The S&P 500 Index (SPX) is currently trending upward, fueled by strong fundamental factors. However, the technical setup is begging for a breather. The Relative Strength Index (RSI) has just reached 70 on the daily chart, jumping into overbought territory.
A brief historical note: since June 2024, each time the RSI has exceeded the 70 level, the index has pulled back by at least 2%.
But let’s move on. What else do we see? A bearish divergence: prices are aiming for new highs, while the indicator is nosediving. This is a clear signal of an upcoming correction within the next two to four weeks.
Last but not least, take a look at the deviation from the mean. SPX is now sitting above its 50-day and 200-day moving averages. Historically, such deviations have been corrected through a return to the mean.
On the fundamental front, everything looks rosy. The largest Wall Street banks have recently revised their outlooks for SPX upward due to bullish sentiment fueled by artificial intelligence (AI) development and strong corporate reports. Here are some of their forecasts:
Morgan Stanley (7,800–8,300 target). Analysts raised their annual outlook for the index to 7,800, projecting earnings per share (EPS) to climb 17% higher in 2027. This optimism stems from AI adoption, which boosts companies' operational efficiency.
JPMorgan (7,500–8,000 target). Experts are betting on a continued rally, predicting double-digit gains in US stock yields this year.
Goldman Sachs (7,600 target). The bank’s forecasts are more modest but still impressive. Analysts revised their expectations upward on the back of strong corporate reports, with EPS at $309 in 2026.
The market is now in a so-called “greed” phase, with most positive factors—such as the AI boom and robust quarterly results—already priced in. Technical indicators, however, suggest a 3% to 5% correction is needed to relieve tensions before advancing toward long-term goals above 8,000 set by experts.
The overall recommendation is to sell SPX. Profits should be taken at 6,850. Stop Loss could be set at 7,600.
Always size the position so that your potential loss (protected by a Stop Loss) is no more than 1% of your account balance. If you can't open a position that meets such a risk criterion, it's safer to skip this trade and wait for a better, lower-risk opportunity.
This content is for informational purposes only and is not intended to be investing advice.
