“...the SPX’s Jan. 24 close at 6,101 that preceded last Monday’s gap lower has not been filled on a closing basis…Therefore, the potential reversal pattern that surfaced last Monday has yet to be invalidated, which presents a short-term risk for bulls. A close above 6,101 would invalidate the bearish signal and tilt the odds more in the bulls’ favor from this perspective.”

-Monday Morning Outlook, February 3, 2025

Amid tariff uncertainty and rising interest rates since early December (as measured by the 10-year Treasury note yield), the S&P 500 Index (SPX – 6,025.99) has so far dodged a couple of potential short-term and intermediate-term bearish technical signals. The first was in January, when the neckline of a potential bearish “head and shoulder” pattern broke on an intraday basis, but not a closing basis.

The second was a bearish “island reversal” that developed on the Jan. 27 gap lower and remained unfilled on a closing basis going into last week’s trading. The rally that failed to fill that gap preceded a continuation gap lower last Monday that was quickly filled on Wednesday’s close.

But given that there still has not been a close above the Jan. 24 close (that preceded the Jan. 27 gap lower) at 6,101, the risk to bulls is the bearish “island reversal” still in play, albeit there have not been any immediate negative consequences of note with the SPX above the Jan. 27 low.

Bulls, on the other hand, are hopeful that the bearish pattern simply signaled choppy short-term price action, as the SPX makes its way to 6,215, which is the target for the bullish inverse “head and shoulder” neckline breakout that occurred in September.

Since the election in early November and a rate cut that same week, choppy is the best way to describe the SPX’s price action. As such, this week’s SPX chart takes you back to early October to give you a better perspective on the environment, which has presented challenges for bulls and bears.

For example, the 20-day average true range (which is a measure of the distance of the high and low and considers the previous day’s close if a gap occurs) for the SPX range is 71 points amid the non-directional movement, whereas the 20-day average true range hit a low of only 46 points in the rally from August into October. In other words, whereas we are seeing more intraday volatility in the SPX, this action is in the context of little directional movement.

If we shorten the perspective to mid-January, the SPX is just above multiple potential support levels, but also just below previous highs attained last month between 6,119 (the all-time closing high) and 6,128 (the all-time intraday high).

Potential support levels can be seen in the above graph in patriotic colors red, white, and blue. The first key level (in red) is 6,013, which marked highs in November and again in early January. The white is the pre-Inauguration Day close of 5,995 in mid-January. As the market reacts to both negative and positive headlines on tariffs, it is of note that the SPX has closed either above or on this level each trading day since the inauguration of President Donald Trump. 

Finally, the blue line segment at 5,975 in the chart above represents the site of the trendline breakout level that connected lower highs from mid-December through mid-January. There has not been a close below this level, albeit two intraday moves below, since the trendline breakout.

If these support levels are breached, the Election Day close at 5,783 could be retested, as it was last month. Given President Trump likes to cite the stock market as a sign of economic health, the pre-inauguration and pre-election closes should be on your radar. Just above the pre-election close is 5,881, or last year’s close, which can also be of importance.

“Mom-and-pop investor sentiment has reached the highest level on record, surpassing what was seen during the meme-stock mania in 2021, according to Emma Wu, JPMorgan’s global quantitative and derivatives strategist. Individual investor exposure to stocks is near the highest level its been since 1997, an analysis by Barclays’ global head of equities tactical strategies Alexander Altmann shows. And as long as the US economy remains resilient, those investors probably will stay in the game.”

-Bloomberg, February 6, 2025

An argument for the 5,783-5,881 area being tested is that optimistic retail investors must get flushed out before the market gathers strength again, if that is in the cards. The excerpt above from Bloomberg suggests a bullish retail crowd, and our data that measures sentiment among equity option buyers on SPX component stocks echoes the analysts from JPMorgan and Barclays.

One scenario worth considering is that the 10-year yield is sitting on potential support from its 80-day moving average and the November closing high ahead of inflation data this week. If the retreat from higher yields since mid-January is over, a potential headwind for equity bulls is higher 10-year yields stemming from higher-than-expected inflation data on Wednesday and Thursday.

Stay tuned, as inflation data on Wednesday and Thursday could dictate the course of the equity market in the weeks ahead as investors continue to weigh tariff headlines.

Todd Salamone is Schaeffer's Senior V.P. of Research

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Amazon.com Inc (NASDAQ:AMZN) stock is down 3.7% at $230.04 at last check after the company issued weaker-than-expected guidance for the current quarter. The e-commerce giant forecasts first-quarter sales between $151 billion and $155.5 billion, falling short of analysts’ $158.5 billion projection.

Despite the cautious outlook, Amazon’s fourth-quarter earnings and revenue exceeded expectations. The mixed report prompted a flurry of analyst activity, with at least 10 firms raising their price targets, while four lowered their projections. Rosenblatt and Deutsche Bank were among the most optimistic, setting targets at $287, while Wells Fargo took a more conservative stance, cutting its target to $207.

Options traders have jumped into the action, with more than 655,000 calls and 338,000 puts exchanged -- five times the intraday average volume. Positions are being opened at the most active contract, which is the weekly 2/7 235-strike call, with contracts expiring at the end of today’s session.

Despite today’s pullback, AMZN remains just below its Feb. 4 all-time high of $242.52. The security is finding support at its 20-day moving average and the $230 level, helping it hold onto a 5.2% year-to-date gain. Over the past year, Amazon stock has climbed an impressive 36%.

Citigroup downgraded Nike Inc (NYSE:NKE) stock to "neutral" from "buy," and lowered its price target to $72 from $102, with the firm citing a disappointing meeting with the retailer's CEO. The stock is down 3% to trade at $69.59 at last glance, with Deutsche Bank chiming in with its own price-target cut to $77 from $84.

NKE is pacing for its third-straight loss, as well as its worst weekly performance since June. The security carries a 32.8% year-over-year deficit, and earlier gapped to a four-year low of $69.41, breaching a floor at the $70 region that contained its January pullback amid long-term pressure from its 100-day moving average.

Options volume is running at double the intraday average volume, with 38,000 calls and 30,000 puts exchanged so far today. The most active contract is the January 70 put, with new positions being opened there.

At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), NKE's 50-day call/put volume ratio of 2.32 ranks higher than 88% of readings from the past year. This indicates traders have been much more bullish than usual.

Regardless of direction, options are an attractive route. This is per the equity's Schaeffer's Volatility Index (SVI) of 28%, which stands in the 18th percentile of the last 12 months.

Video game giants Electronic Arts Inc (NASDAQ:EA), Roblox Corp (NYSE:RBLX), and Take-Two Interactive Software, Inc (NASDAQ:TTWO) are filing in and out of the earnings confessional. Let's take a closer look at some of the results and overall market activity below.

Electronic Arts Reveals Buyback Plan

EA was last seen up 0.1% at $130.63 at last glance, after the company missed fiscal third-quarter earnings and revenue expectations on Tuesday and cut its full-year sales outlook. However, Electronic Arts also unveiled a $1 billion share buyback program that helped the stock score a 7.6% gain  -- its largest since May 2022. Shares shed 18.4% in the past three months, even though they are now distancing themselves from a Jan. 24, 52-week low of $115.21.

RBLX Pulls Back from Multi-Year Highs

Despite hitting multi-year highs in the previous session, RBLX is down 13.6% to trade at $65.24 at last check. Though the gaming concern saw smaller-than-expected losses per share for the fourth quarter, a revenue miss and dismal annuals bookings forecast are weighing today. RBLX could mark its worst single-day percentage loss since May, but added 115.4% in the last nine months.

TTWO Cools Before Earnings

Take-Two Interactive stock is taking a breather before the company reports fiscal third-quarter results after today's close. Shares were last seen down 0.7% at $183.69, with a long-term floor at $177 and sporting a 32.5% three month-lead. The Grand Theft Auto parent has a solid post-earnings track record, with shares finishing six of the last eight sessions higher. This time, the options pits are pricing in a 10% swing, regardless of direction, which is larger than the 5.5% move TTWO averaged in the last two years.