the SPX, that is just 1% below its all-time closing high in mid-August. Yes, the May-July and current ranges can be frustrating, but the technical and sentiment backdrop continues to favor the bulls.
Whether it is retail investors (almost as many bears as bulls in the latest American Association of Individual Investors survey), Wall Street strategists (see excerpt above), option buyers (see chart below), or the presence of active shorting activity relative to past years (see chart above), there appears to be an abundance of caution.
This caution is far from aligned with price action and more aligned with headlines that spark fears (Fed uncertainty, rising oil prices, weak seasonality, geopolitical uncertainty and upcoming midterm elections). It is almost as if the market has already been “presold” to account for what might come -- a devastating decline.
Regardless, this combination of strong price action amid cautious market participants is bullish from a contrarian perspective.
“Amid these uncertainties, another ‘crack’ has not yet surfaced, and that is with respect to the SPX’s technical backdrop. In 2021, the SPX’s 80-day moving average contained pullback lows late in the rally, with a cross below this moving average signaling (in hindsight) a prolonged decline…if you are looking for a technical crack before considering a hedge, perhaps a full candle close below the SPX’s 80-day moving average.”
-Monday Morning Outlook, August 24, 2026
With the CBOE Market Volatility Index (VIX-15.30) hitting a year-to-date low on Friday, many could be tempted to hedge a long portfolio since portfolio insurance is inexpensive. In fact, depending on your risk-reward tolerance, this might make a lot of sense if you have little risk tolerance amid the many uncertainties lurking, including the next Fed meeting in mid-September.
But for those of you with a higher risk tolerance, I continue to suggest identifying a “crack” in the technical backdrop before implementing a portfolio hedge, at the risk of paying a higher price if that indicator appears.
For example, two weeks ago, I suggested a trigger for a hedge could be a full candle below the SPX’s 80-day moving average. I focused on the break of this trendline and what happened in 2021 because that was the last time fund managers were as bullish as they are now. I still think this is a good strategy, with the 80-day moving average sitting around 7,530, which was the area of the May-July range highs and could be supportive if a pullback of significance materializes.
Todd Salamone is Schaeffer's Senior V.P. of Research.
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