S&P 500's rally powered by risk appetite and optimism rush

On October 6, 2025, the S&P 500 Index (SPX) opened at $6,721.9 and advanced during the morning session. The market has recently been supported by sustained enthusiasm surrounding artificial intelligence in the wake of OpenAI's unprecedented valuation and the prospect of new Federal Reserve (Fed) interest rate cuts coming into play.

However, current quotes reflect much of this favorable news. The AI-driven rally has pushed indices into overvalued territory, drawing parallels to the dot-com era. Concurrently, the chances for a deleterious shift in sentiment are growing. The government shutdown halted the release of key economic data on employment and inflation, thus fostering uncertainty and leaving the index more exposed to potential adverse developments.

Technically, the market is now trending upward. On the daily chart, SPX remains within an ascending channel and is nearing its midpoint, a level that has prompted downward pullbacks in the past. The RSI (14) reading of 67 shows some bullish strength, while the declining Chaikin Oscillator (3, 10, Exponential) points to a slowdown in its surge. A correction is likely to take place upon any attempt to test the channel's midpoint. 

The first key support sits at $6,715, a line where prices have found footing during past corrections. A second backing is at $6,672, which aligns with the projected lower boundary of the ascending channel for October 13.

According to fundamental and technical indicators, the impulse is fading away. A prolonged government shutdown and the resulting delay of the October 15 inflation data would likely cause the US regulator to exercise caution. This is going to be a bummer for the market, as it will dampen hopes for monetary easing in October and trigger a correction right away. Alternatively, even if Congress ends the shutdown, the subsequent release of delayed reports, particularly strong employment and consumer price figures, could justify postponing a rate cut. This would also negatively impact the currently overheated market.

Consider the following trading plan:

Sell when the price approaches the middle of the ascending channel ($6,866.00). Take profit 1: $6,715.00. Take profit 2: $6,672.00. Stop loss: $6,890.00.

This forecast is valid from October 6 to October 13, 2025.