Sharp Technical Warning Signs Put the US Stock Rally in Jeopardy

Alarm bells are starting to sound for technicians who analyze US equity charts, as fresh weakness in the market raises the possibility that this latest pullback could turn into a meaningful correction of 10% or more.

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The S&P 500’s sharp slide on Monday dragged its decline from the Oct. 28 record to 3.2% its steepest drop from an all-time high since the February–April downturn. The index also closed below its 50-day moving average for the first time in 139 sessions, ending the second-longest streak this century of staying above that closely watched trend line.

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Adding to the pressure, the benchmark finished more than 50 points under the 6,725 level that Goldman Sachs’s Lee Coppersmith warned earlier in the day could trigger trend-following CTAs to flip from buyers to sellers.

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“There’s real deterioration happening beneath the market’s surface,” said Dan Russo, co-chief investment officer and portfolio manager at Potomac Fund Management. He noted that a sustained move below the 50-day moving average, combined with weakening market breadth and a rise in stocks hitting new lows, would suggest that more downside is likely. “If breadth doesn’t improve, this break becomes even more concerning,” he said.

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The Nasdaq Composite is also sending troubling signals. John Roque, head of technical analysis at 22V Research, pointed out that more of the roughly 3,300 names in the index are hitting 52-week lows than highs an indication of internal weakness that makes a near-term rally difficult.

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To Roque, the message is already clear. If the first week of November didn’t confirm it, “it should be obvious now: a correction is underway,” he said. He expects the Nasdaq, currently down more than 5% from its peak, to deepen its slide to as much as 8% before testing support near 22,000.

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At Janney Montgomery Scott, technical strategist Dan Wantrobski sees the S&P 500’s break of its record-setting streak above the 50-day moving average as another warning sign of turbulence ahead. “The market is already correcting, and I think the S&P 500 still has further to fall,” he said. Wantrobski believes the index’s decline could reach 5% to 10% by late December. “Breadth is weak, and the market is vulnerable. A mild correction now is healthier than facing a sharper one early next year.”

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Bullish investors also shouldn’t expect much support from commodity trading advisers, or CTAs systematic funds that typically buy when prices rise and sell when they fall. UBS equity derivatives strategist Maxwell Grinacoff anticipates these funds will begin reducing exposure in the coming two weeks, potentially trimming their equity holdings by 20%. “If global indices slide 5% or more, that reduction could easily triple,” he warned. CTA selling could accelerate further if the S&P 500 breaks below 6,500.

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The recent soft patch in the market coincides with a pause in the tech stocks that previously powered a 38% rally from April to October. Now that their momentum has stalled, the market is leaning more heavily on sectors sensitive to weakening economic data and faltering consumer sentiment. The Magnificent Seven have dropped nearly 4.5% so far this month, with Alphabet the only member still in positive territory. These giants had carried nearly all of the market’s gains for the year.

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Meanwhile, enthusiasm for the artificial-intelligence boom has cooled as investors confront the massive borrowing required to build out the industry. On Monday, Amazon entered the bond market with a $15 billion debt sale, underscoring the scale of capital needed.

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Roque at 22V calls Meta Platforms the “bellwether for this correction,” noting that it began sliding ahead of its peers and may need to find a bottom before the broader market stabilizes. Meta fell another 1.2% Monday and is now down about 24% from its August high.

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While technical signals dominated the narrative to start the week, fundamentals are set to reemerge with several key earnings reports. Walmart, Home Depot, and Target will provide insight into the holiday shopping season, while Nvidia will close out megacap tech earnings with its latest numbers. After seven weeks without major economic releases, government data will also begin trickling back in, offering fresh clues about a cooling labor market and mounting pressure on lower-income consumers.

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Still, despite the recent turbulence, the broader picture remains relatively solid. The S&P 500 is up more than 13% year-to-date, while the Nasdaq has gained nearly 18% leaving room for 2025 to end as a strong year even if this pullback deepens.

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The ongoing shift out of mega-cap tech and into areas like health care and utilities both outperformers on Monday may help release some of the froth that built up in growth sectors, according to Sam Stovall, chief investment strategist at CFRA. While the past two weeks have been volatile, the declines remain “hardly enough to call it a pullback,” he said.

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Ned Davis Research echoed that view, describing the drop as “contained enough” to keep hopes for a renewed rally alive. However, the longer the market struggles to reestablish its uptrend, the higher the risk that this consolidation morphs into a topping pattern.

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